The Energy Transition | European Commission announces €250 billion Green Deal Industrial Plan

This week we look at the European Commission's new Green Deal Industrial Plan, Northern PowerGrid's community DSO project, wind and solar accounting for a record share of EU electricity generation and funding for the energy transition surpassing $1 trillion globally.

European Commission announces Green Deal Industrial Plan

The European Commission announced its Green Deal Industrial Plan on 1 February 2023. It has been launched to increase Europe's competitiveness in clean technologies and boost investment, skills and raw material supply chains. The plan will complement the European Green Deal announced on 11 December 2019 and is based on four core pillars:

• A predictable and simplified regulatory environment.
• Speeding up access to finance.
• Enhancing skills.
• Open trade for resilient supply chains.

Legislation proposed as part of the plan includes a Net-Zero Industry Act, which would provide a regulatory framework geared towards encouraging the quick deployment of measures aimed at increasing net-zero industrial capacity. It also includes a Critical Raw Materials Act, which would ensure sufficient access to rare earth materials that are used in the manufacturing of key technologies and help reform the design of electricity markets. It will also explore the creation of a Critical Raw Materials Club to foster green free trade agreements with third countries.

The plan also includes proposed amendments to competition policy which would make it easier for member states to grant aid to speed up the transition to net zero, for example, through amendments to the Temporary State Aid Crisis and Transition Framework. There would also be a step-up in funding for clean technologies which would initially be facilitated through amendments to existing funding programmes to unlock €250 billion of short term bridge funding.

The plan follows the introduction of the Inflation Reduction Act in the US which is designed to unlock climate and energy investment capabilities through a range of subsidies and policy interventions. It is hoped that the Commission's plan will accelerate progress towards the goal of making Europe the first climate neutral continent by 2050, as specified in the European Green Deal.

Northern Powergrid launches community DSO scheme

Northern Powergrid has partnered with consultancies TNEI and LCP Delta to launch a community Distribution System Operator (DSO) innovation project that will develop a framework for integrating Smart Local Energy (SLE) Systems, in order to incentivise decarbonisation. The project has received £14.5 million of funding from Ofgem, and will allow communities to have more control over their own energy and assets.

SLE Systems have the potential to increase the electricity system's flexibility and efficiency through the management of electricity demand and availability. Low carbon technologies such as solar energy generation, heat pumps, EVs and EV charging will be supported through the scheme, and distribution network operators (DNO's) will become more active in helping consumers integrate these newer technologies. The project will encourage communities to create value on the distribution systems rather than the transmission system.

The project will trial different approaches within four local communities, encompassing rural and urban networks, in order to best identify how communities and stakeholders can work with DNOs in order to deploy SLE Systems. It is hoped that the successful approaches can then be rolled out across the majority of network areas. According to LCP Delta, the project could result in a direct energy cost saving of over 10%.

Funding for the energy transition surpasses $1 trillion globally

BloombergNEF has published an analysis of global funding for low-carbon energy technology investment. The report indicates that funding for the transition to net zero surpassed $1.1 trillion globally in 2022. This equates to a new funding record which has meant that investment in low-carbon technologies, for the first time, has reached parity with capital deployed in support of fossil fuels.

The report states that there was record investment in 2022 across almost every sector including renewable energy, energy storage, electrified transport, electrified heat, carbon capture and storage, hydrogen and sustainable materials. The only area which didn't see record growth was nuclear which remained broadly steady across the year.

The report highlights that China is the leading country for attracting energy transition investment, accounting for almost half of the global total. As part of this, China is leading the way on investment in clean energy supply chains, as well as in investments in manufacturing facilities for clean energy technologies.

As regards the impact of the levels of investment detailed in the report, Albert Cheung, Head of Global Analysis at BloombergNEF commented that, "[t]hese investments will drive short-term job creation and help to address medium-term energy security objectives. But much more investment is needed to get on track for net zero in the long term."

Wind and solar make up record share of EU electricity generation

Ember, an energy think tank, has published its European Electricity Review 2023 which analyses the EU's electricity transition in 2022 and what can be expected from 2023.

The report indicates that in 2022 wind and solar made up a record share of electricity generation across the EU, accounting for 22% of generation. This overtook fossil gas which accounted for 20% and coal which accounted for 16%.

Despite this record year, the transition away from fossil fuels was hampered by a combination of drought across Europe (leading to the lowest level of hydro production since 2002) and unexpected outages in French nuclear reactors around the time that German nuclear units were closing. This created a gap of 7% of Europe's total energy demand. Just over 80% of this deficit was made up by wind and solar generation. However, the remainder was made up using fossil fuels.

The report suggests that the surge in solar production in the EU is only just starting and that we can expect this to continue to grow. In 2022, 20 EU member states achieved their highest ever share of solar electricity generation, with the Netherlands leading with 14% of power from solar. In October 2022, Greece ran its entire electricity network for five hours on renewables only and it is expected that it will reach its 8GW 2030 solar generation target by the end of 2023.

Wind generation across the EU increased by 8.6% compared with 2021, however, overall this is lower growth than was seen in 2015 and 2017. The share of wind power in the electricity mix also grew by 1.6% to 15% in 2022. This increase was driven heavily by Germany and Sweden whose production increased by 10% and 22% respectively.

Looking ahead to 2023, the report expects that hydro generation will pick back up and that French nuclear units will return. It is also expected that electricity demand will continue to decline. It is hopeful that 2023 will be the year that "the full scale of the transition becomes clear."

This article was written with the assistance of Saskia Zant-Boer and Hannah Wooderson, Trainee Solicitors.