Europe in 2030: More Wind, Solar, Hydrogen, and Better Cooperation

What would Europe look like in 2030 if the latest proposals by the European Commission for the Renewable Energy Directive are adopted? Vija Pakalkaite, Head of Continental Market Analysis at Volue Insight, imagines Europe in 2030.

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On 14 July, the European Commission unveiled a legislative package that aims to support Europe’s goal of reducing greenhouse gas emissions by 55% by 2030, from 1990 levels, and going carbon-neutral by 2050.

If accepted, the much-anticipated package will set legally binding targets for EU countries.

The proposed legislation includes a higher 2030 renewables target of 40% and new rules for cooperation and support of the expansion of renewables.

In addition to the Renewable Energy Directive, the package sets out to amend the EU Emissions Trading System, the Effort Sharing Regulation (non-EU ETS emission sectors) and introduces the Carbon Border Adjustment Mechanism.

What would Europe look like in 2030 if the proposals for the Renewable Energy Directive are adopted? Let’s take a look.

Europe in 2030

  • First off, the share of renewables in the energy mix in 2030 will reach 40%. That’s 8 percentage points higher than the 32% envisaged in the recast Renewable Energy Directive of 2018, known as RED II (but just as in RED II, targets apply to the whole EU and not to individual countries).
  • In 2030, there will be no support for electricity production from biomass in Europe (with some exceptions). In fact, the proposal introduces the obligation to phase out support already in 2026.
  • EU countries will begin to jointly plan their offshore renewables generation in each sea basin. This is because the proposed Renewable Energy Directive introduces joint offshore energy planning per sea basin. This will be fully deployed by 2050, with intermediate steps in 2030 and 2040.
  • EU members will be obliged to issue guarantees of origin (GOs) also to those renewable energy producers that receive aid from national support systems.

The electricity sector in 2030

How would the proposed Renewable Energy Directive impact the electricity sector in particular? Here are some thoughts.

  • If the ambitious plans are implemented, electricity prices will likely go down. We will also experience more price volatility. This is because the increase of the Renewable Energy Sources target by 8% may have a bearish (downward) effect on the electricity sector.
  • The target includes the use of renewables in the electricity, transport, heating and cooling sectors, but governments are known to intervene in the electricity sector with renewable support systems, perhaps because it is easier to see the direct effects of their actions. We will see more of this.
  • We may face a challenge to keep the targets on track. The proposed Renewable Energy Directive, just as RED II in 2018, sets the binding target on the whole EU, and not at the national level. The 2020 renewable energy targets were binding on a national level and this gave the European Commission more leverage in ensuring separate EU members comply with their targets.
  • The offshore wind race-to-the-bottom in the Baltic Sea may slow down due to the requirement to coordinate offshore wind plans across sea basins. The Nordics were the first to enter the Baltic electricity market with offshore wind and maybe cannibalizing the future capture prices of the Baltic states, which are behind in the race. This requirement can also increase the interconnectedness between the countries, as some may opt not only for common targets but also for joint offshore projects. On the other hand, this change will have an impact on the behaviour of the offshore wind actors. Some may try to speed up projects on "their" shores before common targets are agreed upon. Others may "wait and see", and the requirement for member states to cooperate may delay some offshore wind projects – that is the lesson learned from many major cross-border projects requiring cooperation, from building nuclear plants to railways.
  • Biomass electricity will continue to have a modest growth at best. It does not have a large share in more recent support schemes of EU member states anyway, as the recent support schemes are mainly auction-based, and the biomass LCOEs (the cost of the power produced over a period of time) are too high to compete against wind and solar photovoltaics.
  • The 2018 RED II allows EU members not to issue GOs to producers that also receive financial support. Only a handful of EU countries use this right. One of them is Germany, which aids a big share of renewable electricity through the support system. Issuing GOs to all renewable power producers that request them will increase the GO supply in Europe and will push their price down.
  • Hydrogen will not be forgotten. The proposal includes “energy from renewable fuels of non-biological origin” – mainly hydrogen or hydrogen-based synthetic fuels – in the renewable energy share calculation. It however subtracts the renewable electricity used to produce such fuels from the calculation, so the jury on the final impact is still out.

Europe in 2030 will definitely see more wind, solar, hydrogen, and, indeed, better cooperation.

In any case, EU countries should start working on policies right away to ensure enough renewables by 2030. This is especially important if they want to invest in offshore wind which has a longer lead time.