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20% by 2020:

A European energy policy plan

Can European Union phase out of fossil fuel within 10 years?

Stéphan LAOUADI

Economics of Energy Fall 2008 WIU
Economics of Energy
Fall 2008
WIU

Econ 445 Economics of Energy Fall 2008

10/20/2008

Table of Contents

Introduction ...................................................................................................................................

2

Current energy consumption

3

Fossil fuel in Europe

3

 

.......................................................................................................

3

 

4

........................................................................................................................ Overall European energy situation

5

European objective for 2020

6

Electricity generation

6

Wind Power

7

Hydro

7

Heating/Cooling production ........................................................................................................

7

Solar

8

Geothermal power

8

Transport

8

Biofuel ......................................................................................................................................

9

Conclusion

9

Work Cited

11

Econ 445 Economics of Energy Fall 2008

10/20/2008

Introduction

Nowadays energy is a major issue in all government policy, price of oil has moved from one extreme to another in just few months, energy security become more and more important for countries, greenhouse effect and sustainable development are parts of all public discussion. Because all countries understand that fossil fuel is not a sustainable way to drive the world economy, they all tried to reduce their reliance on “old energy sources”. In order to understand the main factors that can drive this “green revolution” let’s take an example and ask an easy question.

Can the Europe Union phase out fossil fuels within 10 years? The answer is clearly NO: Europe will not phase out fossil fuels within 10 years and it’s not its objective. European Union goal for 2020 is to rely over 20% on Renewable Energy Sources (RES).

Let’s look if this target is achievable and understand what will be the new challenges that Europe will face.

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Current energy consumption

In order to estimate if the European Union can phase out fossil fuel by 2020, we first have to look at the actual European situation concerning its energy consumption which include fossil fuels, but also renewable and nuclear energy.

Fossil fuel in Europe

European Union population is estimate at 489 million inhabitants, which represents more or less 7.5% of the world population. In the same time, Europe consumes around 1,816 Mtoe (Million tone oil equivalent) which represents 15.9% of the world energy consumption (Directorate general for energy and transport 2008). Another important fact is that 79% of the European Gross Inland Consumption comes from fossil fuel which can be split into 3 main groups: Oil, Natural Gas and Solid – Mostly coal and lignite. To have a quick overview of the importance of fossil fuel, let’s look at some numbers which emphasis the fact that the European security of supply is very dependent from other countries.

  • - Oil represents 36.9% of the European Union Gross Inland consumption and more than 82.3% is imported. In 2006, European consumption of oil was around 15 million barrels per day (Hayward June 2008).

  • - Natural Gas represents 24.5% of the European Gross Inland Consumption and more than 57.6% is imported. In 2006, more than 489 billion cubic meters of natural gas were consumed in European Union (Hayward June 2008).

  • - Solid represents 17.6% of the European Gross Inland Consumption and more than 39.6% is imported. In 2006, it’s approximately 318.9 Mtoe of coal that were consumed in European Union (Hayward June 2008).

  • - In total, it’s more than 52% of all the fuel consumed in Europe that was imported (Directorate general for energy and transport 2008).

Renewable energy in Europe

It’s in 1997, that Europe for the first time set real goals for the future of Renewable Energy Sources. The European Commission’s White Paper was the first step that required all European countries to work together in order to achieve specific objectives. Although some directives took time to be voted then applied by each national government, Europe is now unquestionably the leader of renewable technology; this industry employs more than 200,000 workers and has an estimate turnover of $13billion (€10 billion) (European renewable energy council - EREC 2007).

More than 120.8 Mtoe are produce through RES, which represents more than 6.6% of the European consumption (Directorate general for energy and transport 2008). RES can be split in

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5 categories according to their technologies; Biomass, Hydro, Wind, Solar and Geothermal. Below is a table which details the consumption of renewable energy by sources and their weight in the total European renewable energy bundle.

Table 1: Gross Inland consumption in Ktoe and their percentage

Gross Inland Consumption in Ktoe and their percentage

Biomass

82,090

68%

Hydro

26,395

21.9%

Wind

6,060

5%

Solar

815

0.7%

Geothermal

5,395

4.5%

Total RES

120,755

100%

Source: (Directorate general for energy and transport 2008)

Renewable energy can also be classified according to their sector of uses. It exist 3 main categories or sectors, Electricity generation, Heating/Cooling production and Transport.

  • - 13.7% of the total European Electricity generation comes from Renewable energy.

  • - 11.5% of the European Heating/Cooling production comes from Renewable energy.

  • - 0.72% of the European Transport fuel comes from Renewable energy (European renewable energy council - EREC 2007). As we can see, some efforts have to be done concerning the transportation sector which relies almost entirely on non-renewable energy.

Nuclear in Europe

Here nuclear energy will be considered as a third type of energy. Although nuclear energy is low carbon emission’ energy – element which characterized all the Renewable Energy Sources – it will be considered of its own due to the environmental problems related to nuclear waste and due to the technology which is totally different from renewable one.

Nuclear energy represents more than 20% of the European Union energy consumption, and more than 31% of the electricity generation (World energy council January 2007). Present and future of nuclear vary a lot country by country. France or Germany are relying a lot on nuclear energy (116,474 Ktoe and 42,061 Ktoe consumed respectively) and countries like Italy or Denmark don’t have any nuclear plants (Directorate general for energy and transport 2008). Because some studies predict a growth of nuclear energy and other studies expect a decline of nuclear in Europe, the rest of the paper will not deal with nuclear in the future. It exist too many contradiction to present a clear and reliable trend of nuclear energy within 10 years.

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Overall European energy situation

Although the fact that Europe is leading the renewable energy industry, and the fact that it made 10 years that the first important step was done, European Union still relies a lot on fossil fuel and has not yet developed a good energy mix sources. The chart below gives a rapid overview of the current situation.

Figure 1: Gross Inland Consumption -EU-27 - by fuel in 2005 (in Mtoe)

Econ 445 Economics of Energy Fall 2008 10/20/2008 Overall European energy situation Although the fact that

Source: (Directorate general for energy and transport 2008)

It appears that European Union is on its way to limit its dependence on fossil fuel. The use of Renewable Energy Sources becomes more and more important. Nevertheless, lots of efforts will have to be done to reach this 20% plan by 2020. European Union still relies a lot on oil and natural gas, there still too much disparity between European countries and some important trend are not yet decided.

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European objective for 2020

In order to reduce its fossil fuels consumption and to keep its standard of living, European Union needs other sources of energy. The choice has been made to rely more and more on Renewable Energy Sources, which should contributed at a minimum of 20% of the European energy consumption by 2020. This percentage has not been chosen by chance, it will be the result of a general policy plan which started in 1997 with the European Commission’s White Paper on energy. A mid-goal of 12% of renewable energy by 2010 has also been targeted and will be an important step to reach in order to keep the 20% goal achievable.

To fully understand this 20% plan and to see if it’s realistic, let’s look at each sector (Electricity generation, heating/cooling production and transport) thru the different technologies available and the challenges they involve. In order to cover all the technologies and to limits the redundancy over each sector, 2 technologies will be details by sectors but all the technologies will be covered.

Electricity generation

In 2020, European Union is expected to rely on Renewable Energy Sources for at least 32.6% of its electricity generation. The 2 main contributors will be the wind power and the hydro power generation.

Table 2: Contribution of renewables to electricity generation (1995-2020) (TWh)

Econ 445 Economics of Energy Fall 2008 10/20/2008 European objective for 2020 In order to reduce

Source: (European renewable energy council - EREC 2007)

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Wind Power

Wind power is expected to contribute 13% of the European electricity generation by 2020. That represents more than 40% of the electricity produce by renewable sources. (Directorate general for energy and transport 2008)One of the most important aspect of wind power is that it’s the fastest growing sources of renewable energy and manufactures expect to build soon, very large wind power plant which will have the capacity of conventional power plant (up to 1,000 MW) (European renewable energy council - EREC 2007). Because it exist some local administrative barriers at their implementation, more research have to be done on the offshore technology, the transportation, installation and also on their connection to the national grid.

Hydro Power

Hydro power is already well implanted in Europe. Its annual growth rate between 2010 and 2020 is expected to be around 0.6%, which will make it contributing over 29% of the RES producing electricity (European renewable energy council - EREC 2007). Because there is some administrative barriers at its implementation, one of the coming challenge for the hydro power industry is to have a better integration into the environment, mostly thru small hydro power plants (up to 10 MW) which are not fully exploited yet.

Figure 2: Power generation from renewables

Econ 445 Economics of Energy Fall 2008 10/20/2008 Wind Power Wind power is expected to contribute

Source: (Directorate general for energy and transport 2008)

Heating/Cooling production

Biomass is already the biggest source of renewable energy contributing to the heating production. By 2020, 2 other technologies (solar power and geothermal power) will contribute to the growth of this sector.

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Table 3: Contribution of RES to heat production 1995-2020 (Mtoe)

Econ 445 Economics of Energy Fall 2008 10/20/2008 Table 3: Contribution of RES to heat production

Source: (European renewable energy council - EREC 2007)

Solar power

Between 2010 and 2020, solar power is expected to growth around 19.5% each year. This important growth will make of solar power the second biggest RES for the heating and cooling industry. With 9.6% of the RES producing heating and cooling, solar will stay far behind from biomass expected to represent 84% of this industry (European renewable energy council - EREC 2007). Because most of the solar power generators are installed for households, and because their price is still expensive, there is a need for public incentives to fully extent its growth. One of the biggest opportunities of this industry is the research and development of an efficient combo-system which produces electricity, heats space in the winter and cool them in the summer.

Geothermal power

Geothermal power is not implanted everywhere in Europe. Its expected growth rate will make it contributing up to 6.4% of the RES in the heating/cooling sector. New technology makes geothermal power usable more or less everywhere, even in low thermal water temperature (100°C) with good economic and environmental results (European renewable energy council - EREC 2007). There is still a need for improving the efficiency of energy conversion but the main challenge of this industry is to improve the exploration methods which are not efficient. The industry needs also a clarification of some legal aspects in order to make the right investments in research and development.

Transport

Compared to the 2 others sectors, transport have its own rules. It exist lots of forecast concerning the future of transport in Europe, and some of them are totally unachievable. It seems that European Union will rely more and more on biofuel, which will be able to represent 12% of the transport fuel demand in 2020. It doesn’t exist any reliable studies about the future of plug-in or hybrid cars in Europe. The European Parliament’s industry committee expects that in 2020, 10%

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of the transport fuel will come from renewable and that 40% of it will be plug-in or hybrid cars. Nevertheless, it doesn’t exist any global consensus about the future of electric cars (European Federation for Transport and Environment (T&E) September 2008).

Biofuel

It already exist a favorable European policy plan concerning biofuel and biomass in general. This policy can in part be explain by the fact that biomass is and will be an important element to recover an economic development in rural region. Although there are various sources for biomass and biofuel, there is a need for increasing the efficiency of the biomass preparation. Actually, only ethanol and biodiesel are commercialized but there is others biofuels that are in research right now and will be commercialized soon.

Figure 3: Energy consumption in road transportation

Econ 445 Economics of Energy Fall 2008 10/20/2008 of the transport fuel will come from renewable

Source: (Directorate general for energy and transport 2008)

Figure 4: Biofuels target and projected trends

Econ 445 Economics of Energy Fall 2008 10/20/2008 of the transport fuel will come from renewable

Source: (Directorate general for energy and transport 2008)

Conclusion

European Union will be able to reach this target of 20% RES within 2020 only if the right investment are make, if government applied favorable policies and incentives. Moving from

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fossil fuel to Renewable Energy Sources is an opportunity more than a threat, but if actions are not taking, European Union will soon face an energy threat that will have really big potential impact.

A study from the European Renewable Energy Council (EREC), estimate that to reach this target of 20%, a total investment of $576billion (€443 billion) have to be make over the period 2001 – 2020. This study also concludes that in 2020, RES will employ more than 2 million workers in full time employment (European renewable energy council - EREC 2007).

Figure 5: EU Renewable energy targets - Share of final energy by 2020

Econ 445 Economics of Energy Fall 2008 10/20/2008 fossil fuel to Renewable Energy Sources is an

Source: (Renewable policy energy network for the 21st century - REN21 2008)

“Without a major shift towards Renewable Energy Sources in combination with energy conservation and efficiency we will lose the chance of securing our energy supply system. If we take that chance now, the EU could become the most energy import independent region in the world”. (European renewable energy council - EREC 2007)

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Reports:

Work Cited

Directorate general for energy and transport. EU energy and transport in figures - statistical pocketbook 2007/2008. European commision, 2008.

Directorate general for energy and transport. European energy and transport - Trends to 2030 update 2007. European Commission, 2008.

European Federation for Transport and Environment (T&E). T&E Bulletin. T&E, September

2008.

European renewable energy council - EREC. Renewable energy target for Europe - 20% by

2020.

EREC, 2007.

European renewable energy council - EREC. Renewable energy technology roadmap - Up to

2020.

EREC, 2007.

Hayward, Tony. BP statistical review of world energy. BP statistical review of world energy, June 2008.

Renewable policy energy network for the 21st century - REN21. Renewables 2007 - Global status report. REN21, 2008.

World energy council. The role of nuclear power in Europe. World energy council, January

2007.