Central and Eastern Europe transitioning to renewable energy, yet falling short of objectives 13496t
While Central and Eastern Europe (CEE) is making strides towards adopting renewable energy sources, the region is concurrently expanding its gas infrastructure across cross-border transmission grids, thus hindering the realization of its substantial renewable energy potential. The Three Seas Initiative (3SI), the principal intergovernmental platform in the region, holds promise in assisting CEE to tackle this challenge by fostering cross-border collaboration and connectivity. 2x2i1l
Ember's analysis, conducted in collaboration with the Slovak Foreign Policy Association, examines the current and projected progress of energy transition efforts in Three Seas countries. It concludes by offering recommendations for interventions by the 3SI to contribute to a roap for fostering innovation, security, and prosperity in Central and Eastern Europe.
The 3SI encomes Estonia, Latvia, Lithuania, Poland, Czechia, Slovakia, Hungary, Slovenia, Croatia, Bulgaria, Romania, Austria, and Greece. These nations collaborate with associated States (Ukraine and Moldova) and strategic partners such as the US, , and the European Commission to promote development and convergence in the CEE region, particularly in the realms of transportation, energy, and digitalization.
Central and Eastern Europe has commenced the transition from coal to renewable energy sources
Historically, Three Seas countries have heavily relied on fossil fuels, with some being among Europe's most coal-dependent nations. Nonetheless, there has been a swift shift. In 2023, renewable energy constituted 39% of the electricity produced across these countries, marking a notable increase from 30% in 2019, and suring coal in power market share for the first time.
Several factors have contributed to this shift. The primary catalyst has been the decreasing costs of wind and solar energy, rendering them the most affordable sources of electricity. Furthermore, coal generation has become largely uncompetitive due to the EU Emissions Trading Scheme, leading most governments to implement coal exit strategies scheduled for the 2030s.
Government aspirations are on the rise
As the transition to a clean power system unfolds, governments within the Three Seas Initiative (3SI) are increasingly aligning their energy strategies with this trend. This is evident through the revisions in their National Energy and Climate Plans (NEs), which play a pivotal role in guiding the European Union's collective efforts to reduce greenhouse gas emissions at the Member State level.
Previous NEs, submitted in 2019, underestimated the pace of the energy transition in Central and Eastern Europe, with modest climate targets that were easily sured by several countries, including Romania, Czechia, Bulgaria, Hungary, Slovakia, and Poland. However, in the updated drafts submitted in 2023, there has been a significant shift. Leading Three Seas countries like Lithuania, Estonia, and Austria are now aiming for 100% renewable electricity by 2030.
Even coal-reliant nations such as Czechia and Poland have substantially increased their renewable electricity targets. Overall, the 2030 renewable electricity targets across Three Seas countries have risen from 46% to 60%, with expected wind and solar capacity increasing from 94 GW to 173 GW. This entails more than doubling the wind and solar capacity in the region from 76 GW in 2023.
CEE countries have the potential to accomplish greater achievements
In the 3SI region, while there's a noticeable uptick in renewable energy adoption and government ambition, national strategies still fall short of their potential.
Ember's analysis suggests that 3SI countries could deploy 200 GW of solar, 60 GW of onshore wind, and 23 GW of offshore wind by 2030, exceeding current NE projections by 110 GW. This could boost renewable energy's share in electricity generation to 67% by 2030, suring the 60% target in NE updates and further lowering electricity costs. It would also the electrification of various sectors.
However, there's a notable gap between ambition and reality, especially in offshore wind targets. Baltic Sea countries aim for 9 GW by 2030, significantly below the 16 GW already planned. Relying on conservative forecasts risks underinvestment in crucial infrastructure, hampering the energy transition.
Investment is insufficient
The lack of direct policy presents a major hurdle for offshore wind projects in the Black Sea region, alongside weak target frameworks. Romania and Bulgaria's delay in introducing necessary legal frameworks and financial instruments has hindered efforts to capitalize on the area's significant wind potential.
The absence of tools like contracts-for-difference, which stabilize revenue and minimize price risks, significantly complicates renewable project financing, particularly in the CEE region. Historical challenges such as higher weighted cost of capital (WACC) due to less developed renewable markets, increased uncertainty, and fewer government safeguards exacerbate the situation. Moreover, concerns about the viability of renewable energy projects persist, fueled by above-average inflation rates in many CEE countries. Even in more favorable markets like the USA with lower WACC, unforeseen factors such as interest rates have led to the cancellation of several offshore wind projects.
To tackle this challenge, providing preferential funding for wind and solar investments is crucial. De-risking measures like contracts-for-difference have been shown to reduce the costs of renewable energy projects by approximately twenty percent. Implementing such measures is essential to establish a clear energy investment roap capable of meeting established targets.
Transnational infrastructure investments hold the key to unlocking the renewable energy potential in Central and Eastern Europe
Central and Eastern European (CEE) nations are witnessing a notable surge in renewable energy deployment, yet there remains considerable untapped potential in the region. Critical interventions, such as bolstering offshore wind in coastal areas and enhancing interconnections, are imperative to facilitate the transmission of affordable renewable energy across borders, thereby mitigating electricity curtailment and stabilizing prices.
Interconnectors play a pivotal role in harmonizing energy generation from countries with varying renewable patterns and in smoothing out demand fluctuations. Despite being capital intensive and complex, these projects offer favorable economics with relatively short payback periods, particularly in markets lacking adequate connectivity.
Interconnectors are anticipated to be instrumental in furnishing pan-European flexibility, especially for long-term balancing requirements, gaining further significance by 2050. Augmented interconnection among nations diminishes the necessity for alternative flexibility solutions like utility-scale batteries or gas peaking plants.
Numerous interconnection projects are currently under consideration in the CEE, including the Latvia-Estonia hybrid offshore interconnector, Lithuania-Poland high voltage direct current (HVDC) line, Poland North-South HVDC bridge, Black Sea Corridor, Central Balkan Corridor, Romania-Hungary HVDC link, and priority corridors delineated in the updated TYNDP 2024. However, the lack of alignment and political prioritization poses obstacles to their realization.
In addition to grappling with higher weighted average cost of capital (WACC) and escalated inflation levels, CEE grid operators encounter challenges in accessing EU funds due to istrative bottlenecks. Despite the expanded scope of the 2022 TEN-E revision, the allocation of public funds for cross-border projects under the 2021-2027 Connecting Europe Facility (CEF)-energy has been diminished. This underscores the burgeoning significance of private equity in financing forthcoming cross-border endeavors.
Reorienting infrastructure to match evolving regional dynamics
The demand for interconnection is set to rise in Three Seas Countries, particularly in Central and Eastern Europe, where the planned expansion of interconnection capacity lags behind that of Western Europe. According to Ember's modeling, annual cross-border electricity flows between 3SI countries are projected to grow by 53% from 2023 to 2030, driven by the implementation of wind and solar projects aligned with 'high' industry forecasts. To address this increased demand for interconnection capacity, new investments in cross-border infrastructure will be necessary.
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