Ongoing climate change calls for immediate action to reduce carbon emissions. This is true especially for the energy sector, responsible for the largest share in all sectors’ carbon emissions. The Paris 2050 agreement and the New European Green Deal call for reduced dependency on fossil energy sources.
These, and other government initiatives, aim to reduce carbon emissions by 55 per cent by 2030, in comparison to pre-industrial levels. They aim to be completely carbon neutral by 2070. Therefore, the energy sector needs to move towards renewable energy sources. As we know, they are essential to satisfy the world’s energy hunger in a climate conscious way.
A sustainable future without carbon emissions
According to the IEA, a common denominator in all sustainable future scenarios is the rapid growth of renewables, and at the centre of it, solar electricity generating technologies. When looking at current growth rates, renewables’ deployment accounts for around three-quarters of the total growth in energy generation.
However, a rising share of renewable energy is challenging the reliability of electricity grids and consequently their supply security. Energy storage and eliminating the intermittency gap (day and night, summer and winter) are essential for transforming our power systems.
Europe, in particular, is driving and demanding a decrease in carbon emissions and a shift within the power sector towards renewable and sustainable energy sources. In the European Green Deal, countries are called upon to take action. This deal serves as the newest growth strategy for Europe and aims at leading the entire continent towards becoming climate neutral by 2050.
Where to reduce carbon emissions?
With more than 75% of greenhouse gas emissions within the European Union attributed to the generation and use of energy, the energy sector is under significant pressure to adapt.
A mere 17.5% of the EU’s energy consumption in 2017 came from renewables. Unfortunately relative growth has slowed in recent years. Shouldn’t this be a wake up call for all of us?
Prioritising energy efficiency, developing a power sector based on renewables, allowing for an interconnected and fully digitalised energy sector, all whilst becoming more affordable, is essential for achieving a successful energy transition.
Current renewables deployment
Subsidies have played, and most likely will keep playing, a significant role in deploying renewable energy technologies. So-called feed-in tariffs (FiT) are a commonly used tool. If we were to be pernickety, though, feed-in tariffs are not actually a subsidy by definition. They are not publicly funded per se, but rather a provision for a surcharge in which energy consumers contribute (compulsorily) to the energy transition. this happpens through paying a surcharge in the form of differential costs (difference between costs paid and revenues received).
We usually refer to them as subsidies nevertheless.
Future renewables deployment
Many countries are moving away from fixed feed-in tariff schemes towards independent markets by approaching grid parity. This means that investors can obtain a reasonable return on investments, even without government interventions and subsidies.
This is especially true for the PV market, as photovoltaics are the cheapest energy source to date and are already an established and maturing technology.
However, shifting towards Power Purchase Agreements (PPA) and grid parity, seems to cause a reduction in investments in the photovoltaics markets. We can associate this to an increased investor risk.
This increased risk is associated with the decreasing role of FiT that are state-regulated and therefore provides investors with a sort of public creditworthiness.
Instead, with PPAs, the creditworthiness depends on who is buying the power. Naturally, this can, of course, vary greatly depending on who eventually acts as the off taker.
In Germany for example, the entirely state-owned Deutche Bahn has a lot of corporate PPAs. In this particular case, the investor receives a de facto public creditworthiness.
Contrarily, if a PPA is with a private company, there is no public creditworthiness. Consequently, the investor faces higher risks, which affects the financing of assets.
The need to reduce carbon emissions
Climate change has already dramatically and severely impacted upon the world that we live in. Natural disasters, misaligned temperatures, and mass extinction of animal species are happening at an unprecedented rate.
Let’s help our planet and ourselves by reducing carbon emissions!