• Beyond Transitions

An Energy Union for whom? Unbalanced share of burdens stemming from the low-carbon energy transition

The implementation of the EU’s 2020 Climate and Energy Package has allowed the EU to generate increasing amounts of electricity from domestically-harvested renewable energy sources (RES). This has led the renewable energy share in the gross final energy consumption to double, going from a 8.5% share in 2008 to a 17% share in 2016. GHG emission reduction efforts have benefited from this, achieving almost a 19% reduction of energy-related GHG emissions during the same time period. It seems likely, at this point, that the EU will reach its target of sourcing 20% of its final energy consumption from renewable energy sources by 2020.

The apparent success of this energy “transition-in-progress” hides a myriad of unresolved tensions stemming from a persistent asymmetric relationship between the political and market agents operationalising the political economy of the decarbonisation of the energy system, and the average European citizen – who is left with a grossly uneven share of burdens and costs that are ultimately undermining its ability to co-participate in the low-carbon energy transition. The problem related with costs, for instance, is nothing new to European regulatory authorities or to national governments, who have been unable (or unwilling) to tackle the persistent challenge arising from the mass-scale deployment of RES with retail electricity costs.

In fact, we see how the costs associated with the deployment of RES into an energy system designed for, adjusted to, and dominated by fossil fuel power generation have been passed on through the entire energy value chain to final energy consumers, who have had to absorb a staggering 31.5% increase in household electricity prices between 2006-2017. Ironically, wholesale electricity prices have seen a 41% reduction during 2008-2017, driven primarily by the increasing share of RES in the EU’s energy mix. We are now facing a paradoxical situation in Europe’s electricity markets, whereby the energy costs of European citizens do not accurately reflect the increasingly competitive performance of RES in terms of low marginal production costs and low environmental impacts. As a result, today European households allocate a higher share of their income to pay for a cheaper and cleaner source of energy than a decade ago.

One important element influencing this price disparity relates to the overly generous subsidies and support mechanisms that EU Member States have given to the development and deployment of RES.

Table 1. Renewable electricity subsidies in selected EU Member States 2014

Own Illustration, based on CEER (2017) Status Review on RES Support Mechanisms.

There is in fact a strong positive correlation between national support schemes for RES and retail electricity prices. One would assume that having higher shares of RES would lead to a decrease in electricity prices. However, this is not the case. Instead, we see how higher levels of financial support for RES lead to higher electricity prices. The increasing shares of RES in national energy portfolios do not compensate for increase in prices.

Figure 1. Correlation analysis between RES national subsidies and electricity prices by EU Member State

Own analysis, based on CEER (2017) Status Review on RES Support Mechanisms, and Eurostat (2018) Electricity Prices by Type of User.

Although electricity produced by RES is becoming increasingly competitive without the need of national support mechanisms, the price that the average European household pays does not reflect that cost competitiveness. We see instead how the downward pressure excreted by RES generation on electricity prices does not compensate for their increase due precisely to the support mechanisms provided for RE generation.

Despite the Energy Union’s main goal to have “citizens take ownership of the energy transition, benefit from new technologies to reduce their bills, participate actively in the market, and where vulnerable consumers are protected”, EU policymaking institutions and regulatory bodies are still treating energy customers as objects (rather than subjects) of ambitious decarbonisation goals resulting in potentially socially unjust and economically restrictive energy and climate policies.

EU and national regulatory elements must aim to effectively drive down electricity prices by allocating a more socially just and economically progressive redistribution of the cost burdens associated with the much-needed introduction of still higher shares of RES into national energy generation portfolios. These must in turn reflect a fundamental shift from the current narrow institutional view of individual energy consumers being passive market actors situated at the margins of centralised, vertically-integrated systems of energy production, commercialisation, and consumption; to proactive and empowered energy citizens co-driving and co-participating in a transition towards a decentralised, modular, and multi-directional system of clean energy exchange.

#fairelectricity | #beyondtransitions | #justtransition