In Times of Tension, Can Europe Build a Resilient Energy Future?

Robert Jeszke, Micha? Lewarski, Igor Tatarewicz, Maciej Pyrka (CAKE/KOBiZE/IOS-PIB)

The core of future energy security

In the future energy system the role of digitization and development of renewable energy sources will be critical, but the resources of steerable renewable energy remain limited. Achieving a secure and renewable energy mix will be impossible without significant investments in networks and storage systems - both in battery technology, pumped-storage power plants, and green hydrogen.

Smart grids play a key role in optimizing the production, transmission, and consumption of electricity, directly linking digitalization with energy security. According to the European Commission's Smart Grids Task Force, smart grids enable better integration of variable renewable sources such as wind and solar power. By using advanced technologies, such as real-time monitoring systems, automation, and data analysis, it becomes possible to better manage energy resources, minimize transmission losses, and adjust supply to fluctuating demand. This approach increases the flexibility of the energy system, improves the reliability of energy supply, and enables the efficient integration of renewable energy sources, which are characterized by variable production.

Technology neutrality and energy security

Due to the diversity of renewable energy resources, the geographical differences between EU countries, and varying attitudes towards nuclear energy, it is essential to allow technologies to compete rather than focus on a singular solution. This conclusion is supported by the European Commission's Energy Union strategy, which stresses that a technology-neutral approach will enhance competition and accelerate innovation across the bloc. We should ensure that technologies can compete with each other and not waste time fighting between countries about which technologies are best for the climate.

For example, stress corrosion problems in French nuclear sites (as identified by France’s nuclear regulator, ASN, in 2022) have underscored the risks of relying too heavily on a single technology - another aspect of energy security and led to a change in thinking about economies of scale. While building multiple units of the same design reduces costs, it also increases the risk of design errors being replicated on a larger scale.

The promotion of renewable energy is a priority as a technology with the lowest production costs, but combined with the costs of ensuring continuity of supply, nuclear energy should also find its place in future energy mixes. Electrification is definitely the path we should take, because we can transform electricity into any useful form of energy without emitting pollutants. The results of analyzes of all renowned institutions (including the International Energy Agency (IEA), European Commission, IRENA, etc.) indicate that the path to decarbonization leads to the electrification of all possible processes in the economy. Variable renewable energy sources are the technologies with the lowest variable production costs, as they incur no fuel costs, but their mismatch with demand poses challenges. Challenges that can also become opportunities if we take appropriate action.

Therefore, the development of storage capacities, as well as all possibilities of demand management, will be a direction that will play an increasingly important role in the transformation towards a zero-emission European economy in the middle of the century. Studies conducted by the European Commission project that Europe will need approximately 600 GW of storage capacity by 2050 to achieve climate neutrality[1]. The implementation of a dynamic pricing system will have a significant impact on the operation of the energy system, reducing the differences between average and peak demand, increasing the profitability of investments in energy storage and DSR (Demand Side Response) options.

Self-sufficiency – an increasingly important dimension of energy security

The Russian aggression against Ukraine has shown how vulnerable critical infrastructure can be and how important it is to ensure its security. As emphasized in the State of the Energy Union Report 2023 by the European Commission, the economy and households cannot function without energy, and defending the energy system may be one of the most important priorities of every country. This situation also showed how important it is to secure critical infrastructure – both against physical and cyber-attacks.

The basis of the European Green Deal, apart from mitigating the impact on climate change, is independence from the import of fossil fuels. Initially, it was only due to the costs of import, but today we know that reducing the import of fossil fuels is also an investment in energy security. Europe does not have sufficient fuel resources to become independent from imports, so the Green Deal was developed even before Russia attacked Ukraine. After the attack, this assumptions became even more important, which led to the development of REPowerEU - which was first intended to eliminate dependence on the import of fossil fuels from Russia.

The situation also showed how important the cooperation of neighbours within the EU is, and how important European solidarity can become. Energy security costs money, recent years have shown that fuels can become a tool in putting pressure on EU countries, but above all, it turned out that cooperation can reduce the costs of EU energy security.

Access to critical raw materials - new dimension of energy security

Critical raw materials may become as important in the future as fossil fuels are today. The transformation requires a huge amount of raw materials that the European and global economy has not needed to this extent before, as highlighted by the International Renewable Energy Agency (IRENA), which indicates that achieving climate goals will significantly increase the demand for materials such as lithium and cobalt[2]. This may lead to economically dangerous price increases for certain materials.

Therefore, Europe must start taking better care of its future interests and start fighting dependence on China as the main supplier of critical raw materials, batteries, electric cars and photovoltaic panels. Additionally, it is essential for the EU to diversify its international fuel supply routes by establishing partnerships and collaborating. In this context, ensuring stable fuel supplies until the EU can become independent from the import of fossil fuels is crucial. Such an approach will not only strengthen energy security but also contribute to greater price stability and protection against external market shocks.

Access to affordable energy supplies as the foundation of economic competitiveness

Europe's lack of energy self-sufficiency results in the need to import fuels, which leads to higher prices of fuels and energy carriers than in the USA and China. Higher prices of energy carriers first result in the relocation of energy-intensive industries outside the EU, then in subsequent elements of the product supply chain and, as a result, in the loss of competitiveness of industrial production.

Mario Dragi's plan to restore the competitiveness of the European economy indicates the need to increase the level of annual investments by EUR 800 billion. This plan indicates the need to develop new technologies and use the scale effect of the EU as a whole and not as individual countries. Only combined investments from member states can move the EU to a position of global leader, not regional leader. This plan also indicates the need to change the mechanism for determining electricity prices Europe is not able to take full advantage of the development of low-emission sources if prices are determined by closed units - fired with fossil fuels, mainly natural gas. Removing barriers related to permitting the construction of networks and low-emission sources in connection with and greater cross-border cooperation will support faster development of renewable energy and increase the rate of self-sufficiency growth.

Mario Dragi notes in the report that retail energy prices in the EU are influenced by taxes, levies and charges. Each of them serves separate goals. Together, they can account for a significant proportion of consumers' final costs and are higher compared to other regions. The report noted that it will take time before we see a major downward effect on energy prices played by decarbonisation. To remain competitive with international players facing no price on carbon or a lower imposition, the success of regulatory measures, including Carbon Border Adjustment Mechanism (CBAM), is a key. CBAM imposes fees on CO2 emissions associated with imported products within its scope. CBAM intends to prevent carbon leakage but even if it will cope problems with circumvent and downstream leakage, CBAM levels the playing field only on the import side. Exporters will still face a cost disadvantage as internal costs of allowances are not reimbursed. Emission fees (such as the EU ETS or ETS2) cannot be just a tax. They must be a component of new support mechanisms so that the transformation will be not only a burden but also a flywheel for development and restoring competitiveness.

Number of problems to solve related to emission cost and energy security may increase due to the possible further enlargement of the European Union. New countries will have to implement the ETS system (ETS1, ETS2 and another one?), but this effort cannot be made in one step. Europe must construct a strategy tailored not only to today's but also to the future challenges it faces or may face. For changes such as decarbonization to become a development opportunity, it is necessary to overtake them and not only to minimize their negative effects. Therefore, Europe must be ready not only to trade with countries with different levels of emission fees or their absence, but also to expand the community with new members.

Energy security challenges for Poland

The biggest challenge regarding energy security in Poland is planning the shape and path of transformation of the energy mix. Historically, Poland relied on own coal resources.. Nowadays, however, the use of coal is becoming increasingly expensive due to rising mining costs and the burden of emissions fees. Poland is just before the stage of national consultations on the new NECP , then the final version will be submitted to the European Commission. Photovoltaics, wind farms at sea and on land will play an important role in the future polish energy mix, and nuclear energy will provide a stable basis. These conclusions are supported, among others, by analyses conducted by the Centre for Climate and Energy Analysis (CAKE). Moreover, the rapid pace of transformation and high investment costs of new technologies as well as the need to modernize the electricity grid, pose significant challenges for the Polish energy system.

Conclusion: The future of energy security

In times of geopolitical tension, Europe must build a resilient energy system that balances innovation, security, and sustainability. The path forward involves significant investments in renewable energy, smart grids, and storage technologies. At the same time, securing access to critical raw materials and ensuring cooperation between EU member states will be essential for reducing dependency on external energy supplies and ensuring long-term stability. A balanced and technology-neutral approach will ensure that Europe can continue to innovate while securing its energy supplies. Cooperation between member states will remain essential in managing the geopolitical risks and reducing costs associated with energy security.

For countries like Poland, the transition from coal to renewable energy and nuclear power presents both challenges and opportunities, demanding careful planning and international support. Ensuring that this transition is well-managed and adequately financed will be crucial for the country’s energy future. Ultimately, Europe's energy security will depend on a combination of renewable energy, nuclear power, critical raw material security, and strengthened international cooperation.

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[1] COMMISSION STAFF WORKING DOCUMENT Energy Storage - Underpinning a decarbonised and secure EU energy system, Brussels, 14.3.2023 SWD(2023) 57 final

[2] https://www.dw.com/en/why-raw-materials-could-impact-speed-of-energy-transition/a-59950853