2020: Europe’s Energy Transition in 5 Trends

With 2030 climate targets up for renewal, a new set of European commissioners in place, and the post-Brexit relationship to negotiate, this year was always going to be a big one for Europe’s energy transition. Here’s an outline of the most important trends of 2020, starting with the emergence of a green hope from the disaster of the coronavirus pandemic. 

The Green Deal turned into a green recovery

The prospect of a European Green Deal emerged in the manifesto of sorts presented by the then European Commission President-elect Ursula von der Leyen. The former German defense minister, a longstanding presence in Chancellor Merkel’s cabinet, was nominated without ever campaigning. With no agreement among European leaders on the candidates that did step forward, von der Leyen’s vision for Europe came a year after the campaigning was over. The Green Deal had top billing.

Many of its ideas have endured. On December 12, von der Leyen presented the Green Deal to a meeting of the European Council leaders. It included the Just Transition Mechanism, a fund designed to drive change for economies and communities more reliant on carbon-intensive sectors. More ambitious climate targets for 2030 were also included, with a 55 percent emissions reduction target for 2030, up from 40 percent, as well as a 2050 net-zero target.

Then 2020 did what 2020 has been wont to do and messed things up. Major economies pivoted into pandemic management. Economic parachute cords were pulled for the near term, and huge stimulus packages were wrangled over for the longer term.

The €1.8 trillion ($2.2 trillion) budget for 2021-2027 includes a €750 billion ($919 billion) coronavirus recovery fund. In total, €550 billion ($674 billion) will be used for “green” projects, with the rest of the budget committed to a “do no harm” climate principle.

Back in March, the Czech Republic’s prime minister suggested that the impacts of COVID-19 should lead the EU to abandon the Green Deal altogether. Now climate action and the energy transition are considered symbiotic partners for the coronavirus recovery. Expect near-term job creators like battery manufacturing and offshore wind to continue receiving heavy attention in 2021.

The oil majors joined the energy transition

By the end of 2020, all of Europe’s oil majors had made long-term climate commitments. There are a few different metrics you can track here.

In terms of investments, BP is aiming for $5 billion a year of low-carbon investment by 2030. Equinor expects to invest $11.6 billion just in renewables by 2030. Shell has been loath to put a figure on its plans, but in addition to venturing efforts, the company will co-develop the ~€1.4 billion ($1.71 billion) Hollandse Kust (noord) offshore wind farm and has started early work on a series of major hydrogen projects. These are big numbers, but they don’t by any means eclipse the investments being made by major multinational utilities like Iberdrola. The Spanish utility has committed to increasing its annual renewable investment to $11.8 billion.

In terms of how active the majors might be in the renewables sector, BP has the most ambitious target. Its 50 GW target for 2030 is the same as French utility giant EDF.

As the coronavirus pandemic crushed oil demand immediately after the price per barrel had already slumped, the industry looked to slash costs. Those cost-cutting processes largely left low-carbon endeavors untouched. Indeed, towards the end of 2020, investments were only accelerating, with Equinor buying solar developer Scatec and partnering with BP on U.S. offshore wind and Eni buying a 480-megawatt share of the 3.6-gigawatt Dogger Bank offshore wind project in the U.K.  

The oil majors are not about to out-muscle the utilities and make a clean sweep in the offshore wind sector. It may prove, however, that by merely rowing in the same direction as the rest of the energy sector, from EVs to hydrogen to flexible grids, they will provide a greater contribution.

Green hydrogen went from possibility to inevitability

It’s too expensive. There’s no electrolyzer scale. There’s not enough demand. It’s difficult to store because it not energy-dense. The renewable capacity required would overwhelm the grid.

These are just some of the objections to green hydrogen that have been partly resolved during 2020.

Green hydrogen is in its early days; think solar power circa 2007. With only a little imagination, the early-stage businesses, pilot projects and policy maneuverings underway at present could surely deliver comparable growth for green hydrogen.

Let’s blast through those objections.

Major industrial and chemical firms like Siemens, Ineos and thyssenkrupp have backed green hydrogen this year. Electrolyzer specialists ITM power and Nel are progressing with gigafactory development, with the latter appearing to have the favor of Iberdrola. Shell, Amazon and Breakthrough Energy Partners backed a hydrogen aviation drivechain specialist that could support 100-seater aircraft by 2027. Heavy truck manufacturers committed to hydrogen and advanced the date for their self-imposed diesel phaseout by a decade. A Scottish town is developing the H100 project, a closed-loop green hydrogen heating network that will warm 300 homes by the end of 2022.

Projects in the U.K. and Germany are eyeing salt caverns and other natural storage options for hydrogen. Meanwhile, both countries are also assessing the possibility of islanded green hydrogen manufacturing to keep the power off the grids by co-locating offshore wind turbines and electrolyzers then pumping the hydrogen back to shore.

There are no doubt many other problems yet to solve, such as finding an odorant that makes hydrogen smell bad without trashing infrastructure along the way. SGN, the firm behind H100, found the best solution for the gas grid is also the worst for degrading fuel cells.

Offshore wind is only getting started

Offshore wind’s importance in Europe has been solidified through 2020. Some major 2030 deployment targets at the EU level (60 gigawatts), as well as in the U.K. (40 gigawatts) and Germany (20 GW), were stretched. The EU and U.K. are now aiming for 100 GW by 2030.

It’s a goal that analysts think is achievable as long as issues around permitting and grid planning can be resolved. Martin Gerhardt, head of offshore product portfolios at Siemens Gamesa, the leading offshore turbine manufacturer, told GTM the company’s manufacturing footprint was sufficient to make its contribution to those 2030 targets.

With the EU eyeing 300 GW by 2050, Gerhardt said changes to that production makeup could be considered in 2030. Toward the end of 2021, the company’s new 20-hectare facility in the French port city of Le Havre will open. It will produce all the main components of an offshore wind turbine in the same location.

Floating offshore wind promises more going forward. The world’s largest such project, the 88 MW Hywind Tampen, got the nod of approval from Norway’s government.  

Any nervousness about the separation of the EU from the U.K., the world’s largest offshore wind market, would appear to be at least partially settled. The trade deal between the bloc includes proposals for deep collaboration between the pair, including potential joint projects.

Solar power became world’s cheapest electricity…ever

This is not so much a story isolated to 2020, but certainly, this was the year solar’s coronation as the world’s cheapest power source took place.

The International Energy Agency, which has been highly conservative on solar power for years, declared it as the world’s lowest-cost source of electricity ever, which means lower than coal ever reached. That claim is of course geography-dependent, but still an important marker for technology.

In Europe, Spain’s solar renaissance continued. New tenders announced at the end of 2020 could provide yet more certainty to the market.

There are several other markets offering further room for growth for solar in Europe. Poland joined Germany, the Netherlands, Spain and France in the top five end markets for 2020.

Trade body SolarPower Europe estimates that 18.2 GW were installed across the EU in 2020. Its low and high estimates for 2021 are 14.9 GW and 28.8 GW. The medium scenario projects growth in excess of 20 percent for the next two years.

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