BRUSSELS/LONDON (Reuters) - EU aspirations to stay at the vanguard of tackling global warming require increasingly ambitious targets, including the virtual elimination of carbon from European power generation by the middle of the century.
The goals have been complicated by the decision of Germany, Europe’s largest economy and biggest energy user, to abandon nuclear power in the aftermath of Japan’s nuclear disaster at Fukushima in March.
Other countries have also retreated. Belgium reached a conditional agreement in October to shut its two remaining nuclear plants.
As nations resort to fossil fuels to compensate for a decline in carbon-free nuclear power, the need increases for Carbon Capture and Storage (CCS), which has yet to work on a commercial scale.
The fossil fuel industry and some analysts have said natural gas will no longer be just a bridge to a low carbon economy, but instead become part of the energy mix for decades to come, as other nation’s follow Germany’s lead and gas is plentiful.
Without CCS, the continued use of gas would make zero-carbon generation impossible. Accordingly, the European Union has included CCS in a draft list of possible priority projects in its 2050 energy road map.
The IEA’s Chief Economist Fatih Birol said a global target to prevent temperatures rising by more than 2 degrees Celsius (3.4 degrees Fahrenheit) would be harder without nuclear power.
“If more countries retreat from nuclear, this will have implications for CO2 emissions. It’s impossible to replace all the nuclear power with renewables,” he said.
Others say an EU 2020 goal to cut carbon emissions by 20 percent, together with another target of drawing 20 percent of energy from renewables by the same date, will almost certainly be met. The bigger challenge, they say, is a non-binding target to improve efficiency by 20 percent.
The energy industry and governments have not rushed to implement the efficiencies that could hit its revenue stream and the climate commissioner has said the efficiency goal will only be half met unless there is sudden progress.
Such progress could have a big impact on carbon levels.
“You can do a lot on the demand side,” said Fabien Roques, a director at IHS CERA.
He added, however: “If you want to do without CCS, it’s going to be harder and you will need either nuclear or storage technologies to provide baseload power.”
Like CCS, storage for now is largely unproven, with the exception of it in hydroelectric power.
Although some utilities had hoped Germany would embrace nuclear power, its decision to phase it out by 2022 was consistent with public opinion, and Germany had already invested in renewable energy as well as new coal plants to provide baseload generation.
That means Germany should not run the risk of supply shortages, but it could have less carbon-free power to export to its neighbors and might have to import.
German electricity consumption is around 550 terawatt-hours (TWh) per year and is not expected to rise much in the foreseeable future.
The country’s installed power plant capacity is 155,000 megawatt (MW), according to data from Germany’s renewable energy association (BDEW).
That translates into a maximum annual power generation of 1,358 TWh and means that Germany’s power plants and wind parks could operate at an operational efficiency rate of under 50 percent.
According to AGEB, a German energy statistics association, Germany generated around 624 TWh of electricity in 2010.
These figures imply that the nuclear closures would not cause capacity shortages.
Renewable sources provided 17 percent of the mix, or nearly 102 TWh in 2010, according to Germany’s renewable energy association. Theoretically, growth in renewables to an estimated 40-45 percent until 2022 would be enough to fully replace nuclear, which the renewables industry says is achievable.
However, some analysts question whether intermittent renewable supply can be sufficient without coal or gas back-up to ensure baseload requirements.
When Britain canceled plans in October to fund a CCS demonstration plant in Scotland, it heightened concern CCS might fail to attract funding as governments worry over their debt mountains.
Some environmental groups say the economics of CCS will only get worse and investment should be focused on proven renewable technologies such as wind.
“CCS does not exist at the moment. We have no commercial plant on line,” said Remi Gruet, senior adviser at the European Wind Energy Association (EWEA). “Renewable technologies can be deployed immediately.”
Additionally, critics say that CCS is a technology that has no other benefit beyond emissions reductions, merely adding to the cost of fossil fuel power generation without generating further revenues.
A rising carbon price would, however, make CCS more viable and some of those with an interest in CCS, such as Royal Dutch Shell and BP, have voiced support for a carbon price floor.
At current power, gas, coal and euro/dollar exchange rates, Reuters research indicates a tonne of CO2 equivalent emissions allowances would have to cost more than 31 euros to make gas-fired power generation more profitable than the more polluting coal power production.
That compares with a price of around 10 euros now.
Some analysts say that CCS could be helped by the EU’s launch of project financing bonds.
Backed by the European Investment Bank, the idea is they would attract money from institutional investors, such as pension funds.
They would complement an allocation of money for the first time to energy infrastructure, deemed of common interest across the EU, in the bloc’s budget for 2014-2020.
However, analysts said wholesale electricity prices would need to rise before investment into such projects would become attractive.
Analysts said a carbon price of 40 euros per tonne would make CCS competitive in the energy market after a demonstration phase after 2020.
Environmental groups say the best way to increase the carbon price is to raise the EU’s goal of a 20 percent carbon cut to a 30 percent decrease by 2020.
So far, Poland and other eastern European countries which fear the impact on their fossil-fuel dependent economies have strongly opposed that.
“To 2050, we won’t need CCS or nuclear. We can get a 100 percent renewable-based electricity system,” said EWEA’s Gruet.
EWEA argues the economics of renewables will become ever more compelling.
Renewable energy also has an advantage in that it is secure, domestic, and does not rely on the EU’s maintaining good relations with other countries.
It is also not subject to volatile input costs.
While renewable costs are predicted to fall, the costs of fossil fuels and carbon are expected to rise.
International oil prices, for instance, are still well above $100 a barrel and are expected to become more expensive in the long-term. Natural gas in Europe is often sold on long-term contracts indexed to oil prices.
Part of the reason for higher carbon prices could be Germany’s pull-out from nuclear.
Roques of CERA said that could add about 2 euros ($2.8) per tonne to the CO2 price in the next decade. ($1 = 0.705 Euros)
Editing by Jason Neely