Our most important findings

Climate Protection

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    New renewables generation sharply increased in 2017, with wind, solar and biomass overtaking coal for the first time.

    Since Europe‘s hydro potential is largely tapped, the increase in renewables comes from wind, solar and biomass generation. They rose by 12% in 2017 to 679 Terawatt hours, putting wind, solar and biomass above coal generation for the first time. This is incredible progress, considering just five years ago, coal generation was more than twice that of wind, solar and biomass.

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    But renewables growth has become even more uneven.

    Germany and the UK alone contributed to 56% of the growth in renewables in the past three years. There is also a bias in favor of wind: a massive 19% increase in wind generation took place in 2017, due to good wind conditions and huge investment into wind plants. This is good news since the biomass boom is now over, but bad news in that solar was responsible for just 14% of the renewables growth in 2014 to 2017.

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    Electricity consumption rose by 0.7% in 2017, marking a third consecutive year of increases.

    With Europe‘s economy being on a growth path again, power demand is rising as well. This suggests Europe‘s efficiency efforts are not sufficient and hence the EU‘s efficiency policy needs further strengthening.

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    CO2 emissions in the power sector were unchanged in 2017, and rose economy-wide.

    Low hydro and nuclear generation coupled with increasing demand led to increasing fossil generation. So despite the large rise in wind generation, we estimate power sector CO2 emissions remained unchanged at 1019 million tonnes. However, overall stationary emissions in the EU emissions trading sectors rose slightly from 1750 to 1755 million tonnes because of stronger industrial production especially in rising steel production. Together with additional increases in non-ETS gas and oil demand, we estimate overall EU greenhouse gas emissions rose by around 1% in 2017.

  5. 5

    Western Europe is phasing out coal, but Eastern Europe is sticking to it.

    Three more Member States announced coal phase-outs in 2017 - Netherlands, Italy and Portugal. They join France and the UK in committing to phase-out coal, while Eastern European countries are sticking to coal. The debate in Germany, Europe’s largest coal and lignite consumer, is ongoing and will only be decided in 2019.

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    Renewables will provide 50% of SEE power demand in 2030. The European energy transition is underway.

    By 2030, renewables will account for 55% of power generation in Europe, and 50% of power generation in SEE. Nearly 70% of renewable power in SEE will stem from wind and solar, given the excellent resource potential of these renewables in the region.

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    Cross-border power system integration will minimise flexibility needs. Wind and solar pose challenges for power systems due to their variable generation. But weather patterns differ across countries.

    For example, wind generation can fluctuate from one hour to the next by up to 47% in Romania, whereas the comparable figure for Europe is just 6%. Moving from national to regional balancing substantially lowers national flexibility needs. Increased cross-border interconnections and regional cooperation are thus essential for integrating higher levels of wind and PV generation.

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    Conventional power plants will need to operate in a flexible manner. For economic reasons, hard coal and lignite will provide less than 25% of SEE power demand by 2030.

    Accordingly, conventional power plants will need to flexibly mirror renewables generation: When renewables output is high, conventionals produce less, and when renewables output is low, fossil power plants increase production. Flexible operations will become an important aspect of power plant business models.

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    Security of supply in SEE power systems with 50% RES is ensured by a mix of conventional power plants and cross-border cooperation.

    The available reserve capacity margin in SEE will remain above 35% in 2030. More interconnectors, market integration and regional cooperation will be key factors for maximising national security of supply and minimising power system costs. SEE can be an important player in European power markets by providing flexibility services to CEE in years of high hydro availability.

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    From 2019, a “Lusatia Structural Change Fund” should be established within Germany’s federal budget.

    The aim of the fund would be to strengthen the region’s economic attractiveness and its desirability as a place to live. It should help to: preserve the region’s industrial character, strengthen innovation among its businesses, support its academic institutions, equip it with an up-to-date transport network and digital infrastructure, and foster a lively civil society that retains local residents while also attracting new ones.

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    The Lusatia Fund should be endowed with 100 million euros per year for 15 years, to be divided equally between four key pillars: business development, academia, infrastructure, and civil society.

    In each of these areas, it should be possible to use the available funds in a flexible manner (i.e. to shift funding between areas), and funds that are not withdrawn should not expire (i.e. funding should be transferable to subsequent years).

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    Regional stakeholders from the spheres of business, academia, politics, and civil society should play a key role in awarding of funds.

    The federal government should only play a monitoring and coordinating role, as part of a steering committee; decisions on funding priorities should be made by stakeholders from the region.

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    The funds assigned to the civil society pillar should be administered by a new “Lusatia Future Foundation.”

    Raising the attractiveness of a region means more than just promoting its economy, academic institutions and infrastructure. Ultimately, the vibrancy of a place depends on art, culture, lived traditions and the quality of civil society. These factors require ongoing support, which can be guaranteed in the short term through the Structural Change Fund and in the long term through developing a foundation with a strong endowment.

From study : A Future for Lusatia
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    The sustainable energy transition in the heating sector is currently lagging and buildings sector goals are unlikely to be met by 2030.

    Reducing emissions from the current level of 130 million tons of CO2 to between 70 and 72 million tons in the next 11 years will require ramping up all available technologies across the board. These include insulation, heat pumps, heat networks, decentralized renewable energy and power-to-gas. Cherry-picking the various building technologies is no longer an option because of past shortcomings.

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    Energy efficiency in existing buildings is a prerequisite for technology neutrality.

    Ensuring adequate competition between various energy supply options such as renewable energy, heat pumps, synthetic fuels and decarbonized heat networks requires reducing final energy consumption by at least a third before 2050. The more efficient a building is, the more realistic any necessary expansion on the generation side will be.

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    Power-to-gas can only complement aggressive efficiency policies in the buildings sector, not replace them.

    Synthetic fuels are a significant component of energy supply in all 2050 climate protection scenarios. But their contribution by 2030 is only limited, and even between 2030 and 2050 they are considerably more expensive than most energy efficiency measures in the buildings sector. In addition, the bulk of generation from power-to-gas may be allocated to other markets (industrial processes, shipping, air travel and transport by truck).

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    To successfully implement the heating transition, we urgently need a roadmap for promoting energy efficiency in buildings by 2030.

    To this end, a package of policy measures is needed, including changes to relevant laws, regulations and energy tax laws, as well as an overhaul of funding programs. The heating sector goals for 2030 and 2050 can only be met if the installation rate of all building-related climate protection technologies is quadrupled.

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    Gas replaced coal, and hence European power sector emissions fell drastically by 4.5 %.

    European coal generation fell by 94 TWh and gas generation increased by 101 TWh, resulting in 48 Mt less CO2 emitted. Half of this happened in the UK, but also Italy, Netherlands, Germany and Greece saw switching from coal to gas. However, gas generation was far from reaching a record – it is still 168 TWh below the 2010 level, showing that more coal-gas switching is possible without new infrastructure.

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    Renewables increased only slightly from 29.2 % to 29.6 % of the electricity mix, mainly due to bad solar and wind conditions. Radical price falls give hope for future growth.

    Solar and wind conditions were generally below average in 2016, compared to well above average in 2015. However, with new capacity installed, overall generation still saw small increases. As to prices, 2016 saw record low renewables auction results with only 49,9 Euros/MWh for wind offshore and 53,8 Euros/MWh for solar, both in Denmark.

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    Electricity consumption rises slightly by 0.5 %, with European GDP rising by 1.7 %.

    Only two countries saw falls in electricity consumption in 2016, most had modest increases. Investment going into energy efficiency is apparently sufficient to prevent electricity consumption from rising but not enough for electricity consumption to begin structurally falling.

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    The structural oversupply of the EU-ETS has passed the landmark of 3 billion tonnes of CO2, as 2016 added another 255 million tonnes CO2.

    The reason is that ETS emissions are structurally below the cap – mocking the concept of a “cap-and-trade” system. To play a meaningful role in EU climate policy, the EU ETS needs to be fundamentally repaired.

  5. 5

    The outlook for 2017 is for further big falls in fossil generation – but whether this is coal or gas is uncertain.

    2016 gave a glimpse of the rapid falls in emissions that are possible with decreased coal production. But a coherent European policy approach to continually increasing renewables and to a just transition in the context of a coal phase-out is needed to ensure that the CO2 reductions of 2016 are continued into the future.

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    As of 2015, renewable energies are Europe’s dominant power source, with a 29 percent share of the power mix.

    Nuclear power comes in second with 27 percent, coal (hard coal and lignite) amount to 26 percent. Among RES, wind power increased significantly by more than 50 terawatt hours to 307 terawatt hours in total. Hydropower produced much less due to less precipitation.

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    Three key trends in European power production have emerged in 2010-2015: gas and nuclear power are losing ground, renewables are on the rise while coal is in 2015 back on 2010 levels.

    From 2010 to 2015, gas demand fell by more than a third, while renewables increased by 35.9 percent. Nuclear power production decreased slightly (-6.3 percent) and, following a slight decrease in 2014, coal (hard coal and lignite) returned to the 2010 level in 2015.

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    CO2 emissions in the European power sector increased in 2015 by 2 percent. They could be lower by some 100 million tonnes if the decline in fossil power production since 2010 had been coal instead of gas.

    The average price of a tonne of CO2 in 2015 was 7.60 euros, which leads to coal-fired power plants having lower marginal costs than gas-fired power plants. Coal therefore outcompetes gas throughout Europe, which has resulted, for example, in the high coal power exports in 2015 from Germany to its neighbours.

  4. 4

    Outlook: Four major developments will probably characterise 2016: more RES, less coal, less consumption and lower CO2 prices.

    Additional capacity in mainly the onshore and offshore wind energy sector will increase RES production by another 50 terawatt hours. The carbon floor price in the UK, yielding a CO2 price signal of some 30 euros per tonne, will push out coal in the UK in favour of gas. Further efficiency developments and the relatively mild winter will lower power consumption. The demand for CO2 allowances will therefore decrease, leading to lower CO2 ETS prices in 2016 than in 2015.

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    Europe needs a “Renewable Energy Cost Reduction Facility (RES-CRF)” to fill the high-cost-of-capital-gap which currently exists in many member states in Central and South-Eastern Europe.

    Wind and solar are today cheap technologies that are on equal footing with coal and gas. However, high cost of capital oftentimes hinders renewables projects from going forward, even when there is excellent potential. Bridging that gap, a RES-CRF will bring significant cost savings to consumers and taxpayers in those countries

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    The RES-CRF would provide a fifty-fold leverage of private-sector finance and will phase-out automatically as market confidence in high cost of capital Member States increases.

    The risk of the financial guarantee underpinning the RES-CRF ever being called is very small. We propose a set of concrete safeguards to ensure only high quality renewable energy investments will benefit and to avoid over-commitments.

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    The next EU Multiannual Financial Framework should be used to finance the RES-CRF as a cheap support for the 2030-targets.

    Committed public funds to implement Article 3.4 of the new EU Renewable Energy Directive would create scope for establishing the RES-CRF. This would help Europe to meet its 2030-renewable energy target and enable all Member States to benefit from low-cost renewable energy.

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    A pilot project should be launched before 2020 for proof of concept.

    A key design feature of the RES-CRF is its flexibility. Being largely based on contractual arrangements, it can be tested in specific sectors or Member States before a wider roll-out. Launching a pilot project before 2020 would help strengthen confidence in the instrument. A pilot can be financed from the running EU budget.

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    Renewable energy investments are more capital intensive than investments in fossil-fired power generation.

    They are also much more sensitive to political and regulatory risks. This is highly relevant when addressing Europe’s 2030 renewables framework consisting of a binding EU target without binding Member States targets.

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    The costs of capital for renewables vary widely between Member States.

    Perceived ex-ante risks translate into country specific premiums on the costs for renewable energy investments that have nothing to do with technology risks or weather conditions.

  3. 3

    Equalising costs of capital throughout the EU would save taxpayers at least 34 billion Euros to meet the 2030 renewables target.

    It would also allow for broader sharing of the social, economic and health benefits of renewable energy investments, and would particularly benefit EU Member States with lower than average per capita GDP.

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    Ohne eine schnell wirkende Reform ist der Emissionshandel als Instrument der europäischen Klimapolitik tot.

    Derzeit hat der EU-Emissionshandel einen strukturellen Überschuss von 2,5 Milliarden Zertifikaten, der bis 2020 auf 3,8 Milliarden noch weiter anwächst und ohne Reform auch 2030 noch bei 3,4 Milliarden Zertifikaten liegen wird. Erfolgt keine strukturelle Reform, bleibt der CO2-Preis damit dauerhaft unter 5 Euro/t CO2.

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    Bei den 2015 anstehenden Entscheidungen in der EU über die Marktstabilitätsreserve ist die Ausgestaltung entscheidend.

    Die vorgeschlagene Weiterentwicklung des Emissionshandelssystems in Richtung eines flexiblen Marktmengen-Mechanismus (Preis-Mengen-Steuerung statt reine ex-ante-Mengensteuerung) birgt die Chance, das Emissionshandelssystem zu retten.

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    Mindestens bis 2020 ist eine Ergänzung des Emissionshandels durch nationale Instrumente notwendig.

    Selbst wenn die Marktstabilitätsreserve in einer ehrgeizigen Ausgestaltung beschlossen wird, wird sie bis 2020 nur geringe CO2-Preiseffekte entfalten. Daher ist zur Erreichung des deutschen Klimaschutzziels 2020 analog zum britischen Carbon Support Mechanism eine ergänzende nationale Maßnahme nötig, um das deutsche Klimaschutzziel von -40 Prozent Treibhausgasemissionen bis 2020 zu erreichen.

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    Ein Review-Mechanismus der Marktstabilitätsreserve mit Blick auf unvorhergesehene Entwicklungen ist dringend erforderlich.

    Während die EU-Kommission bei der Berechnung der Marktstabilitätsreserve von kontinuierlichem Wachstum und steigendem Stromverbrauch ausging, ist dies derzeit nicht absehbar. Auch andere Trends könnten sich anders entwickeln als erwartet.

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    Germany is currently facing an Energiewende paradox: Despite an increasing share of renewable energy sources, its greenhouse gas emissions are rising.

    The reason for this paradox is not to be found in thedecision to phase out nuclear power – the decrease of nuclear generation is fully offset by an increasedgeneration from renewables. Rather, the paradox is caused by a fuel switch from gas to coal.

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    Due to current market conditions, German coal-fired power plants are pushing gas plants out of the market – both within Germany and in neighbouring countries.

    Since 2010, coal and CO2 prices have decreased, whilegas prices have increased. Accordingly, Germany’s coal-fired power plants (both new and old) are able to produceat lower costs than gas-fired power plants in Germany and in the neighbouring electricity markets thatare coupled with the German market. This has yielded record export levels and rising emissions in Germany.

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    If Germany is to reach its Energiewende targets, the share of coal in the German power sector has to decrease drastically – from 45 percent today to 19 percent in 2030.

    Sharp decreases in generation fromlignite and hard coal of 62 and 80 percent, respectively, are expected in the next 15 years while theshare of gas in electricity generation will have to increase from 11 to 22 percent. This goes in line with thegovernments’ renewables and climate targets for 2030.

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    Germany needs a coherent strategy to transform its coal sector.

    Such a strategy – call it a coal consensus –would bring power producers, labour unions, the government and environmental groups together in findingways to manage the transformation.

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