VGB PowerTech 1/2 l 2013
Energy challenges: A European answer
Hans ten Berge
Kurzfassung
Europäische Antwort auf die
Herausforderungen der Stromwirtschaft
Die europäische Stromwirtschaft steht vor vier
großen Herausforderungen: ein schwieriges
Investitionsklima, vergleichsweise niedrige
Stromnachfrage, der kontinuierliche Anstieg
des Stromanteils aus subventionierten erneuer-
baren Energien und die unerwartete Schwäche
des EU-Emissionshandelssystems (ETS).
Die Antwort von EURELECTRIC auf diese He-
rausforderungen setzt auf einen beständigen,
in sich widerspruchsfreien Rahmen mit dem
ETS als wesentlichen Treiber der Dekarbonisa­
tion, einer Marktintegration von erneuerbaren
Energien, Energieinfrastruktur als Mittel zur
Vollendung des Energiebinnenmarkts und ei-
ner verbesserten Strategie für Forschung und
Entwicklung. Europäische Politiker müssen
darauf hinarbeiten, den europäischen Ener-
giebinnenmarkt bis 2014 zu vollenden, einen
Systemansatz für ein Energiesystem mit mehr
Erneuerbaren umzusetzen, eine kohärente und
integrierte EU-Energiepolitik zu entwickeln, ein
starkes ETS als bedeutendes Werkzeug für Emis-
sionsreduktionen zu fördern und Innova­tion
als Grundlage für nachhaltige Investitionen zu
unterstützen.
VGB PowerTech - Autorenexemplar - © 2013
Author
Hans ten Berge
Secretary General
EURELECTRIC
Brussels/Belgium
European energy policy
Introduction
As the voice of the European electricity
industry in Brussels, EURELECTRIC’s ac-
tivities traditionally focus on several key
areas:
–– We work towards truly integrated EU
markets for electricity and gas, promot-
ing those EU policies that will get us
there by the 2014 deadline set by the Eu-
ropean Council. In our view, an integrat-
ed market will deliver the most cost-ef-
ficient outcome for Europe’s businesses
and customers – provided policy makers
let it work. Their role should consist of
setting the right market framework that
allows all mature generation technolo-
gies to compete on a level playing field.
–– We are committed to achieving a carbon-
neutral electricity sector by 2050. Our
Power Choices study, conducted in 2008
to 2009, confirms that this will be pos-
sible: the European power sector will be
virtually carbon-free by 2050, if the right
framework is put in place.
–– We see electricity – especially once it has
l become carbon-neutral – as the solution
to the decarbonisation challenge facing
Europe’s economy. Expanding the use of
carbon-neutral electricity to areas like
transport or space heating and cooling
will reduce carbon emissions. As such
the European electricity sector is at the
forefront of Europe’s decarbonisation ef-
forts.
Achieving these objectives was always go-
ing to be challenging. Yet recent develop-
ments have made it much more so than ini-
tially expected. From a European perspec-
tive, four main challenges stand out: the
very challenging investment climate in the
European utility sector, relatively low elec-
tricity demand, the continued expansion of
electricity from subsidised renewable ener-
gy sources, and the unexpected weakness
of the EU Emissions Trading System (ETS).
First, an assessment of recent stock market
trends reveals that the European utility sec-
tor is currently underperforming. A com-
parison of the performance of Euro Stoxx
50 companies against utilities shows that
utility shares do follow the upwards and
downwards trends of the overall market,
but that they significantly underperformed
that market in 2011 and 2012.1 Moreover,
European utilities are outperformed signif-
icantly by the utilities on other continents.
1
Note that 5 utilities are also part of the Euro
Stoxx 50, namely GDF Suez, Enel, E.ON,
Iberdrola, and RWE.
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This underperformance implies a low re-
turn on investment for utility sector inves-
tors. Understandably, potential investors
are thus proving reluctant to invest in the
European utility sector, preferring to place
their money elsewhere: either into other
sectors or into projects outside of Europe.
In this situation, European utilities are
finding it difficult to attract the capital
they need to carry out the huge investment
effort that will be required to put the EU’s
energy system onto a sustainable track to-
wards the EU’s 2050 decarbonisation goal.
In short, the sector has become uninvest-
able.
Second, electricity demand is currently on
a rollercoaster, due not least to the broader
economic context, which has remained
difficult. Concerns are mounting that Eu-
rope’s GDP, which appeared to be on the
way to recovery, will not in fact recover
as much as hoped. This development has
knock-on effects for electricity demand:
as industry output declines, electricity de-
mand does too. According to data from EU-
RELECTRIC members, electricity demand
in Europe in 2008 stood at 3166.6 TWh
– in 2011, according to our preliminary
data, it was merely 3076.7 TWh. Although
most forecasts expect electricity demand to
grow in the long run, the current situation
makes it difficult for our sector to recover
investment costs and run a profitable busi-
ness in the meantime.
Third, despite the recessionary tenden-
cies in Europe, the expansion of renewable
electricity continues. This development is
undoubtedly linked to the fact that a lot
of renewables continue to be subsidised
through national support schemes, which
shelter them from the effects of the reces-
sion and ensure their continued deploy-
ment – regardless of market conditions or
demand. Between 2008 and 2011, in the
space of just four years, installed renew-
able capacity among EURELECTRIC mem-
bers almost doubled, from 94,748 MW to
163,577 MW. Moreover, this expansion
kept steady year-on-year during the eco-
nomic downturn. While the economy no-
sedived in 2011, renewable capacity actu-
ally grew by 29,207 MW – compared to a
“mere” 22,796 MW in 2010.
Germany delivers a particularly strong ex-
ample of this rapid expansion. The country
has experienced a veritable renewables
boom in the last 10 years, starting off with
the rise of wind power as early as the mid-
1990s. Since then, variable renewables
such as wind and solar photovoltaic (PV)
29
 European energy policy 
have grown rapidly, in particular since
around the year 2000 for wind and 2005
for solar PV. According to the German
Federal Ministry for the Environment, in-
stalled wind power capacity in 2010 was 29
GW while installed PV capacity was barely
less, at 25 GW. This increased the amount
of total variable renewables in the German
power system to 54 GW – in a system with
peak demand of 80 GW.
Of course these figures do not paint the full
picture: installed capacity does not neces-
sarily equal actual output. If we consider
which share of German capacity was ac-
tually available, we see that wind power,
with a nominal capacity of 29 GW, only
generated a maximum of 23 GW at a single
point in time, i.e. 78 % of installed capaci-
ty. For solar photovoltaic the ratio between
total capacity and maximum generation
is even less: of 25 GW installed capacity,
maximum generation was only 14 GW, cor-
responding to 56 % of installed capacity.
The effect of this steady increase in renew-
ables is dramatic for the system as a whole.
On the one hand, it leads to a situation of
overcapacity and pushes down prices for
generators who built their plant according
to business cases that were market- and de-
mand-based, not subsidy-based. As a result
these plants are in danger of becoming un-
profitable to run. On the other hand, they
are exactly the type of plants that continue
to be needed to provide back-up power
when variable renewables do not deliver.
Variable renewables have increased un-
certainty in the power system, thus rais-
ing the need for more flexibility to cope
with this uncertainty. The urgency of this
issue might not be fully clear as long as
production peaks and troughs from differ-
ent renewable sources do not coincide. In
March 2012 for example Germany experi-
enced a phase with very low wind output
(below 5,000 MW) which corresponded
with a peak in PV output (near and above
15,000 MW). Vice versa, at the end of the
month Germany saw unprecedented high
amounts of wind generation of nearly
20,000 MW with rather low PV output
(well below 10,000 and even below 5,000
MW on one day).
However, it is not a big leap to predict that
there will be times ahead when total in-
VGB PowerTech - Autorenexemplar - © 2013
stalled capacity of variable renewables will
exceed peak load in Germany. Even a con-
servative estimate of the renewable elec-
tricity development in Germany until 2020
estimates that the capacity of variable
renewables in 2020 will be above the ex-
pected peak load of 74 GW. If the German
Government’s solar PV target of 52 GW is
met, total renewable capacity by 2020 will
even reach up to 94 GW – by far exceeding
the 74 GW of peak demand.
Fourth, the EU Emissions Trading System
(ETS) has proven to be weaker than ex-
pected. It is clear that the emissions trading
market is oversupplied. Different estimates
30
expect a surplus of between 1.7 and 2 bil-
lion emission allowances by the middle of
the third trading phase – equivalent to one
full year of supply. This is putting down-
ward pressure on the price, which this year
has experienced an all-time low of around
€6t/CO2.
Why is this the case? Certainly the reces-
sion is one driver – Europe’s industry is
simply producing less than expected, low-
ering the demand for electricity. The un-
expectedly high number of international
credits within the Kyoto Protocol’s Joint
Implementation and Clean Development
Mechanism also has a role to play. But
EURELECTRIC believes there is one over-
arching, structural reason: the harmful
influence of overlapping policies and tar-
gets on renewables and energy efficiency,
which reduce the amount of CO2 emitted.
In this way, the boom of renewables that
we are experiencing is actually undermin-
ing the proper functioning of the ETS.
What, then, are EURELECTRIC’s answers
to these challenges? In a nutshell, they re-
volve around a more consistent framework
with the ETS as the key driver of decarbon-
isation, the integration of renewables into
the market and a less distortive approach
to their development, a renewed focus on
energy infrastructure as a means of com-
pleting the internal energy market, and an
improved strategy for RD&D.
Above all, we believe that governments
should set consistent frameworks. There
is a need to align different policies, targets
and policy instruments, thereby creating a
stable investment climate. How do we link
European policies on renewables, energy
efficiency and emissions reduction? How
do we ensure that they do not contradict
one another but work together towards
the decarbonisation goal? Just as impor-
tantly, how can we ensure that this goal is
achieved cost-efficiently through markets
rather than distortive subsidies that lead
to inefficiencies?
The answer to these questions lies in a
strengthened ETS. The ETS is a market-
based, technology-neutral, and pan-Euro-
pean instrument. It will allow us to reach
carbon-neutrality in 2050 – if we bolster it
and make sure it becomes the key driver of
the decarbonisation process. If European
policy makers can ensure that it provides
long-term visibility on the decarbonisation
pathway to 2050, not least through a firm,
binding GHG reduction target for 2030 and
beyond, then it will be able to drive the de-
carbonisation process in Europe. Moreover,
the system will become even more effective
if it is extended to other sectors of the econ-
omy beyond the electricity industry.
The ETS will also ensure that decarbonisa-
tion is achieved using all available technol-
ogies, and thus in the most cost-efficient
way. It will therefore be an important cor-
nerstone in the cost-efficient development
of renewables. The spread of renewables
>>> VGB DIGITAL <<<
VGB PowerTech 1/2 l 2013
should be based on least-distortive support
mechanisms rather than current subsidy
schemes, which are often wasteful and
inefficient. Instead of cherry-picking tech-
nologies and setting politically motivated
tariffs and incentives, politicians should
focus on ensuring enough R&D support for
RES technologies that are not yet mature –
with the ultimate goal of integrating them
into the market.
In addition, infrastructure will play a cru-
cial role as the backbone of an integrated
market. Additional transmission and dis-
tribution capacity will be needed to make
Europe’s grids fit for the future. Adequate
regulatory conditions are the key for such
grid investments to take place, not least in
the area of permitting, which still takes too
much time. The current plans to speed up
permitting procedures for projects of com-
mon European interest, as foreseen by the
EU Infrastructure Regulation, are welcome
in this regard.
Finally, we see Europe falling short on
RD&D. We are missing a broad EU in-
novation strategy, which can help foster
energy innovation and encourage new
solutions on the way to decarbonisation.
We therefore support the Commission’s
proposal to earmark € 6.5bn for energy
RD&D in the period up to 2020, as set out
in its new Horizon 2020 initiative. Bet-
ter cooperation between industry and
public authorities is needed – innovative
public-private partnerships could lead the
way. EURELECTRIC, in cooperation with
McKinsey & Co, is currently assessing dif-
ferent technology needs and the methodol-
ogy needed for a consistent EU innovation
strategy. This work will conclude with a
high-level conference in May 2013.
In conclusion, action is urgently needed
now to provide the necessary framework
conditions that will allow the electricity in-
dustry to move forward. We are asking Eu-
ropean policy makers for five main steps:
Deliver a European internal energy mar-
ket by 2014, in line with the commitment
made by European governments in Febru-
ary 2011. The development of a price-cou-
pled day-ahead market in the NWE core re-
gion is already delayed: further delay must
be avoided so as not to jeopardise the 2014
target date.
Adopt a system approach to managing the
power system in light of the increased pen-
etration of variable renewables. The rise of
renewables affects the power system as a
whole: their continued development must
take effects on infrastructure, market de-
sign, and conventional generation into ac-
count.
Develop a coherent and integrated EU en-
ergy policy that delivers on carbon-neutral-
ity and cost-effectiveness. To this end, con-
sistency is crucial: consistency over time,
between different national instruments,
and also between different policies at EU
 VGB PowerTech 1/2 l 2013 European energy policy

level. For instance, greater coordination
is needed in areas such as national renew-
able support schemes or possible capacity
remuneration mechanisms. At EU level,
unwanted side-effects of the interaction
between different targets and instruments
for CO2 reduction, renewables and energy
efficiency must be addressed.
Promote a strong ETS as a meaningful de-
carbonisation tool. EURELECTRIC wants
the ETS to be the key driver policy for car-
bon reduction. The proposed back-loading
can give a signal to the carbon market –
and also to international observers – that
the EU is committed long-term to a strong
ETS. Ultimately, however, only structural
reforms will help strengthen the system.
Support innovation as a catalyst for sus-
tainable investment. Although innova-
tion should be driven by customer needs
– not political agendas – policy makers can
nevertheless play a role in fostering prom-
ising new developments in energy innova-
tion. EU support for R&D and innovation
should not set arbitrary technological
priorities, but should be used to support
companies in their on-going efforts to de-
velop and deliver improved products and
services for their customers. By support-
ing the most promising R&D projects and
technologies and mitigating their develop-
ment risk through adequate risk sharing
facilities, EU funding can ensure that those
new solutions make the final step onto the
market.
Today’s energy challenges are daunting,
but they need not to be insurmountable. It
is now up to European and national policy
makers to create the conditions that will
allow our industry to fulfil its potential to
deliver carbon-neutral, secure electricity at
competitive prices. l

Digox 6.1 –
Accuracy and safety
in the process
Digox 6.1 K-LC - portable
• Detecting oxygen leaks
• Periodic oxygen measurement at sites
that are not equipped with stationary
measuring instruments
• Checking stationary analysers

Digox 6.1 KS - stationary

• Monitoring the oxygen concentration in
boiler feed water, condensate and Sampling & Analysing Systems
VGB PowerTech - Autorenexemplar - © 2013

process water
• Detecting oxygen leaks in process steam
or heating networks
• As an actuating variable for oxygen
dosing systems

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31
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