Editorial - VGB PowerTech Journal 1-2/2014

Security of supply: transforming challenges into solutions

A decade into the twenty-first century, the European power sector finds itself in the midst of transformative change. A low-carbon and more decentralised electricity generation system is emerging, while smart grid technologies are creating significant new capabilities. At the same time, conventional generation is under pressure, facing a decline in its future value. Change is also coming in the shape of a “new downstream” service model based around energy efficiency offerings, decentralised generation, and new products and services that are about to take off.

Europe is in many ways a frontrunner in this transition, providing many helpful lessons on best practice, but also lessons on subsidy overstretch, the speed of the transition, and the resulting challenges for citizens, industry and governments. The EU is grappling with how to ensure it achieves its decarbonisation and energy security objectives whilst keeping costs at manageable levels. This is even truer in light of the recession that has added pressure since 2008.

In this context, security of supply has moved to the forefront of the debate. While security of supply was originally used to refer to Europe’s dependency on external sources of supply, in particular for gas, the term is now increasingly being applied to cover system stability as well. Indeed, the tremendous increase of variable power generation within the existing centralised system challenges system operators and has raised the concern with system stability onto the front pages of newspapers, board meetings, and government agendas.

Yet as EURELECTRIC’s work on investment has highlighted, generation adequacy is not only a matter of capacities. The EU’s nominal overcapacity, for instance, does not take into account that many gas and even hydro plants have lost their business case and economic justification. If existing capacities cannot run profitably, generation adequacy may be endangered.

At the same time, EURELECTRIC’s Power Statistics and Trends, released at the end of 2013, shed light on increasing differences in capacity trends in Europe: while areas like Scandinavia face overcapacity, others like the UK or southern Germany are concerned about expected gaps and constraints.

In sum, security of supply covers external dependency, technical challenges for system stability, as well as the economics of generation adequacy.

EURELECTRIC is concerned with all these challenges and in particular the last one, which is often overlooked. 2014 is the EU’s deadline for achieving the internal energy market. Finding a solution to the challenge of the lost business case will require nothing less than taking the market seriously.

Power generation is the foundation for economic and societal development. But power generation has a cost, and large amounts of subsidies – for whatever technology – lead to distortion on the backs of customers and to the large-scale destruction of industries.

The European energy transition today is in crisis. Managing this transition successfully while ensuring continued security of ­supply requires revising the current approach, towards:

  • a competitive market environment: put a market-based approach at the heart of the transition, not least by reforming support schemes before 2020 and phasing them out after 2020;
  • a cost-efficient approach to decarbonisation: strengthen the European, market-based Emissions Trading Scheme as the best way to achieve decarbonisation;
  • “resynchronising” the system: give the system time to adapt to the radical changes it is experiencing, including the concern with loop flows and phase shifters, system stability, and network development. Choosing the wrong speed means more cost and less security of supply.

Above all, however, a renewed focus on innovation and research, including an ambitious research agenda, will help Europe – and the European power sector – prepare for the future.

There is no mistaking the significant potential value of power sector innovation. EURELECTRIC’s Innovation Action Plan, published last year, estimates that accelerated innovation in power supply technologies and business models for energy efficiency could be worth 70 billion Euro to the EU economy by 2030. Additional benefits are also expected in energy security, lower system costs, and consumer convenience. Conversely, if innovation were too slow, the adverse impact could deal a severe blow to EU growth and competitiveness.

EU power utilities are ready to play their part, and are increasing their investment in innovation. Capturing the potential of innovation requires a dynamic power sector, acting within a strong enabling policy framework. The EU has come a long way in creating conditions for innovation. Yet much remains to be done to create the market setting in which innovation can thrive, and to steer public support for innovation effectively.

With a new European Parliament and European Commission taking up office in 2014, EURELECTRIC is committed to pursuing its agenda in this year of challenge and change. In doing so, we will continue to build on our established partnerships, including indeed the technical excellence of VGB PowerTech.