The European Energy Crisis: Can Sustainable Energy and Improved Efficiency Save Us? 

In the session, The Global Energy Crisis: Will Sustainable Energy and Improved Efficiency Come to the Rescue of Businesses in Europe? Prof. Dr. Marc Ringel answers burning questions on Europe’s latest sustainable energy innovations, the impact of policy changes on energy efficiency, and offers advice to businesses on how to navigate the current energy crisis.  

   

What are the latest updates on energy efficiency policies in Europe?

We have varying gas dependency across European countries, from over 80% in Bulgaria to almost no dependency in countries like Sweden. Consumer prices have increased by 39%, and households and businesses are finding it hard to tackle energy poverty. That has had enormous political repercussions on the development of energy efficiency.  

Energy efficiency policies have been increased and developed over two issues — tougher regulation and more comprehensive financial support.  

That has been coordinated through the European Commission and the REPowerEU initiative. There are ongoing negotiations that will give us more mandatory objectives in terms of energy efficiency. I think European governments have understood that a speedy transition and phasing of energy savings and energy efficiency come at a cost. What the EU has been doing on the other side is financial support. They have set up a recovery and resilience facility which is designed to support a coordinated transition of energy efficiency to help businesses and consumers save energy. There has been €225 billion worth of loans and €20 billion in grants stemming from the EU Commission trading system to support energy efficiency.  

 

What can we expect from sustainable energy in Europe within the next two years?

Sustainable energy was pretty much on show for larger climate objectives since the EU aims to fully decarbonize by 2050. 80% of European greenhouse gas emissions are energy related. Energy transition and clean energy initiatives were already at the heart of the European decarbonization project. Of course, that has been strongly advanced by the fossil fuel crisis. In concrete terms, this gives the EU a solar energy strategy. The plan is to double the photovoltaic capacity within the EU to 600 gigawatts by 2030. That combined with electrifying the European heating system with heat pumps will see a massive uptake in all EU member states. There will also be stronger regulation of energy efficiency.  

There are two directives setting the scene, one is the Energy Efficiency Directive, which provides regulation on energy efficiency objectives, and encourages the public sector to use and procure energy-efficient products. They also offer financial support for businesses and private customers to go into energy efficiency. On the other side, there’s the Energy Performance of Buildings Directive, which aims to reduce the energy consumption in buildings, and will see tougher and more stringent building standards. There is also a strong strive for green hydrogen, which is hydrogen produced by renewable energies. The strategy of the EU is to develop that partly at home but also get green hydrogen partnerships across the globe.  

 

How will the increase in sustainable energy impact businesses?

There will be two big impacts which are regulation and financial support. We are going to see mandatory energy audits and energy management systems for SMEs in EU member states. Those are designed to support businesses and help them become energy-efficient across the production chain. We will see more regulation in terms of saving energy and being more transparent about it. If it’s well designed as a mandatory measure, it would support the industry to be more systematic about energy savings.  

And there is the question of the amount of money to become fossil-free. It will be an expensive transformation that government budgets alone cannot cover. There has to be private finance stepping in.  Therefore, we are going to see business opportunities for the development of energy services.  

The largest scale is to support private households with building renovations and optimizing production chains. It’s the golden time for energy service companies in terms of getting the transformation along in a market-driven manner.  

We will also see a stronger development of public-private partnerships in the development of technologies and business models. It’s already working in industrial sites and electric mobility. Energy services will be quite active and solicited to delivering market solutions.  

 

What sustainable projects are going to be implemented in Europe?

The combination of photovoltaic systems and heat pumps will create autonomy within households. Heat pump technology will be developed along with the trend for electrification. We will see an increasing number of e-mobility projects. According to Horizon Europe, there is €99 million allocated for clean energy projects in 2022. Over the next few years, there will be projects that will link energy and information technologies at large. For example, optimizing energy systems with artificial intelligence, data, and behavioral economics. Denmark is leading by example as the Danish integration of wind energy has been a strong driver for many other European countries in terms of how to develop offshore wind energy. I would also name Germany for getting energy savings and credit optimization by doing tenders for unused capacity.  

 

When do you think the energy crisis will be resolved?

It will be the role of governments and the European Commission to give us a coherent policy stream. It will be a long development of energy efficiency and energy savings, in addition to phasing renewable energies into heating and cooling, probably to some extent by green hydrogen. In terms of structure, it will be a question of market design and market rules, which will need to favor energy efficiency and energy savings, much more than it has done so far. Many European governments are looking into the market design of electricity markets or heating markets. Europe is still importing most of its energy sources and that import dependence will continue to exist. Another consideration is about new supplier relations defining new energy partnerships. 

 

What will happen if new policies and alternative energy sources are unable to solve the crisis?

Supply dependence and economic dependence. There is still diminished but flowing Russian gas filling up our gas storage. That gas certainly will not be available to fill up our supplies after this winter. Many European governments are preparing for the next winter by finding new partnerships and suppliers. LNG is an option but there is a global demand for LNG, especially in Asia, which raises its price.  

The actual situation will depend on many factors which are outside of our control. Will there be a mild winter so there is no strong need to tack gas supplies? Until now, prices in global energy markets have been moderate because the demand from China and Southeast Asia was not at its usual limits.  

The European governments have been going on a shopping spree on their own, which didn’t necessarily work out to their benefit and led to much higher prices paid. And there is the question of the European Commission coordinating or taking over the buying process globally. In terms of customers and businesses, there is currently strong subsidization of the energy bills for private households.  

There is a clear need for subsidies, but I would caution against prolonging unnecessary subsidies. In the long run, there will be a much stronger need to revise our market rules and pricing to reflect the change towards renewable energies better. In the short term, subsidies work as contingency measures during winter but in the long run, work needs to be done on regulation. 

That is a short list of unknowns, which makes it really hard to predict how bad or how good next winter is going to be. 

 

Do you think that a strong government stance on energy savings will last over the next few years?

I think that by now, governments have understood that we need it for two reasons. Firstly, energy savings translate into price competitiveness. There are bigger problems on the horizon and that is climate policies and climate change because it is a polycentric crisis. Those issues combined will create strong pressure on governments to maintain strong energy efficiency policies. In terms of shortcomings, it’s a problem over the last mile. Many governments over the years have agreed on strong targets but did not follow up in detail.  

That is exactly what’s happening with the negotiations on European energy efficiency regulations. It’s really a question of coordination. Member states are willing to grant the supervising coordinating power to the EU. Energy efficiency is not easy. Policymakers can open up a wind park, photovoltaics, and solar roofs, among others. Those are nice for show-and-tell policies. Energy efficiency is more technical, complicated, and less than visible. There is still the idea that energy savings are a government-run show. There is a clear need for private initiatives and business models to deliver energy savings and efficiency.

 

What can businesses do to maximize energy efficiency, reduce carbon emissions, and improve sustainability and resilience this winter and beyond?

The first thing would be to get an energy manager or professional to guide you in implementing energy efficiency, that’s a no-brainer. But what is often overlooked is that small fuel savings can top up over time and that’s a story of scale. In addition, what has been proven to work is getting professional third-party help. Energy service companies can analyze and scrutinize your production chains and businesses. They can propose not only advice but also financing models and technical solutions. You would want them in over the winter and reduce your costs quickly. 

 

*The transcript has been edited for length and clarity.