Europe Energy Transition Readiness Index

By Torsten Henzelmann and Martin Hoyer

With unprecedented turmoil in the energy industry, driven by the Russian war in Ukraine, it is time for Europe to get real about delivering on the energy transition. Crucially, this means solving the "energy trilemma" – identifying the correct balance between sustainability, reliability and affordability. Europe plans to cut emissions by 55 percent by 2030 and reach climate neutrality by 2050. But progress so far has been inconsistent across different action areas. These were the overall conclusions of the second Europe Energy Talks, which featured Roland Berger as knowledge partner.

The latest in the Energy Talks, a series of conferences focusing on different geographical regions, brought together industry, political and society leaders from around the world to tackle the increasingly serious challenges in the field of energy. During the conference, participants were asked to rate a set of 11 key "energy priorities" in terms of importance, and to indicate what progress they thought had been achieved towards the energy transition so far. Based on their responses, Energy Talks knowledge partner Roland Berger calculates that Europe scores 33 percent in the Energy Transition Readiness Index (see below), which is a high score compared to other global regions. Infrastructure is playing a key role in driving decarbonization in Europe: Without reliable, sustainable and affordable energy, the region cannot prosper.

Energy Transition Readiness Index

Participants in each session at the Energy Talks completed a short survey on the session's topic. The Energy Transition Readiness Index is calculated based on responses from up to 100 respondents in each session. Participants were asked for their expert opinion on the respective importance and progress achieved so far on each of 11 energy priorities, from "driving exit strategies for coal" to ensuring a "just energy transition". The final overall perceived readiness score as regards the energy transition towards net zero in Europe is 33 percent.

CO2 reduction – perception versus reality

During the Energy Talks, we asked participants how they thought their region was doing overall on decarbonization. Perceptions were not too far out of line with reality. Thus, the experts estimated that the region had cut emissions by 22 percent since 2005, while the actual figure was even higher, at 24 percent. What is not clear is whether current decarbonization efforts will be enough for emission levels to continue this downward trend post-COVID-19.

Looking ahead to 2030, conference participants expected emissions to fall to 49 percent below their 2005 level. Given that, in the 16 years between 2005 and 2021, Europe achieved a reduction of 24 precent, this would mean the region more than doubling its performance in the remaining years to 2030.

Ranking energy priorities

Participants consider some energy priorities to be much more important than others, but there are none that they consider entirely irrelevant. Their top priority is speeding up progress on renewable energy, as this answers the need for both sustainability and energy security. Energy storage solutions are also required in order to keep the power grid stable.

Conference participants added that current progress on the different energy priorities is uneven: The fastest progress is seen in areas with the greatest impact, namely renewable energy generation and energy market reforms, while progress is much slower in areas such as CCS (carbon capture and storage), sector coupling, reinventing energy business models and power-to-X solutions.

What next?

According to the survey participants, the key area where action is needed when it comes to developing the energy priorities going forward is policy. This, they say, is the No. 1 enabler for exit strategies for coal and the design of emission markets. In second place generally comes funding – an area where the public sector can make a difference by introducing tax incentive schemes, new auction concepts and cost and risk sharing.

Energy priorities

1. Drive exit strategies for coal: Decarbonization requires a step-by-step phase out of power and heat generation from coal. Strategies must manage this while simultaneously ensuring a secure supply of power and heat. Coal's role in the transition to carbon neutrality must be clearly defined within these strategies.
2. Accelerate renewables: The speed of the expansion of renewable energy is strongly linked to the speed of decarbonization. However, technological, societal, and bureaucratic barriers partly impede progress. Lifting these barriers is key to speeding up the roll-out of renewable energy solutions.
3. Drive carbon capture and storage: Carbon capture and storage (CCS) is a technological solution for capturing emissions and storing carbon in a way that lessens its climate impact. Decarbonization strategies must define the role of CCS technologies in the transition towards climate neutrality.
4. Digitize the energy grid: A greater share of intermittent renewable energies makes it more challenging for power grids to maintain a secure power supply. The safe and reliable set up, maintenance and operation of the future energy grid requires new digital solutions.
5. Implement energy storage solutions: The intermittency of renewables necessitates both short-term and long-term energy storage solutions. Technological and economic solutions must be devised to ensure that 100% renewable energy delivers a highly secure supply.
6. Power-to-X solutions: The transformation of power to hydrogen and other fuels enables the storage of otherwise curtailed renewable energy. Additionally, power-to-X fuels can be used in hard-to-abate sectors such as aviation and shipping or high-temperature industrial processes.
7. Decarbonize industry (scope 1, 2, 3): Industrial production can generate significant carbon emissions. These must be reduced across Scopes 1, 2 and 3 in order to move towards a carbon-neutral industry and society. The roll-out of new production processes and energy-efficiency measures must define a pathway to carbon neutrality.
8. Sector coupling to decarbonize end-user sectors: All energy end-user sectors must be decarbonized to create a truly climate-neutral society. With an increased share of renewable power generation, the heating and mobility sectors can be decarbonized via the electrification of end-user appliances.
9. Re-invent energy business models: Energy business models are a key enabler for fostering investment in decarbonization technology, for example, via contracting solutions. Solutions such as PPAs (power purchase agreements) and long-term trading can secure payment streams over the investment period, which makes investments bankable and suitable for low-interest financing.
10. Design emission markets: An overarching regulatory framework must ensure the cost-efficient reduction of carbon emissions wherever possible. Implementation of emission markets and/or carbon pricing mechanisms is crucial in order to align incentives across continents, countries, and sectors.
11. Just energy transition: Social acceptance is an essential component of the energy transition. A fair energy transition further includes affordable energy supply, decent working conditions, as well as diversity and inclusion. Social distortions must be avoided, as well as energy poverty and resistance to renewable energy.

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