As Support Ends For Fossil Fuels What’s The EU’s Next Energy Source?

Renewable energy projects and businesses surged in the 2010s. Yet, fossil fuel energy sources remain a big player in the energy market. What will be the consequences of the EU – through the European Investment Bank (EIB) – essentially ending funding for fossil fuel energy?

Renewable Energy In The EU

The current state of renewable energy in the EU is a highly segmented one. Neither renewable nor fossil fuel energy production makes up the majority share of the total energy market, according to data released by the European Commission. Although there is policy shift aimed at decreasing energy production using solid fuels, the three largest production sources in the EU continue to be nuclear energy, solid fuels and gas (over 60 per cent of the current total energy production).

The share of renewable energy out of total energy production in the EU is currently composed of around 13 per cent wind, 10 per cent hydro, four per cent solar and three per cent biomass energy production. Although all feature the same concept of energy production, they contribute to the growth of renewable energy production unequally.

Wind Power Surging

Wind energy has been the main growth source. By comparing the same months from 2016 and 2019, a stable 2 per cent increase can be seen. Additions of new wind energy facilities look to be the primary cause of growth. Decreasing costs associated with wind energy production are also contributing to further growth. Renewable energy market share growth also looks to be partially caused by the decline of the share of fossil fuel-based energy. Together, increasing production costs for coal energy and the end of governmental support for fossil fuel projects are working according to the EU’s 2050 Long-Term strategy.

Public Opinion On EU Support For Clean Energy

Public opinion about the direction the energy industry in the EU is developing towards could be an important factor. On one side, in Eurobarometer survey released in September 2019, 90 per cent of respondents agreed that “the EU must ensure access to clean energy”. However, the support for investments into clean energy in the next decade ranges from 29 per cent in Slovakia to 65 per cent in Sweden – clearly a substantial difference. Hence, because of intra-EU differences, public opinion could direct the development of the energy sector to a different path. Disagreements between regions with already well-developed renewable energy sectors, and those without, could emerge.

The Renewable Energy Picture Outside The EU

Outside the EU, the share of renewable energy out of the total gross electricity consumption is higher in all EU candidates (except Turkey), compared to the EU’s share. The main drivers of renewable energy are also quite different. The four candidate countries with a higher share of renewable energy sources than Turkey’s all boast ample hydroelectric and solar resources, thus taking advantage of a readily available renewable energy source.

The Asian renewable energy market presents a mixed landscape. Most Asian countries are either rich with fossil fuels or are importing fossil fuels for energy production from their neighbours. In Asian countries rich with fossil fuels – particularly West Asian countries – renewable energy projects are taking off. Increasing the share of energy generated from a readily available resource, such as solar radiation, will take time. Nevertheless, it is one of the best regions to develop this source of energy. Creating a stable source of electricity generation from a readily available resource should provide insurance against any future volatility.

In Asian countries with lower reserves, renewable energy development isn’t a top priority. Even with lower fossil fuel reserves, the countries can either import fossil fuels from their neighbours, or use their domestic resources in cases where populations are small enough.

The Economics Of Renewable Energy

The competitiveness of industries and the businesses making them up depend on several factors. According to Porter’s Analysis, factors like new entrants into the industry and bargaining powers of suppliers and buyers make an industry more or less competitive. On the business-level, businesses become more competitive through increasing market shares and most times, decreasing good or service prices.

This is why the decreasing financial supporting for fossil fuel energy projects is going to make a negative contribution to competitiveness in the short term, and a positive one in the long term.

The threat of new entrants into the energy industry is going to decrease because of decreased funding for fossil fuel energy projects. Since fossil fuel-based energy producers could see a decline in their share of the total energy output and will have to cope with higher production costs, their competitiveness will decrease. Although competitiveness will decrease in the short term, funding being redirected to renewable energy projects should eventually increase its level.

For businesses where energy is an important component of production, the decision to end funding support from the side of the EU will have a negative contribution to the production process. Renewable energy production has only been falling to the lower price range of fossil fuel energy. This means that businesses will see energy costs for production remaining the same, or even increasing with lower funding for fossil fuel energy projects.

The individual differences between energy production in the regions of EU are quite large. Household electricity prices can differ as much as two times between Western and Eastern EU members. Different energy production sources also dominate in different EU regions. Southern EU states produce energy mostly from oil, gas and coal, while other energy sources dominate in Northern EU states.

There is also strong intra-region variation. Oil, gas, and coal electricity production shares range by 15.1 percentage points in-between Northern EU neighbours Finland and Sweden, for example. Certain regions are going to be better off because of the decrease in funding from the European Investment Bank for fossil fuel energy projects. Northern and Eastern states could see even more funding for renewable energy projects. At the forefront of renewable energy production as the total share of electricity production in the EU, Northern and Eastern states could hit even higher market shares.

Western and Southern regions will be hit the hardest by this measure. These are the regions where renewable energy production is in the under 10 per cent range. Dealing with lower funding from the EIB could prove to be difficult.

The Future Of Energy In The EU

The future of the energy industry depends whose needs are ultimately put first. For businesses, choosing the still cheaper fossil fuel-based energy could be the right choice. For the public, clean energy is important, but unequally so in different member states of the EU. If the same trends will continue, a larger discussion on the demands and perspectives of the public and businesses should emerge.

Fuel costs for energy production are also going to play a role in the direction the industry will be going towards. The majority of the energy produced in the EU is made from nuclear and fossil fuel sources. The prices of the two materials could increase in the future. This could be the case because of the rising costs of new nuclear reactors and ever-volatile fossil fuel prices. However, it is possible that more efficient building of new nuclear facilities could solve the rising cost problem. If this happens, nuclear energy is likely to maintain its share out of the EU’s total, while fossil fuel’s share will decline even further.

Components for renewable energy facilities could become cheaper or more expensive in the future. On one side, technology related to renewable energy is developing. Along with it, the efficiency of renewable energy production facilities could become more affordable. On the other, storage costs pose a challenge to further decreases in costs. Even if the costs of building the facilities will rise in the future, they could be offset through predicted increases inefficiency.

The inevitable fact of energy consumption in the EU is that it will grow significantly in the coming decades. Demand for electricity will grow, and possibly at even faster rate if industries reliant on electricity use will continue to develop. Legislative initiatives by the EU have aimed to increase energy savings. These measures to decrease energy consumption have only been partially successful (for example resulting in a seven-year decrease, then increases). Increasing demand and funding being redirected to still developing energy technologies could produce new challenges in the future.

Negative consequences for businesses and certain regions of the EU could be the price paid for the ended funding for fossil fuel projects. It remains to be seen whether this step to achieve long-term energy goals will be the better choice when weighed against its negative consequences.