Five energy transition milestones to watch in 2021
2021 is set to be a defining year for Europe’s energy sector, as climate policies start to bite and sustainable power continues to go mainstream. Here are some of the developments to look out for as the year unfolds.
Impact of climate targets
The European Union agreed late in 2020 to upgrade its greenhouse gas-busting target for 2030 from 40% to 55%, in order for the bloc to stand a chance of going climate-neutral by mid-century. But much of the detail still needs to be hammered out.
Under existing policies, the EU will cut emissions by just over 40%, so an extra push will be needed in 2021 and the following years to make the 55% target achievable. A big part of this will come from rules governing energy efficiency and renewable power.
A significant chunk of the EU’s next long-term budget, worth some €1.8 trillion, will be earmarked for climate policies over the coming seven years, while institutions like the European Investment Bank (EIB) are increasingly aligning their financial operations with green policies. Europe’s contribution to climate action will be taken full stock of at the postponed UN climate summit in November, when international leaders will meet and appraise each other's efforts to stick to the landmark Paris Agreement.
Incoming US President Joe Biden’s administration is committed to rejoining the Paris deal and reengaging with other countries on climate, so 2021 will be a litmus test for how ambitious the new commander-in-chief intends to be.
Clean power upgrade
Before the summer, the EU’s executive branch, the Commission, will review all its energy policies. The current clean power target of 32% and the energy efficiency benchmark of 32.5% will both be upgraded. This will mean more solar and wind power capacity will be needed, while initiatives like building renovations will have to become more commonplace. The energy efficiency target in particular will prove challenging as there is already an ambition gap emerging.
All signs suggest that the Commission will aim high in the renewables review, as clean energy prices continue to outperform coal and nuclear. Billions of euros will be available, under the budget, from the EIB and in dedicated EU funds designed to wean countries off of fossil fuels.
Buildings produce more than a third of the EU’s emissions and have been called the ‘sleeping giant’ of climate policy. A new initiative called the Renovation Wave aims to make it easier and more attractive for governments, companies and individuals to clean up their buildings and bring down energy prices and emissions.
Falling renewable prices and more ambitious targets mean that companies are already thinking big about where and how to deploy facilities like wind farms. Offshore turbines are getting larger and more powerful, with the trend only set to continue.
US mega-firm GE secured certification for its 12 megawatt next-gen turbine late last year and tests ongoing in Rotterdam are proving to be successful. Approval of a 13MW prototype is due later in 2021 and would be the world’s most powerful wind turbine. Those turbines could be deployed in the North Sea over the course of the coming decade, as countries bordering the sea want to leverage its massive energy-generating potential. Other areas like the Baltic and Mediterranean could yet start to rival the North Sea’s capacity, as technology becomes more advanced and, more importantly, cheaper.
Countries like Estonia, Latvia, Lithuania and Poland all want to kick dirty energy habits like coal and oil shale but have lacked the means to do so in the past, but they are quickly putting in place the regulatory frameworks needed to develop the Baltic Sea.
The Commission published a new offshore energy strategy last year that aims to help countries tap into the potential of wind and ocean energy, especially when it comes to issues like seabed planning and connecting to electricity grids.
Floating turbines, which can be used in deep water, could soon unlock the Mediterranean’s potential. France, which lags behind in terms of deploying wind power, might yet start to build wind farms if the technology is developed further.
Electric batteries are another important technology linked to green policies, especially in the electro-mobility sector, where car companies are increasingly retooling their business plans to offer more zero-emission vehicle choices. A review of the EU’s CO2 targets for passenger cars in the summer will fuel that shift further, leading to a change in dynamic in other sectors too, as battery prices are predicted to keep falling.
Bloomberg New Energy Finance reported that prices per kilowatt-hour in some vehicles dropped below $100 in 2020 and that 2021 will see that trend continue. Analysts insist that $100 per KwH is the level at which price parity will combustion engine cars is reached. That is going to have a huge impact on the energy sector, as grid storage batteries will be needed to ramp up renewable energy capacity, which requires batteries and other storage options to keep power on standby for when it is needed. Car companies are already striking partnerships with energy and recycling firms in order to create an ecosystem where vehicle batteries are converted into grid storage when their end-of-life approaches. Expect to see more of this in 2021.
The Emissions Trading System (ETS) is still Europe’s main climate tool, as the cap-and-trade market continues to take the dirtiest forms of energy generation offline by simply pricing them out of cost-effectiveness. Earlier in January, the price per tonne of carbon emitted rose above €35 for the very first time, thanks largely to higher power prices. Analysts claim that when the price approaches €50, huge shifts in energy generation like coal phaseouts become imperative rather than likely.
The rules underpinning the market will also be reviewed later this year and the Commission will have to decide whether to include new sectors like shipping or road transport within the ETS. The UK, now out of the market, might also apply to link its new system with the ETS.
2020 was a big political year for energy and climate policy in Europe, while 2021 is set to be the year when all of those good intentions finally come to a head. These 12 months will be absolutely crucial for the next decade of energy transition.