The Transformation of Energy Systems in Europe

Europe's energy strategy is undergoing major changes, while demands are growing rapidly. The demand for energy is expected to triple by 2050. What are the political, financial and environmental implications of this?

Europe is facing huge challenges in energy supply - Disasters such as seen in Fukushima in 2011, have further enhanced Germany's decision to expand renewable energies. The challenge here is to satisfy Europe's "hunger for energy" without the use of nuclear power. Biomass, solar power and wind energy are promoted and offer investors a chance to participate in this development.

Why the necessity for this turnaround?
Nuclear power is only an interim solution as the period of possible use is far too short compared to extremely high follow-up costs. Furthermore, there is always the lingering danger of an MCA (maximum credible accident), as last seen in Fukushima in 2011. If production, transport and final storage is taken into account, nuclear power is not CO2-neutral. In effect it represents the biggest disadvantage of nuclear power in view of the on-going climate change.

Promotion of renewable energies through financial compensation
Because of the environmental and long-term energy benefits, the production of electricity from renewable energy sources is considered desirable in most industrialised countries and is therefore financially supported by remunerations. Thus, private persons as well as legal entities have the possibility to feed electricity they produced into the public grid and receive compensation according to the energy they deliver. The Renewable Energy Sources Act (EEG) regulates this compensation. In order to calculate the effective compensation, the supplied energy in kilowatt hours is measured at one end and the type of installation is taken into consideration at the other end. In most countries, the rates of remunerations vary greatly according to the technologies used. A considerably higher amount is paid for the same amount of energy from photovoltaic systems than for wind energy or hydropower, for example.

Efficiency as a challenge for new energy sources
With the 1st commissioning of a nuclear power plant in Obninsk, Russia, in 1954, nuclear power has continually improved its efficiency. However, modern and more ecological types of energy production systems have become more competitive over the years, too. Calculations of effective costs per kilowatt hour vary from year to year, as plants are constantly being optimised.

The cost of nuclear power is around 13 cents per kilowatt hour. As far as solar energy is concerned, recent studies show, that the immense drop in prices for energy has been massively underestimated. Depending on the type of system and irradiation, electricity production in photovoltaic systems (PV) costs between 3.71 and 11.54 cents per kilowatt hour. Large systems on the ground are particularly cost-effective, while small roof-mounted systems are comparatively the most expensive.

Experts believe that the prices for offshore wind energy will also fall rapidly. Studies estimate costs of between 7.8 and around 10 cents per kilowatt hour for the year 2020. Currently, the EEG compensations here range between 15.4 and 19.4 cents for electricity produced at sea.
For onshore wind energy, the best case scenario estimates costs will fall to approximately 4 to eight 8 cents by 2021. An interesting point: If you compare offshore wind energy with onshore wind energy it could actually perform worse by the year 2030. This is because, amongst other things, more resistant and expensive materials are needed than for onshore wind turbines. Additionally, the installation and logistics are much more expensive and maintenance efforts are higher.

According to experts, the cost of biogas and biomass however, will not decrease greatly in the future. And this is no surprise, as the largest proportion of cost here is labour and the biomass used, rather than the technology of the plants themselves. So, technical developments have no great improving influence here. In 2020, most studies estimate the cost of bioelectricity at just over ten cents per kilowatt hour.

Apart from the ecological and financial factors mentioned at the beginning, renewable energies are also interesting for Europe because they enable greater independence from oil and gas supplies.

The importance of mobility in energy production
Today, 140 years after the invention of the first petrol engine by Carl Benz in 1879, the combustion engines are on the brink of extinction. According to the Institute for Advanced Studies (IHS), 10 European countries will prohibit the sale of combustion engines in the nearer future. Norway, a pioneer in this movement, will in fact ban the sale of combustion engines in conventional vehicles as early as 2025 and another 9 countries will follow by 2040.

Social trends and disruptive processes in the economy are causing a fundamental change in the work field and flexibility as well as mobility are becoming increasingly important. Since this development is taking place at the same time as energy change, renewable energies must be expanded and further developed to meet increased energy demand.

The importance of a uniform European strategy
Because prices of various energy sources vary greatly, a coherent strategy is indispensable. The energy market in Europe is a well-connected network and energy has long been an interest for investors, much like traditional shares or bonds. However, if individual states are not pulling in the same direction and are producing cheap electricity through environmentally unfriendly processes, so that neighbouring countries can purchase that energy at a low cost, the effect of an energy system transformation is diluted. It can be nevertheless concluded that ecological energy sources still have a lot of potential for improvement in terms of efficiency in the years to come, and that Europe needs a more unified, linear strategy.

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