Justine Ryan, Director of Renewables, Vitol
The undisputed impact of climate change, coupled with the catalyzing effect of Russia’s invasion of Ukraine, means nations are increasingly looking beyond hydrocarbons to more reliable, cleaner, and cheaper energy sources. However, while renewables gain traction – accounting for around 30% of global power generation in 2022, according to the IEA – the narrative is shifting from sustainability to security of energy supply.
The advantages of locally supplied, secure energy for the European continent are clear; cheaper power capitalizing on an abundance of wind and solar power, reduced impact of geopolitically impacted commodities, and high carbon efficiency.
But despite these benefits, challenges remain around the intermittency of generation without reliable long-term storage, regional interconnectivity, and long-term investment. Also, regulation needs to be addressed. A faster approval process is key to successful investment cycles. Currently, a projected multi-year project development presents the risk that the approved technology is becoming outdated before engagement.
Europe received a boost in January, following the announcement that the EU will ease state aid regulations, accelerate permits for new projects, and pump cash into strategic climate-friendly businesses. Whether it is enough to convince investors to stay in Europe rather than look to the US, where President Biden’s Inflation Reduction Act represents a more coordinated and incentivized approach to mitigating climate change, remains to be seen, especially as Europe is seeking to implement major market reform that introduces additional investor uncertainty.
There is no doubt the continent is headed in the right direction – the EU installed more wind and solar capacity in 2022 (15GW wind and 41.4GW solar, 33% and 47% more than in 2021) than in any other year on record – and Europe can transition to low-cost generation if done in a balanced manner. Next year we expect to see an additional 60GW of solar power.
However, the target of 600GW, projected to be installed by 2030, will require significant effort and put pressure on administrations, supply chains, grid stability, and construction resources. While 90% of new capacity in wind was onshore in 2022, to deliver similar growth offshore we must address administrative processes and supply chain/construction complexity, because otherwise, we won’t see projects materializing until the second half of the decade.
Regulatory stability, certainty, and competitiveness of the electricity market design, removal of bottlenecks in the supply chain, and clear investment signals are critical for long-term energy security, sustainability, and affordability. To achieve 4x the wind capacity and 7x solar capacity by 2030 under REPower EU (from 350GW to 1200GWs combined), it will take an investment of $1 trillion. That’s a significant challenge, but one Europe can achieve.
The bottom line is, the industry is ready, the resources are available, and Vitol is committed to being part of that change if the right regulation and policy is in place to support it.