Potential Implications of the EU 2050 Greenhouse Gas Targets for Smart Energy and Transportation Published 3Q 2011 Kerry-Ann Adamson, Ph.D. Research Director Clint Wheelock President
Section 1 EXECUTIVE SUMMARY 1.1 EU-27 Moves to a Low Carbon Economy This white paper looks at the potential development of smart energy and smart transportation within the current EU-27 through the current basket of policies aimed at moving the European Union to a low carbon economy. The 27 member states of the EU have committed to the following goals: 20% of energy consumption from renewable energy, a 20% decrease in GHG emissions, and a 20% increase in energy efficiency all by 2020. Since this agreement was put in place a further round of more aggressive targets for 2050 in the areas of transport, energy efficiency, and energy production have been developed. Current estimates indicate that the member states are on track for the 20% penetration of renewable energy and reduction in GHG emissions. However, energy efficiency improvements are not on track. To ensure that the process does not falter, in 2010 the EU enacted a further round of policy consultations and policies. The outcome was the 2050 targets, which aim to transition the EU to a successful low carbon economy. Table 1.1 GHG Reductions Compared to 1990 (% Reductions; 1990 = 100%): 2005-2050 Sector 2005 2030 2050 Power (CO 2 ) -7% -54% to -68% -93% to -99% Industry (CO 2 ) -20% -34% to -40% -83% to -87% Transport (incl. CO 2 aviation, excl. maritime) +30% +20% to -9% -54% to -67% Residential and Services (CO 2 ) -12% -37% to -53% -88% to -91% Agriculture (non-co 2 ) -20% -36% to -37% -42% to -49% Other Non-CO 2 Emissions -30% -72% to -73% -70% to -78% Total -7% -40% to 44% -79% to -82% (Source: Pike Research) It is clear that the only way to achieve an overall reduction in GHG emissions of up to 82%, as outlined in the table, is to substantially increase energy efficiency and the penetration of renewables, thereby keeping to the tenets of the original 20-20-20 goals. To this end, the EU is in the process of releasing a number of roadmaps, including roadmaps for energy and transport. These roadmaps provide very clear guidelines as to the requirements of technology, technology development and adoption, and the continued development of finance mechanisms. The three key words in this basket of EU policies developed for the 2050 targets are, understandably, smart, intelligent, and integrated. The policies explicitly recognize that for these targets to be achieved, transport, energy, and national policy can no longer work in silos. Rather, they have to be linked in a systematic fashion. Directional signposts have been established for technologies ranging from fuel cells and batteries to new services, such as energy storage and carbon capture and storage (CCS), linked with GHG emissions targets. In addition, broader roadmaps, such as the Smart Cities Initiative, have been set up for more integrated ecosystems. 1
Coupling economic growth with carbon reduction transitions is not an easy task. In fact, many other countries and regions are shying away from this task. The EU is taking a big risk, but a calculated one, and it is the birth of the smart and intelligent generation of technologies that has enabled this risk to be taken. The impact these plans will have on the smart industry in Europe is to embed them between now and 2050 into everyday life for the current 501 million inhabitants. Chart 1.1 Final Energy Consumption by Sector and Country, EU: 2008 UK SE FI SK SI RO PT PL Services Households Transport Industry AT NL MT HU LU LT LV CY IT FR ES EL IE EE DE DK CZ BG BE - 10.00 20.00 30.00 40.00 50.00 60.00 70.00 (Million Tons of Oil Equivalent) (Source: Eurostat) 2
2.1 Overview Section 2 EU LOW CARBON ECONOMY POLICY BACKGROUND The EU 1 is in the process of releasing and outlining a number of policy documents laying out the foundations and roadmaps to continue the drive to reduce emissions, increase efficiency, and decrease energy imports into its member states. These roadmaps, communications, and policies aim to push the EU trading bloc beyond the original 20-20-20 goals to reduce domestic GHG emissions from 1990 levels by 80% by 2050. The original 20-20-20, adopted in 2009, set targets of 20% penetration of renewable energy, a 20% cut in domestic GHG emissions, and a 20% decrease in energy consumption through improved energy efficiency all by 2020. As part of these goals, each member country had to develop their own energy plans outlining how they would meet their targets. Current estimates indicate that the member states are on track for the 20% penetration of renewable energy and reduction in GHG emissions. However, energy efficiency improvements are not on track. To ensure that the process does not get derailed, in 2010 the EU enacted a further round of policy consultations and policies. The outcome was the 2050 targets, which aim to transition the EU to a successful low carbon economy. Table 2.1 GHG Reductions Compared to 1990 (% Reductions; 1990 = 100%): 2005-2050 Sector 2005 2030 2050 Power (CO 2 ) -7% -54% to -68% -93% to -99% Industry (CO 2 ) -20% -34% to -40% -83% to -87% Transport (incl. CO 2 aviation, excl. maritime) +30% +20% to -9% -54% to -67% Residential and Services (CO 2 ) -12% -37% to -53% -88% to -91% Agriculture (non-co 2 ) -20% -36% to -37% -42% to -49% Other Non-CO 2 Emissions -30% -72% to -73% -70% to -78% Total -7% -40% to 44% -79% to -82% (Source: Pike Research) It is clear that the only way to achieve carbon reduction targets outlined in Table 2.1 is to substantially increase energy efficiency and the penetration of renewables, thereby keeping on track the tenets of the original 20-20-20 goals. To this end, the EU is in the process of releasing a number of roadmaps, including for energy and transport. These roadmaps provide very clear guidelines as to where we need to head in terms of technology development and adoption to achieve the 2050 carbon reduction goals. 1 Throughout this document, the term EU refers to the 27 member countries of the European Union. Countries of accession are not contained in the statistics shown here or in the policy discussion. It is safe to say, though, that if the current batch of accession countries (Croatia, Iceland, Macedonia, Montenegro, and Turkey) enters the EU, the implications for efficiency, transport, and energy infrastructure and demand would be significant. 3
Pike Research has produced this white paper to discuss the implications of these roadmaps on the potential impact of the development of smart energy and smart transportation. For those interested in the full EU documents, Appendix I Reference List provides a reference set of policy documents that have been discussed, and used as reference material, in this white paper. Note that maritime is deliberately not included in the 2050 reduction targets. At present, emissions reductions from shipping are negotiated and agreed upon by the International Maritime Organization (IMO) or the United Nations Framework Convention on Climate Change (UNFCCC). However, the governing body of the EU indicated at the start of July 2011 that if no agreement was reached by these bodies for the reduction in emissions from shipping by the end of 2011, it would move to include the maritime sector in the EU targets. It would also internalize the move to reduce shipping emissions within the normal EU processes during 2012. If this occurs, the maritime and shipping sector would likely be included in the European Emissions Trading Scheme (ETS). 4
2.2 2008 Energy and Emissions Profile In 2008, according to Eurostat, the EU consumed some 1,165.63 million tons of oil equivalent (MTOE) annually. In 2008, the largest consumer of the energy, some 33% of the total, was the transport sector, followed by industry at 28%. Households are logged at consuming 27% of the overall total energy. Just four countries, the United Kingdom, Germany, France, and Italy, consume 180 MTOE out of the total 296.65 MTOE for this residential sector. Chart 2.1 Final Energy Consumption by Sector and Country, EU: 2008 UK SE FI SK SI RO PT PL Services Households Transport Industry AT NL MT HU LU LT LV CY IT FR ES EL IE EE DE DK CZ BG BE - 10.00 20.00 30.00 40.00 50.00 60.00 70.00 (Million Tons of Oil Equivalent) (Source: Eurostat) 5
Looking at the energy mix from 2008, we can see that for the EU-27 to reach its 20% penetration of renewable energy by 2020 there is still a long ways to go. Some countries, notably Malta and Cyprus, have over 90% oil dependence. Over half of the energy consumption in Poland, which in July singlehandedly blocked the move in Europe to increase the 20% decrease in GHG emissions by 2020 to 30%, comes from coal (lignite and hard coal). Chart 2.2 Percentage Gross Inland Consumption by Fuel by Country, EU: 2008 UK SE FI SK SI RO PT PL RES Nuclear Gas Oil Lignite Hard Coal AT NL MT HU LU LT LV CY IT FR ES EL IE EE DE DK CZ BG BE 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% (Source: Eurostat) 6
If we look at just renewable energy penetration and use, which includes solar, wind, and biomass, Chart 2.3 shows that Latvia (LV), Austria (AT), Finland (FI), and Sweden (SE) have the highest penetration. Chart 2.3 Renewable Energy Penetration Share per EU Nation: 2008 60% RES 50% 2020 RES Target 40% 30% 20% 10% 0% BE BG CZ DK DE EE IE EL ES FR IT CY LV LT LU HU MT NL AT PL PT RO SI SK FI SE UK (Source: Eurostat) 7
If we look at energy consumption by mode of transport in 2008, remembering that shipping is not included in the statistics, the EU s emphasis on modal shift patterns, outlined later in Section 3.3, makes a great deal of sense. Road transport, both passenger and freight, consumed over 80% of energy from the transport sector in 2008. Compared to 82.7% in 1998, the energy intensity of the road transport sector declined by only 1% to 81.3% in 2008 highlighting the mammoth task ahead. Chart 2.4 Final Energy Consumption by Mode of Transport, EU: 2008 (Million Tons of Oil Equivalent) 400 380 360 340 320 300 280 260 240 Inland Navigation Rail Air Road 220 200 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 (Source: Eurostat) 8
If we turn to GHG, 2 EU emissions are dominated by energy (excluding transport). These include, but are not limited to, emissions from the fuel combustion of the energy and manufacturing industries, as well as construction. What Chart 2.5 also highlights is that between 1990 and 2008 there was a slight downward trend in emissions from the energy sector, however, there was also an upward trend from transport. For the 20% reduction in emissions by 2020 goal to be reached, it is clear that the upward trend cannot continue unabated. Chart 2.5 GHG Emissions by Sector, EU: 1990-2008 2008 2007 2006 2005 Solvent and Other Product Use Waste Industry (processes) Agriculture Transport Energy (excl. transport) 2000 1990-500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 (MT CO 2 Eq) (Source: Pike Research) 2 In this white paper, unless specifically stated otherwise, GHG emissions are reported as tons of CO 2 equivalent. 9
If we break out just emissions, we can more clearly see that two sectors, fuel combustion of energy industries and fuel combustion in transport, made up 50% of all GHG emissions in 2008. Chart 2.6 GHG Emissions by Sector, EU: 2008 Agriculture 10% Waste 3% Solvent and other product use 0% Industrial processes 8% Fuel combustion of energy industries 31% Other (energy) 15% Fugitive emissions from fuels 2% Fuel combustion in transport 19% Fuel combustion of manufacturing industries and construction 12% (Source: Pike Research) 10
3.1 Overview Section 3 IMPLICATIONS OF THE EU LOW CARBON ECONOMY POLICIES What is interesting about the communications, white papers, and policies covered in this Pike Research report is that the EU can provide, and is substantially more directional on, technology development compared with other regions. Most national governments generally do not pick so-called winning technologies. While the nuts and bolts of adopting and integrating the targets is up to each member state government, the plans of each member state have to be passed by the governing body of the EU. Just as important, these plans cannot be used as a proxy to block the free movement of people or goods. As a hypothetical example, imagine if one country adopted a 100% battery electric vehicle (BEV) infrastructure. Technically, this would block free movement because unless you had a BEV, you could not drive into, or through, that country. Although in reality this scenario is unlikely to happen, it does highlight that the chances for technology lock-in in Europe are very low. The three key words in this basket of EU policies developed around the 2050 GHG emission targets are, understandably, smart, intelligent, and integrated. The policies explicitly recognize that for these targets to be achieved, transport, energy, and national policy can no longer work in silos. Rather, they have to be linked in a systematic fashion. This is easy to write, and for transport and energy at least, a useful and fruitful step forward. However, it will be a challenge for countries to cooperate more closely. This is not meant to imply that the countries in the EU do not already work closely together, as they do. The point here is that the economies and infrastructure across Europe for energy and transport differ widely. Many of the countries in the EU have developed their own transport infrastructure apart from their neighbors, and any efforts to combine infrastructure will be a major undertaking. To put this in context, we need only to look at train gauges, or the width between the train tracks. One of the key parts of the EU transport roadmap, which is discussed later in Section 3.3, is the substantial increase in rail traffic across Europe, including high-speed train corridors. This calls for the rollout, or expansion, of new infrastructure suitable for high-speed trains. In Portugal and Spain, though, the switching of train gauges will also be required. At present, the standard gauge in Europe is 1,435 mm, on which the current high-speed trains run. In Portugal and Spain, the gauge is 1,668 mm. Thus, the current high-speed rolling stock cannot use these tracks. 11
As can be seen in the map in Figure 3.1, the current integrated high-speed network from North to South stops at the border of Spain. Any expansion of integrated high-speed rails across the border will require the current tracks in Spain and Portugal to be ripped up and replaced or the addition of brand new truck lines. Since high-speed rail lines can cost upwards of 330,000 ($468,000) per km. 3 Both of these options have strong economic implications. Figure 3.1 High-Speed Rail Network in Europe: 2010 3.2 Energy (Source: Bernese Media) Increased energy demand is being paired against ambitious GHG emissions reduction targets (as shown in Table 2.1). Consequently, energy and its decarbonization is driving the development of a new energy network within the EU. The energy policy of the EU is centered on the SET-Plan, published in 2009, which will form the basis of the Energy Roadmap 2050 white paper, due for publication in 2011. What we know so far of the Energy Roadmap is that the SET-Plan is still seen as the blueprint and the technologies outlined within are central to the decarbonization plans. 3 This is based on the costs of the Madrid-Albacete high-speed line, which was completed in 2010. 12
The energy sources, and technologies, outlined in the SET-Plan are wind, solar, bio-energy, nuclear fission, fuel cells, CCS, and new electricity networks. Clearly, the development of a balanced, secure network, or set of micro-networks, that can incorporate a large quantity of renewable energy systems (RES) alongside centralized production will require significant levels of energy storage and high penetration of smart metering to allow for the continued roll out of smart grids. One point to clarify here is that the EU has a very specific definition of smart grids: Electricity networks that can intelligently integrate the behavior and actions of all users connected to it generators, consumers and those that do both in order to efficiently deliver sustainable, economic and secure electricity supplies. Smart grids in the context of discussion of the EU do not cover the natural gas network. However, the rollout of a true smart grid in Europe will also require a smart(er) natural gas network. Technologies that are high on the wish list of the EU for deployment in Europe, such as residential fuel cells, require a stable, secure natural gas network. 13
The importance of the gas network is clear from the map in Figure 3.2, which shows EU energy infrastructure priorities for electricity, natural gas and oil, as well the continued rollout areas for smart grids. Figure 3.2 EU Infrastructure Priority Areas for Electricity, Natural Gas, and Oil: 2011 (Source: European Commission Directorate-General for Energy) In addition to looking at integrating new technologies (e.g., fuel cells, energy storage, new sources of energy, and cleaner power plants) into the mix, the EU recognizes that distributed generation and microgrids will play a key role. This strongly implies that the consumer will play a far more active role in energy management, instead of just consumption, in the future. To underpin this implication, VC investment in Europe has been investing strongly over the past couple of years in interface technology and apps between the smart meter and the consumer. 14
3.3 Transport The question of nuclear is a very politically sensitive one in Europe. The SET-Plan calls for the new Gen-IV Reactor to have prototypes up and running by 2020 and be commercially rolled out by 2040. With Germany, Italy, and Scotland all imposing nuclear moratoriums, funding for nuclear R&D, estimated at 7 billion ($10 billion) over the next decade, could be put under increasing pressure. This, in turn, could potentially cause delays in the rollout of the Gen-IV reactors. The European emissions trading scheme (ETS) is also set to play an increasing role in the future of energy in Europe. Unlike in North America and Asia, which to date have no GHG emission trading scheme, the ETS in Europe has been up and running since 2005. Aviation has been brought in the scheme during 2011, but at the time of writing, this action is being challenged in the courts by a number of non-european airlines that view it as a discrimination tax. Many sectors of the energy industry are included in the ETS, which acts as one of the prime sticks to encourage the reduction of emissions through the adoption of either new technologies or new processes. Ultimately, as with the other areas of transport and energy efficiency, energy in general is going to become a lot more integrated and a lot smarter. One final note on the Energy Roadmap 2050 is that during the recent public consultation, it became clear to the EU that although the majority of respondents called for a leveling of the playing field in Europe in terms of energy subsidies, there were multiple meanings of the term leveling the playing field. Therefore, upon the release of the Energy Roadmap 2050, it is highly likely that we will see a clear EU definition of leveling the playing field alongside a clear EU definition of a smart grid. The focus of the suite of EU communications, directives, and documents on transport in and across the EU is on increasing the opportunities for sustainable mobility through modal shifting and intelligent transport systems (ITS). Apart from the development of communications between modes, and between operator and user, what is abundantly clear is that there will be significant investment in the research, development, and deployment of cleaner fuels and new propulsion technologies. The move to design and implement ITS is being driven by the requirements of both the operator and user sides. For the operator, the goal is to design the lowest energy use network and avoid congestion. For the user, it is to be able to move between modes of transport effectively and efficiently. The focus within transport is very clearly on modal shifting, specifically moving people into using mass transit, including trains, boats, and planes. For longer journeys, the two key development foci are going to be ITS and pollution reduction technologies. These will drive the push to develop new fuels and new propulsion technologies. For some applications, specifically LDVs and buses, the development of both alternate fuels and propulsion technologies is fairly well advanced. However, for trains, ships, and aviation, there is still a long ways to go. 15
Table 3.1 Assessment of R&D Requirements for the Core Focused Transport Systems LDVs - New Propulsion PGMs and REMs Durability Standardization Aligning the Product with Market Need Codes and Standards Recharging/Refueling Trains - New Propulsion Sunk Assets Power Density Durability Standardization Marine - New Propulsion Safety Policy and Regulation Durability Serviceability Power Density Economics Marine - New Fuel Availability Policy and Regulation Economics Safety Aviation - New Propulsion Safety Power Density Weight Durability Reliability Aviation - New Fuel Availability Policy and Regulation Economics Safety Buses - New Propulsion Safety Policy and Regulation Durability Serviceability Level of Criticality 16
Power Density Economics Level of Criticality (Source: Pike Research) At present, new propulsion technologies are centered on fuel cells and batteries and new fuels such as electricity, hydrogen, and biofuels. There are a number of funded EU projects underway looking at all of these options, but it is clear that they are some ways from market. Thus, it is likely that for at least the next decade, the focus in the EU will be on large funded projects to further develop the technologies needed before any level of initial rollout after 2020. To enable the shift to mass transport, the EU is also proposing a number of truck corridors between major cities and ports. For ports especially, with the increasing global focus on the emissions from all parts of the shipping chain, this is likely to encourage the deployment of land-based power supplies for ships when docked and the move to create more so-called green ports. Cleaning up emissions from ships while docked is something of an easy first step in tackling marine emissions. It would make sense, therefore, if this shift to green ports becomes the GHG reduction driver over the next decade while technology for on-board deployment is being developed. Aviation and airports are likely to see the same form of development. Due to the real challenges, including technical and social acceptance, of new systems on-board aircraft, it is likely that airports in Europe will be the focus of reduction in emissions over the next decade at least. This is a soft first step, as many airport vehicles can be converted to run off electricity or hydrogen now since commercial systems already exist. These captured markets will provide time for the technical developments that will be needed to alter commercial aircraft to reduce emissions. As one of the core concepts behind the Transport White Paper (COM(2011) 144) is the principle of the polluter pays some form of smart chips will also need to be developed and deployed to be able to monitor and log pollution levels by polluter. This roll out of smart chips could face consumer reluctance if there is any concern over privacy. From the Transport White Paper we can surmise the likely technology requirements, listed here: New propulsion technologies likely to focus on the continued development of batteries and fuel cells Low carbon fuels will center on hydrogen, electricity, and biofuels Smart chips and ITS will need to be developed and deployed to enable intermodal shift and the polluter pays principle to be adopted Finally, when the current EU white paper, Roadmap to a Single European Transport Area Towards a Competitive and Resource Efficient Transport System, was published, it created a great deal of interest. Among other strategies, it calls for the phasing out of conventionally fueled vehicles in cities by 2050. This was misread, and misinterpreted, by a number of pressure groups as to mean that cars would be banned in cities. In reality, the paper states that all cars used in EU cities will, at a minimum, need to be a hybrid vehicle by 2050. 17
3.4 Energy Efficiency The final goal and focus of the 20-20-20 target is the 20% increase in efficiency of energy use. Buildings, and their inefficiencies, are being heavily targeted for improvements. The residential sector especially is a very large consumer of energy in the EU. One concrete project that the EU is heralding, in terms of its integrated approach to energy production, use, and consumption, covering energy, transport, and energy efficiency, is the Smart Cities Initiative. In this initiative, 25 to 30 European cities will test and deploy a range of zero carbon technologies in transport and energy. The roadmap for development and deployment of the Smart Cities is shown in Figure 3.3. Figure 3.3 Roadmap of the EU Smart Cities Initiative (Source: European Commission) Interestingly, unlike the two other areas discussed in this paper, energy and transport, energy efficiency cannot be as clearly manipulated by policy or legislation, aside from the area of consumer goods. Developing zero carbon, or very low carbon, buildings has been shown to be possible, just more expensive. However, the market for retrofitting of existing building stock is extremely challenging. This is an area where it is not easy to list off a 18
basket of technologies that can be retrofitted into homes and offices with incentives. Thus, a substantial chunk of EU funding is going into R&D related to how to make the current building stock more efficient. 3.5 Policy Discussion What is clear from the movement in the EU is that not only are the 2050 targets highly ambitious, but will also see a shift in thinking toward a much more integrated approach to energy and its use. It is also clear that without the development of smart technologies and intelligent systems, which are both predicated on two-way communications, only a fraction of what is proposed would be possible. The brave new world that the EU envisages has a long ways to go. Some pieces of enabling technology, not the least of which are energy storage technologies and fuel cells, are still not ready for full commercial viability. Additionally, the public concern over the viability and safety of CCS and nuclear, both core planks of the SET-Plan, needs to be addressed. If CCS and nuclear cannot be considered building blocks in the design of the EU energy landscape, then some major rethinking and redrafting of targets will need to take place. Moreover, finance (and financing) of the major infrastructure projects will soak up a significant sum of EU funds. The European Investment Bank (EIB) has given a strong indication that it will fund 15% of the estimated 90 billion ($128 billion) needed from Germany to increase its rollout of renewable energy post the decision to shut down its 8.8 GW of nuclear capacity in 2011. This strongly implies that money has been set aside for the financing of energy projects. In fact, in 2010, the EIB lent 19 billion ($27 billion) within the EU for climate change projects. However, this is just a fraction of what will be needed. A second new investment vehicle, the European Energy Efficiency (EEEF) Fund, was launched in July 2011 with a current fund of 265 million ($376 billion). 4 This fund aims to invest in public energy efficiency and renewable energy projects within the EU. It is hoped that the initial fund will leverage a further 535 million ($759 million) to raise the money available to invest to 800 million ($1,134 million) from additional investors. Although we do not want to downplay the laudable aims of the EEEF fund, 800 million ($1,134 million) will realistically, only scratch the surface of funds needed, especially in the energy efficiency space. Both investment vehicles are acting somewhat as seed capital, thereby lowering the initial risk faced by private investors increasingly operating in this space. Thus, one of the side spinoffs of the EU plans could be to turn the region into one of the world s major hubs of green investment. Coupling economic growth with carbon reduction transitions is not an easy task. In fact, many other countries and regions are shying away from this. The EU is taking a big risk, but a calculated one, and it is the birth of the smart and intelligent generation of technologies that has enabled this risk to be taken. The impact these plans will have on the smart industry in Europe will depend on the ability to embed them between now and 2050 into everyday life for the current 501 million inhabitants. 4 The EIB has committed 75 million, the Italian public investment bank the Cassa Depositi e Prestiti (CDP) has contributed 60 million, and Deutsche Bank has contributed 5 million. 19
Section 4 SUMMARY AND CONCLUSIONS Throughout this white paper, the aim is to highlight the breadth and importance of EU policy on the development of the smart energy and smart transportation ecosystem, but a fair question now is So what? What are the technology and business implications of these policies, not just for companies in the EU, but also for companies wanting to do business in the EU? This wrap-up section presents the Pike Research view on the so what, highlighting that, unlike in many other countries, the clear framework and market structure that the policy documents are putting in place should make a transition to a smart energy system substantially smoother, and potentially a lot quicker, than in many other parts of the world. 4.1 Technology Development and Deployment 4.1.1 Shipping The policy framework has a number of high-level indicators for the development and deployment of new technologies, focusing on the markets described below. With the EU s push on reducing emissions from shipping, and the maritime sector in general, we will see an increased push for the development and deployment of commercially available, lower emission propulsion systems and auxiliary power units (APUs) for ocean going vessels, as well the development of new or cleaner fuels. Pike Research believes that the stepping stone in Europe will be the spread of so-called green ports, which would be designated zones of low emissions, with the deployment of low-to-zero carbon ship-to-shore docking and the use of zero carbon dockside vehicles and, potentially, zero carbon tugs. 4.1.2 Alternative Fuel Vehicle Refueling Technology 4.1.3 Residential With the clear statement that no country can deploy technology, which by proxy prevents the free movement of people or goods, Pike Research believes that the EU is pushing for the standardization of refueling technology for alternative fuel vehicles. For example, a standard set of interconnects for EV recharging points will need to exist across Europe, and a standard set of pressures will be needed for fuel cell vehicle hydrogen refueling. This should see the 27 member states of Europe leading the way in cross-boundary standardization of technology. Also, in terms of hydrogen refueling station rollouts, Pike Research forecasts a two-level phased rollout across Europe. The first level will be along major city corridors and the second will join the dots with the minor cities. Higher efficiency homes will become the norm, with micro combined heat and power (mchp) rolled out in most countries in the EU. Due to the technologies increased efficiency and being able to use mchp as a stepping stone in the reduction in emissions from the current building stock over the medium term, this will become the norm. Initial 20
rollout will start in the next few years. 4.2 Development of Alternative Business Models As well as seeing the development and deployment of a number of new technologies in the European market place, the policies that the EU has launched are also likely to see a number of new business models created. 4.2.1 Energy Storage As the overall percentage of renewables in the electricity generation mix increases, energy storage will become the rallying cry for the green energy lobby for both grid level energy storage and a much more distributed level. This provision of energy storage solutions could, Pike Research believes, see a different business model evolving from the renewable energy providers. Instead of selling as much renewable power to the grid, as and when it is available, we could see the development of a just-in-time market for renewable electrons in which the provider teams its own storage with its renewables, becoming a much more flexible energy company. 4.2.2 Microgrids and Distributed Generation Although microgrids will not become the norm across Europe, they will see a large increase in adoption, alongside, and in parallel with, the development of the Transeuropean Electricity Networks. In terms of business models, Pike Research believes that this could cause the development of a two-tier energy supplier system, akin to what is already in place, for example, in both Germany and the United Kingdom. In this model, you have large multinational grid operators and smaller, much more local, energy producers and providers. The microgrids are more likely to be run by some form of local cooperatives with input and support from the smaller independent operators, rather than by the supergrid operators. 4.3 Development of Alternative Consumption Models Some very interesting shifts in consumer behavior could occur alongside the new business models that could be created. 4.3.1 The Use of ITS ITS will become standard, which is clear from the policy. Although this will be challenging, as some countries have nationalized transport companies and others have privatized them, the requirements for each mode of transport to become interconnected will increase to a level at which the barriers will have to be removed. This will be the case for the transportation of goods as well as people, occurring across boundaries. The aim is to remove the barriers, and some of the desire, to use road transport for long distances, which implies a shift in consumer behavior. In the short to medium term, this is clearly a large task. Although Europe s use of public transport, especially trains, is much more advanced than America s, it is still a car driving-based society. Since it is much harder to rewire consumer behavior, the haulage companies are more likely to switch first to a mix of transport solutions. This is already being seen in the United Kingdom, with a road haulage firm being the first in many years to create a private rail haulage system. 21
4.3.2 Carbon Reduction at Residential Levels Albeit somewhat of a long shot, in terms of potential, the trend of using home smart meters to track carbon emissions as well as electricity use could increase. Citizens of the EU discuss carbon emissions and climate change as a normal part of their lexicon. So, as well as developing and using smart meters to track and monitor electricity consumption, homeowners using them to track and monitor the carbon footprint of individual homes could take off in Europe. It is highly unlikely that we will see any form of individual carbon quotas in the EU, but in order for the residential and services sector to reduce their emissions by 91% by 2050, the engagement of people on the street level will need to occur, and the use of smart meters makes an easy entry into the home. In summary, while EU policy has not directly legislated new technology in the market place, it has created the opportunity for the rollout of a smart energy and smart transportation system across 27 countries in a more coordinated fashion than would be possible without any such policy. 22
Section 5 APPENDIX I REFERENCE LIST Documents used in this report include: Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, COM(2011) 112 Final: A Roadmap for Moving to a Competitive Low Carbon Economy in 2050 White Paper, COM(2011) 144 Final: Roadmap to a Single European Transport Area Towards a Competitive and Resource Efficient Transport System Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, COM(2011) 109 Final: Energy Efficiency Plan 2011 Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, COM(2009) 519 Final: Investing in the Development of Low Carbon Technologies (SET- Plan) Background Paper (2011), European Commission, Directorate-General for Energy: Energy Roadmap 2050 State of Play Directive 2010/31/EU of the European Parliament and of the Council: Energy Performance in Buildings (Recast) 23
Section 6 ACRONYM AND ABBREVIATION LIST Austria... AT Auxiliary Power Unit... APU Battery Electric Vehicle... BEV Belgium... BE Bulgaria... BG Carbon Capture and Storage...CCS Carbon Dioxide... CO 2 Cassa Depositi e Prestiti...CDP Cyprus... CY Czech Republic... CZ Emissions Trading Scheme... ETS Estonia... EE European Energy Efficiency Fund... EEEF European Investment Bank... EIB European Union... EU Finland... FI France... FR Germany... DE Gigawatt... GW Greece... EL Greenhouse Gas... GHG Hungary... HU Intelligent Transport Systems... ITS International Maritime Organization... IMO Ireland... IE 24
Italy... IT Kilometer... km Latvia... LT Light-Duty Vehicle... LDV Lithuania... LT Luxembourg... LU Malta... MT Micro Combined Heat and Power... mchp Millimeter... mm Million Tons of Carbon Dioxide Equivalent... MT CO 2 eq Million Tons of Oil Equivalent... MTOE Netherlands... NL Platinum Group Metal... PGM Poland... PL Portugal... PT Rare Earth Metal... REM Renewable Energy Systems... RES Research and Development...R&D Romania... RO Slovakia... SK Slovenia... SI Spain... ES Strategic Energy Technology Plan... SET-Plan Sweden... SE United Kingdom... UK United Nations Framework Convention on Climate Change... UNFCC Venture Capital... VC 25
Section 7 TABLE OF CONTENTS Section 1... 1 Executive Summary... 1 1.1 EU-27 Moves to a Low Carbon Economy... 1 Section 2... 3 EU Low Carbon Economy Policy Background... 3 2.1 Overview... 3 2.2 2008 Energy and Emissions Profile... 5 Section 3... 11 Implications of the EU Low Carbon Economy Policies... 11 3.1 Overview... 11 3.2 Energy... 12 3.3 Transport... 15 3.4 Energy Efficiency... 18 3.5 Policy Discussion... 19 Section 4... 20 Summary and Conclusions... 20 4.1 Technology Development and Deployment... 20 4.1.1 Shipping... 20 4.1.2 Alternative Fuel Vehicle Refueling Technology... 20 4.1.3 Residential... 20 4.2 Development of Alternative Business Models... 21 4.2.1 Energy Storage... 21 4.2.2 Microgrids and Distributed Generation... 21 4.3 Development of Alternative Consumption Models... 21 4.3.1 The Use of ITS... 21 4.3.2 Carbon Reduction at Residential Levels... 22 Section 5... 23 Appendix I Reference List... 23 Section 6... 24 Acronym and Abbreviation List... 24 Section 7... 26 Table of Contents... 26 Section 8... 27 Table of Charts and Figures... 27 Section 9... 28 Scope of Study... 28 Sources and Methodology... 28 26
Section 8 TABLE OF CHARTS AND FIGURES Chart 1.1 Final Energy Consumption by Sector and Country, EU: 2008... 2 Chart 2.1 Final Energy Consumption by Sector and Country, EU: 2008... 5 Chart 2.2 Percentage Gross Inland Consumption by Fuel by Country, EU: 2008... 6 Chart 2.3 Renewable Energy Penetration Share per EU Nation: 2008... 7 Chart 2.4 Final Energy Consumption by Mode of Transport, EU: 2008... 8 Chart 2.5 GHG Emissions by Sector, EU: 1990-2008... 9 Chart 2.6 GHG Emissions by Sector, EU: 2008... 10 Figure 3.1 High-Speed Rail Network in Europe: 2010... 12 Figure 3.2 EU Infrastructure Priority Areas for Electricity, Natural Gas, and Oil: 2011... 14 Figure 3.3 Roadmap of the EU Smart Cities Initiative... 18 Table 1.1 GHG Reductions Compared to 1990 (% Reductions; 1990 = 100%): 2005-2050... 1 Table 2.1 GHG Reductions Compared to 1990 (% Reductions; 1990 = 100%): 2005-2050... 3 Table 3.1 Assessment of R&D Requirements for the Core Focused Transport Systems... 16 27
Section 9 SCOPE OF STUDY Pike Research has prepared this white paper to provide current and interested stakeholders at all levels, including technology developers, analysts, investors, and non-eu policy makers, with an overview of the current suite of EU policies related to moving to a low carbon economy, as well as a discussion of the potential impacts. Its major objective is to provide an understanding of the objectives within the EU-27 and potential implications for the smart energy and smart transportation sectors. The report s purpose is not to provide an exhaustive assessment of the policies and funding mechanisms in place at the EU level. Rather this Pike Research White Paper strives to identify and examine new market segments to aid readers in the development of their own understanding and business models. SOURCES AND METHODOLOGY Pike Research s industry analysts utilize a variety of research sources in preparing Research Reports. The key component of Pike Research s analysis is primary research gained from phone and in-person interviews with industry leaders including executives, engineers, and marketing professionals. Analysts are diligent in ensuring that they speak with representatives from every part of the value chain, including but not limited to technology companies, utilities and other service providers, industry associations, government agencies, and the investment community. Additional analysis includes secondary research conducted by Pike Research s analysts and the firm s staff of research assistants. Where applicable, all secondary research sources are appropriately cited within this report. These primary and secondary research sources, combined with the analyst s industry expertise, are synthesized into the qualitative and quantitative analysis presented in Pike Research s reports. Great care is taken in making sure that all analysis is well-supported by facts, but where the facts are unknown and assumptions must be made, analysts document their assumptions and are prepared to explain their methodology, both within the body of a report and in direct conversations with clients. Pike Research is an independent market research firm whose goal is to present an objective, unbiased view of market opportunities within its coverage areas. The firm is not beholden to any special interests and is thus able to offer clear, actionable advice to help clients succeed in the industry, unfettered by technology hype, political agendas, or emotional factors that are inherent in cleantech markets. 28
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