The European Green Deal and the possible implications for the European and Norwegian energy markets
On December 11th 2019, the EU launched the European Green Deal (EGD), an ambitious growth strategy that aims to make Europe the first climate-neutral continent in the world by 2050. The EGD spans across all sectors, and to reach the climate neutrality target, all 27 member states of the EU have pledged to reduce their 2030 emissions by 55% compared to their 1990 levels.
The 2050 and the 2030 goals were written into legislation within in the EU’s first-ever Climate Law, which came into force in June 2021. The target of the legislation is to ensure that all EU policies are aligned and contribute to the targets, and that all sectors of the economy are included. The EGD also consists of a revision of existing climate and energy measures, and new offshore, hydrogen and system integration strategies, among others. The target is to contribute to a sustainable transition and lead to net-zero emissions in the EU by 2050.
In my master’s project, I aimed to give an insight into the structure of the EGD and its implications for the European and the Norwegian energy markets, focusing on Norway’s position in the future energy supply in the EU. This was done by conducting an energy system analysis of the Norwegian and parts of the European energy markets in 2030 and 2050, investigating three different scenarios with different levels of demand. One scenario was a “business as usual” approach (continuation of current policy), another was a high demand scenario (technology focus) and there was also a scenario with lower demand (consumption reduction focus). The basis for the modelling is that the model assumes that the net-zero emissions target will be reached by 2050. Hence, the results show the potential composition of the Norwegian and the European energy markets if the net zero emissions target is reached.
What are the potential implications for the EU’s energy market?
In the results of the modelling, the total demand in the modelled countries increased between 2030 and 2050. The demand shows the total demand for electricity, electricity for hydrogen and e-fuels production, electricity for storage, and electricity to heat. The main drivers for the demand are the expected economic growth and the electrification of the transport and industrial sectors. The electrification is direct through increased use of electricity, and indirect through production and use of hydrogen and e-fuels.
Furthermore, the results show that the installed production capacity in the modelled countries will triple within 2050. The composition of the electricity markets in Norway and Europe will have a production mix mainly consisting of variable renewable energy, more specifically solar PV and land-based wind power. The capacity of thermal production units (based on fossils) has a significant decrease from 2020 to 2050, from production of 1500 TWh to 100 TWh, with the remaining thermal production in 2050 being natural gas and coal. In Norway, most of the increase in production towards 2050 also consists of land-based wind power and solar PV. The sectors that will go through the highest level of direct and indirect electrification are the transport sector and high-power demanding industries.
Electricity production in Europe by production technology in TWh
Lastly, the results showed a high demand for hydrogen and e-fuels for indirect electrification and flexibility in the sectors. This demand is requiring about one-fifth of the total electricity demand. One important reason for the increase in the demand for electricity for hydrogen and e-fuels, is the increased use of energy carriers in transport and as transport fuels. An important aspect of hydrogen and e-fuels production is that it may contribute to lowering the risk of the cannibalization effect in the market. With large amounts of variable renewable power in the system, the marginal cost is lowered, and at times with low demand, this can lead to unprofitable power production. The production of green hydrogen and e-fuels can be set to times when the power price is low, and hence contribute to increased demand again. This gives two important effects on the market; firstly, it will lift the power price up from zero and improve the profitability of wind- and solar power. Secondly, it is important for the profitability of the production of green hydrogen and e-fuels to have access to cheap power. This new consumption, in the form of green hydrogen and e-fuels production, will have a higher degree of “natural” flexibility, where the consumption is adapting to the production.
Demand for electricity for hydrogen production in TWh
What can the European Green Deal mean for Norway’s energy supply to the EU?
When looking at the results from the modelling for Norway, it is quite clear that Norway will play a bigger role in the power supply to Europe in 2050 than it does today. The demand for electricity is increasing in every demand scenario, but the production of variable renewable power, mainly wind, is increasing even more. The net export from Norway is the highest in the consumption reduction scenario, showing that Norway will play an important role in the supply of electricity to its interconnected countries. In the technology-driven scenario, the production and consumption of variable renewable power is higher, and so is the demand for electricity to hydrogen production. This demand surpasses the country’s own demand and indicates an export of green hydrogen and e-fuels. In this scenario, Norway plays a role as a supplier of green hydrogen and e-fuels to Europe in 2050. It is clear that the EGD, if the net-zero target is achieved, will have a big impact on the European energy market, and that it will give opportunities for Norway to further position itself as an important energy supplier to the European continent.