| The 3,000-MW Jänschwalde coal-fired power station in eastern Germany. Even as more plants return to the system, utilities see net-zero targets in reach. Source: fhm/Moment via Getty Images |
Europe's major power and gas utilities see renewables and decarbonization as a way out of the dueling energy and climate crises, but Russia's invasion of Ukraine has forced a reevaluation of the role of coal and natural gas across the continent.
The soaring cost of gas and the threat of power shortages in 2022 drove RWE AG to agree with the German government to continue operating 2.1 GW of lignite capacity, while the Danish government ordered Ørsted A/S to keep three oil- and coal-fired plants online beyond their scheduled closures. EDP - Energias de Portugal SA was also forced to delay the closure of coal-fired power plants.
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"We still believe that we, as a society, must phase out the use of gas, oil and coal as soon as possible," Ørsted CEO Mads Nipper told analysts Nov. 3. "But we are in the middle of a European energy crisis, and we will, of course, contribute to ensuring the electricity supply to the best of our ability."
Russia was not the only factor in coal's comeback. In Iberia, EDP's coal generation in the third quarter increased 107% year over year to compensate for severe droughts that hit hydropower production. In France — usually Europe's biggest exporter of power — nuclear power generation has also been drastically curtailed in 2022.
Despite coal's resurgence, executives and lawmakers alike continue to bang the drum for what they say will be an expedited energy transition in the future.
"There's been this very strange narrative going around that because of the challenges coming to Europe because of Putin's war against Ukraine, we would be stepping back from our ambitions and stepping back from our programs," Frans Timmermans, executive vice president of the European Commission, said at the COP27 climate conference in Egypt on Nov. 14. "Nothing could be further from the truth."
Renewables are a central part of the European Commission's REPowerEU strategy, its plan to become self-sufficient from Russia and accelerate decarbonization in the bloc. In September, the European Parliament voted to raise the EU's 2030 target for the share of renewables in total energy consumption from 40% to 45%.
Coal back but not with full force
Europe's ramp-up in coal-fired generation has been driven not only by government policies but also by price signals that make coal-to-gas switching uneconomical.
The price of gas on the Dutch Title Transfer Facility, Europe's main gas benchmark, hit a record €319.98/MWh on Aug. 26 as EU buyers rushed to fill storage capacity ahead of the winter. Prices have since subsided, but they are still higher than necessary to displace coal from the grid.
And despite assurances from executives and policymakers, coal's comeback threatens to delay or derail Europe's climate goals, according to analysts.
"In the near term, we definitely see an increase in power sector emissions compared to the pre-Ukraine scenario," Sabrina Kernbichler, senior analyst at S&P Global Commodity Insights, said in an interview.
Still, emissions are not growing that fast since overall power demand in industry and domestic settings is falling, Kernbichler said.
The 13.5 GW of coal generation made available in Europe in the first half would add a "negligible" 1.3% to the EU's total CO2 emissions compared with 2021, U.K.-based think tank Ember said in a report.
Ember's analysis assumed the plants would run at 65% capacity through 2023. Returning coal plants are generally not expected to run at full throttle, as most of the capacity is designated as a fallback option for system support.
There are "still very strict deadlines for when these plants are allowed to be on the grid," said Sarah Brown, senior energy and climate analyst at Ember. In Germany, for instance, the return of coal generation only applies until April 2024, having been extended by a year.
Nipper said Ørsted will "fight hard [against] any extension" of the Danish government's security of supply order, which requires the company to operate the oil and coal units until June 30, 2024. Ørsted's goal is to become net-zero by 2025.
"I think it's going to be really, really limited," Rui Teixeira, CFO at Portugal's EDP, said about the return of coal generation in Europe.
By 2020, EDP had more than halved its 2.64-GW coal fleet in Iberia, but it has returned 570 MW of capacity to the grid in 2022 to cover hydro shortfalls. The utility aims to be coal-free by 2025 and carbon-neutral by 2030.
"I'm sure that we will be delivering [the coal-free goal] most likely ahead of time, not only by 2025," Teixeira said in an interview.
Nobody rolling back targets
The vast majority of Europe's major power and gas utilities have net-zero targets and interim goals for the 2030s and 2040s. These goals have been largely unchanged since the war began in February.
Only Spain's Iberdrola SA — the largest European utility by market capitalization — and Italy's Italgas SpA have strengthened their climate targets in the last six months, according to an analysis by Commodity Insights.
On Nov. 9, Iberdrola raised its Scope 1 and Scope 2 ambitions to net-zero by 2030, having previously targeted 2040. Italgas, the largest gas distributor in Italy and third-largest in Europe, set targets for the first time, committing to net-zero by 2050 and a Scope 1 and 2 emissions reduction of 42% by 2030.
Even if most companies are not enhancing their climate goals, deployment targets for renewables are increasing in light of the energy crisis.
Within REPowerEU, capacity ambitions for wind and solar were upped to 510 GW and 600 GW, respectively, by 2030, and the overall share of renewables is now set to be 45% by 2030, up from 40%.
In the utility space, companies are already following this lead. RWE, for instance, plans to invest a total of €5 billion on green energy projects in fiscal 2022 — about 30% more than originally planned.
Meanwhile, EDP Renováveis SA, EDP's listed renewables subsidiary, more than doubled its gross investments in the first nine months of 2022 to €4.4 billion. Teixeira, who is also CFO at EDPR, said the drivers for growing renewables deployment have shifted in 2022.
"It was initially very much [driven by] the carbon-neutral targets, but as of today, I do see this much more strategically as security of supply," Teixeira said.
'Real policy action'
The renewables targets within the REPowerEU strategy broadly put the EU on course to achieve a clean power sector by 2035, according to a study by Ember.
That will help the bloc reach its goal of reducing emissions 55% by 2030 from 1990 levels, a target that Timmermans of the European Commission pledged during COP27 to increase to 57%.
To turn these targets into reality, the ball lands in regulators' courts.
Following recommendations from the European Commission, countries like Germany, Italy, Portugal and Spain have taken early steps to accelerate and simplify permitting for renewables, which the commission describes as a "major barrier" in the bloc's deployment of clean energy.
Installations are unlikely to suddenly ramp up in 2023, Teixeira said, because it will take time for administrations to establish the necessary processes to support the renewables build-out.
"Ambitions now need to be married with real policy action," Kernbichler said.
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