The Next Big Challenge for European Renewable Energy
energycioinsights

The Next Big Challenge for European Renewable Energy

By Keith Harrison, Managing Vice President, Gartner CIO, Industries Research

Keith Harrison, Managing Vice President, Gartner CIO, Industries Research

Europe’s electricity markets and the associated business models are largely focused on how to integrate the flexibility services provided by renewable and distributed generation and energy storage assets (Distributed Energy Resources (DERs)). From the liberalized competitive forward, day ahead and intraday markets, to the regulated balancing and congestion markets, all are changing shape based on the influx of DERs and the rise of flexibility markets of the traditional participants are feeling the impact, the Transmission Service Operators (TSOs), the Distribution Service Operators, the Utilities and Independent Power Producers (IPPs). The changes are also encouraging new market participants, from aggregators to the developers of new local exchanges and many more.

Roughly ten years ago the 2009/28/EC directive was initiated. The main goal was to have at least 20 percent of the EU's 

energy needs to be met by renewable energy by 2020. With 17.5 percent 1 of the EU final energy consumption met through renewable energy in 2017, the EU is getting close. Subsidies, however contentious, were the catalyst that enabled renewable energy to scale in terms of installed capacity – scale was the first great challenge for renewables. Subsidies fuelled the technological development of renewable energy generation resources. This delivered reductions in the cost of energy production, thus driving scale as wind and solar photovoltaic (PV) approached and, in some cases, reach, grid parity. Individual wind turbines have grown to have 10x capacities over the last 20 years. The average price for rooftop solar installations in Germany has reduced from just over €4000/kWp in 2008 to just over €1000/kWp in 2018.

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Today, the subsidies, associated with the deployment of a new generation are diminishing – the intervention worked. There are many ongoing technical and cost reduction challenges associated with renewable energy and the associated intermittency. Optimizing the yield from generation assets and improvements in energy storage solutions are priorities. There is however a far greater, systemic and continent-wide challenge for European Renewable Energy – the reinvention of the Electricity System and associated markets.

The European electricity system has been evolving over the last 20 years from a centralized large thermal unit and nuclear-based model to a highly distributed and fragmented renewable generation model. Nuclear and thermal units remain in operation. However the growth and replacement have largely been renewable – wind or solar PV. This change, coupled with new demand such as the electrification of transportation and industry, has fundamental implications for electricity markets, business, and operating models.

If subsidies were key to building out the scale of renewable energy in Europe, information exchange be key to the technical and commercial success of future markets and business models, given the massive increase in the number and range of DERs. For Energy CIOs across Europe with interest in renewable energy, there will be an ongoing demand to optimize the performance and reliability of the renewable assets. However, the evolving nature of the electricity markets presents significant opportunities and risks. The rewards for those agile enough to master information exchange and exploit these market changes could be substantial—perhaps through the establishment of new digital businesses. The impact of risks associated with process failures and data problems in much more information intense electricity system is amplified.

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