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FACTBOX: Ukraine conflict boosts Europe's clean energy ambition amid headwinds

02 Jun 2022

Europe has pledged a rapid transition away from Russian fossil fuels in response to the war in Ukraine, raising already-ambitious decarbonization goals in a concerted effort to end dependence on Russian gas by 2027.

 

In the short-term, however, European carbon emissions could rise in response to the closure of nuclear reactors and a move to burn more coal in response to soaring gas prices.

With damaging inflation and disruption to supply chains also factors in the medium term, S&P Global Commodity Insights assesses the challenges currently facing the energy transition as the conflict nears its 100th day.

The EU's May 18 REPowerEU program lifts the 2030 target for renewables' share in final energy demand to 45% from Fit for 55's 40%, based on optimistic assumptions of streamlined permitting, robust supply chains and extensive grid expansion.

·         S&P Global Commodity Insights analysis shows that, to reach REPowerEU targets, annual solar capacity growth needs to average 47 GW between 2022 and 2030. In 2021, the EU 27 installed 25.9 GW of new solar, a long-term high after installations averaged 11.6 GW/year in 2010-2019 and 18.2 GW in 2020.

·         Europe's ageing distribution power grids need Eur375 billion-Eur425 billion of investment to 2030, a 70% increase on the prior decade, to accommodate new renewables, according to sector association Eurelectric. This assessment was made before REPowerEU's increased targets.

·         Onshore wind faces obstinate permitting barriers. WindEurope forecasts annual EU wind installations of 15 GW to 2025. It needs 27 GW/year to meet a 55% emission reduction target. Germany added 1.9 GW of wind in 2021. The country's 2030 climate target requires average additions of around 5 GW/year.

The pivot away from Russian gas, along with nuclear outages in France, has created a short-term risk of higher emissions from increased coal-fired power generation in Europe.

·         Coal-fired output was up 27% on the year across the top five European countries in April, with Germany the highest consumer, and up 20% on the year in January-April.

·         CO2 emissions under the EU ETS rose by 7.3% in 2021 compared with 2020 levels due to high natural gas prices bringing coal-fired plants back into the merit order, as well as an economic recovery from the pandemic.