How will the energy transition affect the Spanish consumer?

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Since the first Industrial Revolution, the intense burning of fossil fuels and the consequent release into the atmosphere of large amounts of greenhouse gases has been partly responsible for climate change. This situation requires a response on our part to promote an energy transition in order to avoid aggravating the problem. Especially cities, which comprise 55% of the world’s population, consume 75% of all energy produced, and generate 80% of all pollution.

Addressing this situation requires rapid and far-reaching changes in all aspects of society. A recent analysis by Gerben Hieminga in Think ING states that it will be necessary to install more renewable energies in order to meet the growing demand for energy and, at the same time, reduce CO2 emissions.

According to this analysis, energy demand will double in the coming decades as a result of continued economic and demographic growth, going from 27,000 terawatt hours today, to 57,000 in 2050.

The importance of renewable energies in the energy transition

Solar and wind energy they are key in this energy transition. Currently, fossil fuels represent two-thirds of the world’s energy mix, while solar and wind energy only account for 10% of the total.

By 2050, solar and wind power together are projected to generate more than two-thirds of total electricity demand, reducing CO2 emissions by more than half.

But the sun doesn’t always shine and the wind can be unpredictable, which means that these two sources of energy need a source of supportive energy.

For example, solar energy, you need almost four times the capacity to generate the same amount of power than gas and coal power plants, because the sun doesn’t shine at night and the panels produce less power on cloudy days.

That is why, to achieve these objectives, it is estimated that it will be necessary invest $ 13 trillion in renewable energy (billions of Europe, that is to say 13 “millions of millions”) worldwide.

Opportunities and uncertainties

We have already seen that a low carbon economy needs huge investments, which in turn can lead to exciting business opportunities in the wind and solar industry. In fact, companies are already developing technology that can capture light on both sides of the cell and the solar panel, as well as new wind turbines.

Nevertheless, These attractive a priori opportunities face some uncertainty, then they depend to a large extent on public investment. It is necessary to reach a certain level of investment in the network to accommodate the growing demand for energy to the new sources of supply.

But, in addition, there is an additional question: The volatility. Renewable energies are strongly dependent on their original source (such as the sun or the wind). Therefore, consumers will have to get used to more volatile electricity prices, with more pressing peaks and valleys, and investors will have to face certain risks of uncertain solutions.

Europe’s response

The European Union is headed towards a clear objective: total decarbonization by 2050. In 2018, the roadmap towards systemic decarbonisation was updated with the intention of achieving this goal. On this path All member states are developing their National Energy and Climate Plan in 2019 (PNIEC) and a Decarbonization Strategy, to shape the path and the achievement of the objectives and goals for 2030 and 2050.

The objectives that the EU has set for 2030 are:

  1. 40% off reduction of greenhouse gas emissions (GHG) compared to 1990.
  2. 32% of renewable on total final energy consumption for the whole EU.
  3. 26% of reduction of primary energy consumption in the EU compared to 2005.
  4. 20 of reduction of final EU energy consumption compared to 2005.
  5. 32.5% of improved energy efficiency compared to 2005.
  6. 15% off electrical interconnection of the Member States.

Less energy dependence in Spain

Due to its geographical position, Spain is especially vulnerable to the effects of climate change. As a sample, a piece of information: summers last, on average, almost 5 weeks longer than in the early 1980s. Despite this evidence, while GHG emissions were reduced in the European Union by 21.9% between 1990 and 2017, in Spain, in the same period, they increased by 17.9%.

The PNIEC in Spain must set the path for the country’s economic and energy transformation, and send appropriate signals to attract investor confidence. According to the plan, the transformation will generate a GDP increase of 1.8% per year and reduce external energy dependence, in addition to seeking an annual increase in employment of around 300,000 jobs per year.

The investments required to achieve this will well exceed € 200 billion between 2021 and 2030.

Who will pay the bill for the energy transition?

Historically, the energy transition has been equated with the introduction of renewables in the electricity sector, which was supported largely by the consumer.

The absence of a global energy policy that integrates all technologies and energies, as well as associated environmental taxation, can cause different results than those pursued by decarbonization. Financing the energy transition implies a paradigm shift, where the focus has to be placed on the perspective of a global energy consumer and based on three principles:

  1. Equity between sectors: Whoever pollutes pays, discouraging the most polluting energies.
  2. Balances between energies. Without generating imbalances in the consumer and promoting efficiency.
  3. Fiscal policy. Without generating fiscal imbalances, and guaranteeing economic sustainability.

But, in any case, the financing of renewable energy projects through the market implies that the final consumer, be it a private individual or company, you will have to bear an additional cost as a consequence of the new environmental policies and the change in the energy model.

This change of model also entails higher wholesale market volatility, since renewable energies depend on less predictable elements (wind, sun, rain) causing variations in the supply that, logically, affect the final price of energy. That is why, in the future, the difference between the most expensive energy periods and the cheapest ones will be more pressing.

As consumers, this it will affect us more directly if we are covered by the PVPC rate (which varies from hour to hour, day to day), since the offer of variable rates according to the time of day gives us the opportunity to be more efficient with our energy consumption, being able to benefit from savings on the bill.

On the other hand, it will affect us indirectly if we have an energy contract with a fixed rate, since our price will always be constant, although there is the possibility that the marketers cover this volatility with higher prices.

On the other hand, it should not be forgotten that investment and research in renewable energy will make self-consumption at home more and more accessible and profitable, allowing consumers to save even more on their bill.

In any case, though the energy transition will affect the Spanish consumerIt is important to note that energy will pollute less, and that has a very positive impact on the climate and society as a whole.

For the preparation of this article we have had the collaboration of Wafaa Ermilate, our Head of Infrastructure and Energy Finance Iberia.

Save on electricity, Save on energy, Sustainability

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