Europe's Energy Future in Focus

to other parts in the world. Now. Meanwhile, Europe is also feeling the crunch from the current energy crisis, and this may have an impact on the outlook into the future and how the transition actually plays out. We took a look out into the future for Europe and we ran some scenarios out to You can find them in our European Energy Transition Outlook. Now, let's just say this is one of our longer reports. Lots of facts, lots of charts, lots to learn, but sometimes these can be

the hardest podcast to record. What really comes out of the conversations is what are the authors of the report think actually stands out and that was the basis of today's discussion. I'm joined by Emma Champion, whose research really focuses on the energy transition in Europe specifically, and Andreas Gondolfo, who is the lead European power analyst at bienn F. Now quickly our disclaimer that BIENNAF does not provide investment or strategy advice. We have a full disclaimer at the

end of the show. But now let's hear what Emma and Andreas think about the energy transition in Europe and what really sounds out to them as they think about forecasting out and out. Emma, thank you for joining today. Hi Dana, thanks for having us. And Andreas, thank you for joining the show. So the basis of our discussion today is on the European energy transition. Outlook. Now, if you heard that and you're thinking maybe I don't care as much about Europe, I'm gonna log off. Now stay

stay for a second. Let us just pitch you really quickly on why Europe is so important for us to actually think about as a case study for the rest of the world and also for those of us who are located in Europe as we chart the path forward

in the energy transition. So let's start with my first question, which is essentially why do we write this report around the European energy transition and the outlook, specifically when we know we already do a new energy outlook which looks out to the year, which is global and pulls upon lots of different regions. I think that Europe has long been thought of as a front runner in the energy transition and is something of a special case when we

do our long term analysis. For everyone listening, we've probably heard that the UK and the EU now have both legislated their targets to hit net zero emissions by twenty and that's a really big step change in the level of ambition that we've ever had for previous emissions reduction targets. It's come with significantly ramped up twenty thirty ambitions, so we actually have something toterial to say about the trajectory

to get there. And then, of course, at the moment since these targets have been announced, the European region has

actually faced several pretty significant crises. We had the COVID nineteen pandemic and the impact of the recovery from that on our global supply chains, the ongoing energy crisis today and the war in Ukraine is becoming really material for the transition risks around inflation and recession on people's minds at the moment a lot, and these carry really significant impacts when we think about the trajectory and the pace

of the energy transition here in the region. So really the intention with this report is to really start to look at that more regional lens have a bit of color on how Europe can both diversify and decarbonize its energy system simultaneously. So yeah, figuring out essentially what that path to net zero looks like is the intention. And I think, especially in the context of Europe where perhaps these targets are a bit more material, the report's really

funded and kind of starting to answer these questions. Before we take a look into the future, let's take a quick look back at what has happened in Europe in the past when it comes to climate policy. And I must say so, I'm from northern California, very beautiful part of the world. Actually map the valley, and oftentimes when I talk to people will say why did you move

to London, Like what brought you here? And it was the energy transition, so over fifteen years ago when I moved here, it's because Europe was doing so much and had so many targets in place regarding decarbonization, that this was really the right place to be in terms of the energy transition, whereverything felt like it was happening. Not that California wasn't doing anything, but they weren't where Europe

was at that time. So looking back a little bit, what has historically been europe stance from a policy standpoint regarding how the transition is taking place? Yeah, I could take this first and then maybe under I also have some thoughts at least the way that we've looked at it and being a Europe has really been a front runner and deploying clean power, so really ahead of the cub I think almost double the volume of any other region that we look at today in terms of wind

and solar on the ground. And the power sector has really been the focus point right We're looking at not just renewables, but also ambitious targets to phase out call and deal with the electricity supply here and the next

step from there. And we can kind of get to this a little bit later, because it really is central when we're thinking about net zero, but starting to look more ambitiously at things like the transport sector and heating and I think Europe still has a place as a front runner in looking at those other sectors that need to decarbonize in order to hit a fully netar energy system. And you know, Androws, you're joining us from Greece, so we're spanning the entire eastern and western side of Europe.

When we're trying to sit here and naturally talk about the transition, and we're talking about it as a continent, which we know has a bunch of smaller, more regional markets in it. And andre As, would you say from your perspective that as we talk about the transition, that there are commonalities that we can draw from the different countries that do comprise Europe the continent. I think there are commonalities and differences and they all come up and

they're very interesting to look at. I'd say there's a division in resource from north to south, with the north being wind rich and the south being sun rich, and consequently these two different parts of Europe concentrating on different resources. But then when you look at the totality of things, and this is what I like about studying Europe as a whole, is that actually the continent approaches the problem

in a combined way. Even though you know, the historical data doesn't necessarily show them yet, and essentially there are thoughts about, Okay, how do we get wind from Denmark went from the UK all the way south to France, or how do we get sun from Spain and Italy all the way north to Denmark. However, we must not make this sound too romantic. There are still differences within

Europe itself. You know, Greece, for example, is a little bit further back i'd take compared to other countries in the energy transition and especially in the harder to the carbonized sectors. I'd say policies only now catching up with the reality of targets. However, as a whole the continent and the European Unions specifically within that, it's definitely I'm moving in a direction that other parts of the world

will soon have to start going towards. And I think this is what makes you a very interesting Let's get into what this looks like, so we do too scenarios as we're looking forward. One is the economic transition scenario and the second is the net zero scenario, and I think we'll probably spend more time focused on the second.

But can you quickly just refresh everybody's memory. If you have been frequent listeners, to switch it on and if you're new here, then it will be worth the definition setting. What is the difference between the economic transition scenario and the net zero scenario. So the economic transition scenario really aims to look at creating a baseline and economics driven.

You know, we look at the fundamentals and existing policies only where there's kind of a legislated mechanism for their implementation. So we do include things like the European carbon price and regulations that affect things like electric vehicles, but they do feed into the economics lead baseline, But fundamentally it

is looking at how far the fundamentals get us. The net zerio scenario, by contrast, is much more driven by a carbon budget approach, so we actually force all energy consuming sectors in Europe to fully decarbonized by and to kind of bring that into context for everyone. That actually requires a tripling the pace of emissions reductions over the

next three decades compared to the economic transition scenario. So it's really a much more aggressive trajectory for transition of all of the sectors and how we've actually kind of sold for the solution side of things in the net Zerio scenario is really by looking at two key kind of climate pathways electrification and green hydrogen, and those two solutions, which we can talk about in a little more depth, really enable Europe to kind of increase reliance on on

domestic renewable energy sources and displace the need for fossil fuel in the primary energy mix. So that's helping those sectors like heating and transport which really rely on a lot of oil and gas, as well as industry which is relying on a lot of fossil fuel inputs. So that's kind of the key distinctions. But really the nets Aery scenario is kind of hinging on those those solutions.

If I can add something about the scenarios is what I find interesting though, and we're increasingly going to see that in the Benet work and probably in other people's work as well, is that what I do expect is slowly the economic transition scenario and the net serious scenario will show convergence in future iterations, as for example, costs evolving, we get a better view on how we can decarbonize industry and we can dicarbonize transport, especially in the current

commodity environment. It persists. Essentially, what high gas prices are telling us is electrification is one of the cheapest options out there, being hydrogen might become cheaper so much earlier. So even though we have two differend scenarios today, I wouldn't be surprised if in ten years dying we no longer have an economic transition Senator, because the economic transition senatia and the net serious Senator, maybe we don't have

a net serious scenario. Don't know. Essentially, they say the same thing that that we we red some missions in the long term, and so the question then becomes, Okay, which are the nuances in the technologies that we choose?

And I find that very interesting. I find it really interesting too, and I think in particular this green hydrogen aspect of it, where we're looking at the cost of hydrogen is being much higher than any of the other solutions that are out there, at least right now, and that is a space where Europe is actually a bit of a frontrunner in terms of how they're approaching hydrogen and potentially embracing it. Is a part of the energy

max going forward. You explain a little bit about how Europe is looking at hydrogen in the energy make and how they in theory could potentially in this scenario look at hydrogen and the energy mix in order to get to net zero potentially sooner. So the Commission currently is actually looking a lot more seriously at green hydrogen as a solution a to kind of get gas out of the mix sooner so that they can really reduce that

dependency on Russian imports. That's part of the kind of energy security strategy at the moment is putting renewables, including green hydrogen, front and center, and when when we're thinking about what that means for the time horizon, you know,

it's clear that Europe is setting perry ambitious goals. They're looking at and nothing short of twenty million metric tons, which is double the volume of fossil hydrogen that the region currently uses and that they want to have as green as green hydrogen used by industries by So that's within this decade, and the requirements for the amount of production capacity you need to deliver that is is also

quite quite steep. You know. I think when we think about the longer term and the role that hydrogen could play in a net zero economy in Europe. That's a really you know, at least the twenty horizon is a really accelerated step towards that goal. But we we actually do have a very important position for green hydrogen in

the energy mix. In our net zero scenario, by twenty fifty, European final energy is twenty percent supplied by green hydrogen, which translates to a hundred million metric tons by twenty fifty. So you can think of that as going up to twenty and the Commission's target and then timsing that by five essentially by twenty fifty. So and I think, just

stepping back ad been a minute. The reason that we need a molecule based fuel like green hydrogen is simply because there are those parts of the economy that can't be electrified easily or economically. And we also identify as andrea saluted to already that green hydrogen, how's the potential

for cost reductions. So there are sectors including steel, cement, petrochemicals, even for some heating and buildings and power generation that it may become more interesting to use green hydrogen as a fuel and fossil fuels from the policy standpoint, hydrogen was already very much on the table before Russia invaded the Ukraine. Have you seen that markedly change since then? Yeah,

I mean it's doubled. Essentially, we had a ten million ton target pre you two, and then that's doubled to twenty by I don't think the long term ambition has changed drastically for green hydrogen, but definitely this decade we're looking at, you know, to the point where the European Commission have essentially come out and said, we know we're not going to be able to deliver this much green

hydrogen within Europe. We know that we're probably going to look for trading partners and bringing imports into the region. So that's something that we weren't expecting to be talking about until the twenty thirties, when you have a more mature hydrogen market starting to evolve, but the commissions trying to frontload a lot of that progress and market development in order to deliver on the on the phase out

of GATH. And because you referenced that green hydrogen is specifically talked about a bit more, that requires a pretty big scale out of renewable energy and projects that maybe aren't necessarily even yet commissioned. So as we look at we mean what we're in two so we've got eight years to and we also know that from a temperature and warming situation, the sooner that we bring down emissions and there there are multiple different ways to get to net zero, and when we do it actually has the

biggest impact on what that warming looks like. So the between here and twenty as opposed to between here and twenty fifty, that's shorter term that eight years. What needs to happen in terms of scale and build out, and what sort of signs are we seeing that things are accelerating. I think this is actually a moment to come back to the power sector, and I'd love Andreas to step in here as well, because really the power sector is going to be delivering a lot of the emissions reductions

this decade. We talk about green hydrogen, realistically, the progress that really matters is in the power system, and I think with that in mind, were also can't deny that green hydrogen relies on further ambition in the power system. Electorallyzers will potentially have impacts for grids, and they will rely on additional wind and solar to actually supply the

electricity to produce the hydrogen. So I think taking a step back and thinking about the level of ambition required to accelerate the transition for power this decade is really is really important. I agree with that in we are seeing it. We're seeing it in the dext we're seeing it in the models. I'd say, we're we're willing to see it. This is on the ground converted from ambitious

targets and statements of politicians to actual action. But it's doing if you take a look at the energy transition, I mean, at the end of the day, it is widely agreed that you know, renewables in the form especially of wind and solar, maybe combined with some other technologies being nuclear or ccs, but in general, like low carbon or zero carbon electricity generation, it seems to be the

answer no matter where where we look at. And so focusing the efforts on the power sector in the coming decade and essentially scaling up wind and solar capacity such that we can produce you know, around six or seventy percent of our electricity from renobos by is essentially the way forward. Because if you think about it, let's say that you want to produce hydrogen and there are a

few options out there today. Even if you build electoralizers today, you would be producing emissions because you're powering it with a gas plant or with a cold but along with wind and solar. So if you don't transition your electricity grid, everything else you're doing on the back of that, it's just a step in the right direction, but incomplete, let's say,

until the wind and solar is there. And this is why you know, again and again what we see in our models, what we've see in policies, that the big bed is what do we do? And this steel up is pretty big. I mean, we need to get in our economic transition scenario, we need to get about two hundred fifty gills wind and solar in Europe by twenty thirties. Just to put it into perspective, doubling the capacity. Our net zero scenario is across a little bit more two

hundred and eighty gig awards by twenty thirty. These are like massive numbers. It took us twenty years to get here, and now in eight we need to do what we did in twenty that's a big bed. Yeah. I think Andrews is right that the level of ambition really does need to step up, and I think to some extent we do see that merrit in the policy. But I also think, you know, at least from when when we do our botteling and analysis, there are there are two

things that I kind of hold out hope on. The first is that you know, it is already cheaper to build new winded solo plants today in Europe than it is to run those existing cold and gas plants. You know that, and not fundamental gap is widening even further because of the current situation with commodity prices, so that that it's clear from the economics that this makes sense now.

And Andrea's is right to a point that actually just getting projects on the ground, figuring out how to make the permitting processes in Europe as easy as possible is

going to be the next kind of logical step. The second thing that I've actually quite recently been been sharing with some of our team is that when when we kind of I guess the term is like back test, are are models from from the past, and we look at the renewable energy deployments in Europe that have been achieved compared to what our models have anticipated, We've actually

often either been on the mark or even conservative. So I kind of hold out hope that even though people sometimes you know, raise their eyebrows when they see the volumes that we're saying makes sense from a cost perspective in terms of, you know, solving for the power system, they you know, I think there's actually hoped that our scenarios that we're developing are actually showing where what the cheapest system is and that's a compelling narrative both for

consumers and companies on for government. So I think the leve and of ambition is steep, but I have there is a lot of discussion at the moment though, around

how the economics of the energy transition. We're reaching a crunch point where if we just trusted the economics, we're not going to get to net zero by and that we actually need to really focus on forcing certain things to happen and then driving those costs down and and having the complexity of the energy mix actually embrace all of these different aspects, some of which are economically very competitive,

others which are not so. On that beyond the power system, which we've acknowledged does need to be decarbonized quite quickly and have a lot of attention given to it. What are the other ways? And I know that this is a very complex question, so I'm asking you to then essentially pick winners. And I know nobody ever like through this and oversimplify, but you've taken a look at Europe

on the whole. So which sector or I'll let you have two, Which sector yours should we look to decarbonize first beyond the power sector if we want to fully decarbonize. The challenges that we're seeing beyond power really stem from and I think the most useful exercise when we're thinking about this question really is looking at the difference between our economic transition scenario in the next serio scenario. What

are the biggest differences? Okay, we have probably you know, close to double the need for electric vehicles compared to what we're getting to in our economic transition scenario and

the next zero scenario. The sector that concerns me the most as buildings, because it's a very highly distributed, very difficult to decarbonized sector that relies on solutions such as heat pumps, which you know, perhaps the economics are starting to make more sense given the current crazy energy costs that consumers are facing but that's not really an ideal situation to to have economics makes sense for heat pumps.

So I think that the gap for buildings, the gap for it transport is especially the heavier duty segments of transport. And then industry Europe has actually started already. You know, industry is covered by our by our carbon price, but for a long time it has been subject to pretty generous reallocation, which essentially means they don't end up paying the full they're not really exposed to the full carbon

price in a meaningful sense. And there are meaningful discussions now to phase that out and figure out ways to still keep industry within Europe. And I think that discussion will be really important. Where I see risks is that, especially in light of today's energy crisis, the momentum to try and phase out gas potentially instead of making progress faster on things like coal will have will have an impact on on which sectors actually get priority for de

carbonizing sooner. So that's that's one tension. I suppose that we can say we notice when we compare something like our nets aero scenario, which really prioritizes, you know, the most economic sectors to transition first, based on the solutions that are available and the on the emissions impact versus something like the current situation placed by Europe where you really are trying to do two things at once. Essentially,

andre s do you have winners? I'm going to go back to my my playbook, which is which is power? And I think, you know, the more the more I look at this, the more I realize that, well, all the answers get back to the power sector. I mean more our lead European parents got up all biased in coming to this conclusion. But I do like what I

see on the ground. I'd say, maybe one thought to throughout here the Emma said, how like the current energy crisis is shifting attention to displacing gas maybe before displacing cold, and in a way, I, you know, I do see the negative effector on the other I think it's quite clear in the minds of people today that call is

something needs to go. So the big question we used to come up against in the past, and in a way we come up against in the e t O. Considering that a lot of the work was done before the Russian invasion of Ukraine and repower you essentially, you know, you do all this s effort to the carbonized school, and then everyone kind of used to go mute on gas and be like, Okay, it's a clear fuel, we'll

keep it around for longer. What I think the current energy crisis is going to do and the crunch is essentially gonna say, we're gonna in induce Europe to also take care of gas and not go risk entering a trap where it says like, all right, I took care of coal. Now I can kind of like sit back

because I really reduced my missions. I mean a bit of what we saw happening in the US about ten years ago, right where core plants closed because gas became economic, and then people were like, yeah, we've reduced emissions more than our European counterparts. We've been subsidizing rhables for ten years, and so we can sit and enjoy the spoils of war for a little bit. And and there was a

risk of that. So I'd say there is a positive in that as well, in the call is on the way out one way or another, and so dealing with gas through things like hydrogen through heat pomps for home heating, I think is a step in the right direction that was probably missing and it's where the economics don't work. I mean, Emma said earlier, right, power sector economics make

a perfect sense. You don't really need to worry about hydrogen for another ten years in power and you really get that far in the power sector that it's you know, at that point by twenty thirty five, you really need to focus your attention somewhere else. And it's good to see that we're focusing about attention somewhere else today such that in twenty five we don't need to worry about sending that last emission out of the system, and instead we can focus on the carbonizing other sectors that can

really have an impact. And I think just to add to that and the point that kind of all roads are kind of pointing back to the power sector, we do identify in the report quite a significant challenge when it comes to decar but like deep decarbonization of the power system. You know, if you're relying on electricity to decarbonize things like heating and transport, that that does have meaningful impacts for how the power system will evolve and

look like in the future. And then how do you create you know, incentives for the clean backup capacity that you need when the wind and soda generation isn't around. I know Andrea's has done a lot of work on this over the last two years or so, and this is something that we're increasingly looking at. We look at hydrogen as one of those potential solutions, but there there are a number of flexibility solutions that could also come into the space and really shape, really make an impact

on how the power system evolves. Hydrogen keeps coming up as one of these potential solutions, and there are kind of two questions around this that I have. One actually is around the emissions associated with hydrogen. So we know that gas is cleaner than coal, and so there was a transition to that at one point in a big discussion around how gas actually burns so much cleaner and is this better option? And now we've moved away from gas and the associated emissions and are starting to talk

about hydrogen more. It is still not absolute zero. It's net zero that we're headed towards. So invariably some level of emissions will be tolerated. And in this cleaner, greener fifty year out in the future that I hope we all reach, will the emissions associated with hydrogen still be tolerated when we get there, or will that then become something that we will need to transition off of with

better solutions in the future. We love capped the production of hydrogen in the report in two different ways, so Europe can go fully green. It can just use wind and soda to produce green hydrogen using electrolysis, and that we find essentially requires nothing short of one point five terra wants of additional wind and solar, which is close to doubling what we need for the power system, so it's it's a massive amount of additional renewable energy passed

you need. Of course, Europe could explore options with importing hydrogen. There then become questions around how do you how do you regulate and standardize, make sure that you know that that hydrogen is green, and how do you make sure that the transporting it around is green. All of those considerations to take into effect I think I think will become a material in the future, especially if there are constraints to actually delivering all of the green hydrogen needs

in the in the region domestically. We also did look at another way that Europe could produce green hydrogen, and that's for electorallyzers to also use some of the you know, would be wasted wind and solar generation on the grid. So essentially we looked at the curtailment profiles from our power system modeling and essentially concluded that that can help to reduce by about three gig or what's the need

for additional wind and solar capacity. The constraint there is that there is only so much energy that gets wasted from the power system, and you know, you can't just rely on that to produce zero emissions hydrogen. So there is a risk, as you rightly point out, data that during that transition, if we have grid connected electrolyzers, it's very difficult to be certain that they won't be using fossil fuel electrons during the time, you know, during the

transition period. And and actually certifying that that is that that is green is is becoming an increasingly important consideration, not just for people like US modeling modeling this, but also for investors that are looking at these projects and wanting to be sure that you know, the hydrogen that their projects want to produce will be able to be

labeled as green. I think here just to add is the importance of actually delivering on the carbonization of the power sector, right Like people are worried about how hydrogen will be produced and whether it's green or not. I'd say, if we're producing it with electricity, it's a big first step forward. And then we need to make sure we delivered the green electrons, that this hydrogen needs to be green.

And I'd say, I'd say again, you know, of course there there are costs involved in all of that, but it all comes back to exactly this question, right like how easy or hard? And you know, we started from this how easy or hard is it to build renewables in Europe today? And and what sense does it make

to building yourbles economically or not? In the answer is it does make sense economically, and so we need to look at the other problems that surrounded the sector, which is, you know, we've heard them many times, permitting and and land use and all of that that might limit how

much wind and solar we we might send. One of the favorite things that I've heard from people in the industry who really like dealt with the question of like where you're building in newables and how it's like everyone is in favor of renews everyone, right, like in Europe especially, people love renewables until you build them next to their house, and then they all become the most staunch anti environmentals.

Now that's a bit cynical, of course, as of you, but it's it's widely too and and in a way, I'd say that's that's the big question, right, how do we unlock the renewable revolution in the electricity grid such that we can then safely shift our transportation are heating our hydrogen to the power sector. Well, when you bring that up to the renewables and the nimbiism that not in my backyard, folks, not wanting it necessarily near them.

Is it going to be possible to find all the places that we need in order to build out renewables, not just to electrify certain parts of the industry, but then also to create all of the hydrogen we need? And what are the web use constraints that were really looking at in what is reasonably densely populated part of

the world. We actually answer this question. We looked at why you're will actually need to deploy on shore wind and PV to produce all of that clean electricity and green hydrogen in the net zero and we conclude that the land requirement is about three percent of land use, up from just nor point to percent used for technologies like conshore wind and PV. That's kind of putting it into context. Three percent of land. What does that roughly represent.

It's slightly around the mark where the roads kind of use this amount of land use today. So this isn't an impossible amount. You know, development of this size is not inconceivable, but it will be really important to you know, keep evaluating how public acceptance of renewables evolved, and it's actually becoming more important in certain regions where the renewable

energy saturation is getting higher. So we we we have looked at what a land constrained scenario for Europe would look like, and we do find that in total we end up with quite a sizeable amount less on shore wind I think around two hundred gigs and instead around a hundred and fifty gig. What's more offshore wind, because that's the next cheapest kind of technology to deploy kind of bulk electricity to the grid. So that's the first thing, is that really this the land constraints when we when

we consider them, really impact onshore wind. Now the regional implications aren't evenly distributed either, So Germany and Italy were both the most heavily impacted. In our land constraints scenario, we found that offshore wind in Germany delivered nearly half of all their power by and that's compared to just fifteen percent in our net zero scenario without those land

constraints in place. Another kind of risk is that we found in that scenario that Germany actually relied on more gas in the near term because of the slower rollout of onshore renewal bals and a longer time needed to

allow offshore wind to scale and bridge that gap. So I think you know, when we when we're thinking about land constraints and how this plays out in the near term, really that the onshore, the onshore renewables are going to be absolutely critical to really squeezing out the thermal generation mixing that's needed to kind of meet the current targets that Europe is setting. And speaking of constraints, all of this is going to take money. So let's talk a

little bit about investment. Do we see signals that the finance community is essentially looking to invest in these sorts of projects and what does that mean in the near term and what does that mean in the longer term. I mean, are we seeing signs that this is a space where there is a good amount of investment flooding into it. I'd say they are not here. The signals

are somewhat mixed, at least at the moment. For a very long time, Europe has relied on subsidies right then, So in that sense, it's very hard to get a clear view on what has been driving investment in the renewable sector because who doesn't want in a way. I'm not going to call it free money, but you know, it's a relatively safe return, and if you know what you're doing in Europe, you could lock in a good

return with you know, good fifteen years subsidutes. Now, subsidies in Europe are not necessarily going away, but they're changing in nature and how they're delivered. In Germany, for example, they're given as a top up to the power price, or you're exposed to the power price, and it makes some occasions we've seen projects going and bid zero, you know, they want to zero top up so they have a

full exposure to the market. And in Spain we're seeing a lot of private interest in building projects without the need, without you know, subsidies backing them, and instead going straight to the market and maybe signing a power purchase agreement with a court, you know, with a company that takes the power. But in general, I would say, you know, we need around five point three trillion dollars in investment over the coming three decades deliver on the net zero scenario.

So that's quite a bit of money. And when we look at our power price modeling analysis, what we find is that the long thought of you know, kind of short term contracts maybe one to three years out, a lot of reliance on spot markets and all that just doesn't doesn't make the cut. You do need to create that longer term price stability to drive the investment forward. And this is in a way where what subject is

also showed is that people want long term stability. So I'd say for the time being, the investment interest is there and the money is going in there even where when no subjecties are involved. Part of the spike could is also attributable to the rising in carbon prices over the last few years and now some commodity prices that is essentially making the power market a very attractive place to go, even if you don't have some kind of

price stability into the future. We're doing some analysis in Spain today essentially cutting off three or four years from your investment horizon just by like being online this year or last year due to the high prices. But at some point we're gonna have to see a shift towards longer term thinking and the the the options there, i'd say,

are a bit mixed. You could have a more market based approach, whereby governments don't intervene and essentially the market is left to find what length of contracts are needed and how many of them and for what portion of your project output. Or you could have more centralized approaches such as continued options for subsidies and maybe capacity mechanisms, and and the jury is still out on which one

is better. Probably the centralized mechanisms run by governments delivered targets, you know, deliver on targets in a more consistent way, and the volume, let's say, is in control of centralized planners. But it creates a little bit of a dependence on the system, you know, kind of like it's very hard to shake that off. The alternative to kind of like incentivize the industry to take a more long term view, which for a long time they haven't done. And the

reasons are are many, and Beno has analyzed them. But incentivizing the industry to take a long term view would then create a sustainable environment where this system just propagates itself forward and investment becomes a private enterprise with little to no government intervention. And it's primarily driven by the fact that building then yourbles is cheaper and there is a way to also meet them repay for themselves, right because now they're cheaper, but people struggle to see, Okay,

how do we pay for them? And and I say that that's where markets come in, and the good market design is is important in also making them financially sustainable.

And just to kind of underscore the fact that in order to get that five point three trillion invested in in the nets aeria scenario that we identify as needed for that's just for the clean energy supply, so that's your power and green hydrogen capex needs that will rely on those really robust investment signals, which, as Andrea said, is fundamentally the market design and the investment frameworks that are in that are in place, and I don't think in my time at be enough, I've ever been in

such an environment where this has been under the microscope

so severely. You know, the the energy crisis is exposing some of the challenges of the market in its current design, particularly for for wholesale electricity and gas prices, and I think questions around reform and regulatory interventions are still very much influx, and we're going to be having to follow this super closely because it will affect all of those, um you know, all of those factors that go into driving investment into clean technologies, and I think will be

a really hopefully something that can help accelerate the move towards as Andre has mentioned, the long time pricing and signals that you need in order to actually get projects on the ground. Yeah, hopefully it ends up in that direction, but I think there are risks that we go back to more heavy handed regulatory interventions that maybe create distortive effects or or maybe hinder hinder the transition in ways

that we can't really anticipate just yet. So let's say I'm in another part of the world and I am not part of the European system. What is it that I'm looking at most closely. Is it the market design question that you just brought up, or is it the technology and the l c o E declines for certain technologies that are being invested in more heavily in Europe? What is it that I am watching most closely? If I were in the America's or in the Asia Pacific area,

I think it's gas. Honestly, I think that's time everyone is fast needed by the gas discussion that's playing out and how your steps away from its reliance on particularly those Russian imports. I agree with gas and call maybe being the two things that people look at, but either to say something also that maybe it's a little bit older news but still very relevant, which is not. Denmark

two years ago hit something like renewable energy. The UK with its officure wind rollout is I'm going to see a very big increase in order like getting to six renewable energy by twenty thirty. So if I'm looking at Europe from the outside, I'd say, how are they making

it work? How are they making these systems remain stable, deliver the power that that they need while also kind of the carbonizing and and I'd say for some time to come, Europe will remain at the forefront of kind of like setting records for you know, shares of electricity meeting shares of renewable EA, tristy meeting demand going from a dred percent over one day to a percent over one week, to a percent over one month, and so

on and so forth. And I think that is a very interesting and important dynamic to to keep an eye out for because it's also one of the biggest criticism for in yours how do we go from one to thirty? Yeah, and I think offshore wind, especially from the policy perspective, is increasingly that solution. That's the kind of the go

to for the post. I don't time frame. You know, we've we've just had that announcement for the fifty gig of what's in the UK, and that's you know that that is a really sizeable ramp up in ambition from just the thirty gig and what's two years ago and forty gigo what target that they said a year ago? So yeah, I think I think Andreas is right that that that is one of the hottest areas I guess

to be to be looking at. So this is now an annual report that served second time running it correct it is, Yeah, what other parts of the world and other teams are also doing an energy transition outlove Now, you know, we don't have a plan to formalize the publication for other regions yet, but I really hope that we can develop and use this kind of methodology to really add that regional color to how we develop on

net s aerio scenarios. I know that's going to be a really important dimension to how our new energy outlook evolved. I think in America's energy transition outlook would be super cool. I'd love to also start exploring the regions that maybe are less well served by by enough coverage, so really modeling things market like South Africa. I think that would be that would be really interesting to start thinking about their long term transition pathways, just because it looks so

fundamentally different to what we have in Europe. And while they can take advantage of some of the solutions that we have, there are other things that are constraints that you know, the sectors in these regions face that we just don't have head So final question, and I know the Russian invasion of the Ukraine came up several times in the podcast today, and one of the things they all of Europe is thinking about will this accelerate or

decelerate the energy transition. Many people are very much focused on the fact that, you know, wind and solar is a way to reduce reliance on gas and therefore imports. But equally there are policy decisions that are being made right now in order to bring costs down and also find imports from other parts of the world, and invariably with inflation at such high levels, that is part of

the role of government to look at it. So if you had to look into the future, and I know that this is just an opinion and an educated guests, do you think that the current political climate, in particular with what's happening in Ukraine, is this going to accelerate or decelerate the energy transition in Europe? I think this accelerates things from renewal balls and as we've kind of laid out earlier, there's so many signs pointing to scaling the sector and there are real barriers, but I think

that this is good news for for renewables. Where I think there are risks is you know, we're we're looking at a situation where the European Commission's plans essentially could result in a dampening of the carbon price, which could essentially result in more coal used to alleviate the need for gas. So on the emission side of things, that's

not great. And I think the tension there between okay, great for more renewables, but in terms of the trajectory for for the reliance on other things like coal in the meantime is is going to be tricky to square. So I think this accelerates certain parts of the transition certainly. And I think the attention that now things like gas boilers are getting pacing pacing out gas boiler isn't instead putting heat pumps in that that's something that's needed to

come on the agenda for a long time. And I think that those those things, if the right policies of all comes in place, could be an accelerator. But yeah, it's very mixed and difficult to judge because of the

volatility that the market is currently in. I personally say that without necessarily trying to look into the future, I'll try to look at what has changed quickly over the last let's say six months to a year, and the one big shift that I saw, and I saw it during the the energy price crisis as well as the one that the high gas prices started and power prices started following, And I was like, oh, yeah, it's gas, but it's also wind, and I will get furious with that,

and if I keep on talking about that, that we'll get furious on the podcast as well. So I'm gonna stop there. But I used to tell people it's a gas story. This whole wind thing is just like a smoke screen. As time has gone by, I feel like that conversation around the fault of wind in the high power prices has subsided, if not gone away completely, and instead now a lot of people are saying, oh, we told you if we built more renewables, we'd be somewhat

more shielded today. And in a way, also another conversation has shifted around the long term pricing, which was one of the mechanics pricing mechanism that I was talking around earlier. A lot of people say, like, look, if we're building renewables with twenty year contracts, fixed price contracts right now, they would have to sell us electricity at a low price, even though power prices at the moment are you know, three or four times or or six times in some

places historical averages. So from that point of view, I'd say there's been a shift, a positive shift towards unwables, which I think personally was needed and in the long term it's going to create the stability. I share Emma's concern around the core increased colburn, but I think that if we stick behind the renewable growth, having a little bit more call for four or five years, it's actually

be overall cheaper. I'm gonna leave us more resources to the carbonize than if we went from a cold to gas transition only to then go from a gas to renewable transition. So I'd say my message is positive there. Yeah, I actually love that, Andreas. I was on my community this morning. I literally saw a an ad that had six words on it and it said when does cheap

gas is expensive? And it's an ad for like one of the renewable energy supplies here in the UK, And I think that that kind of says that all that that momentum shift and even in the public I now is coming on the fact that we would be less shielded from from this crisis had we I'm gone faster on renewables and those that have higher exposure to renewables are actually kind of coping with things a little bit better. So yeah, I think that's a really that's a really

important point to end on. Well, on that note, we'll see what the future holds, and thank you so much for joining today. Thank you Dana again in ten years and reportantly. We're going to come back again next year and tell us what's happened with the energetic Definitely be a big year from a policy standpoint, I'm sure, but no, I think so. I think so. Today's episode of Switched On was edited by Rex Warner of gray Stoke Media. Bloomberg an e F as a service provided by Bloomberg

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