What would be the main features of a truly integrated energy system to enable a climate neutral future? Where do you see benefits or synergies? Where do you see the biggest energy efficiency and cost-efficiency potential through system integration?
The basis for a truly integrated energy system should be a well-functioning, transparent energy market, where suppliers and consumers can meet each other easily. A technology neutral approach is vital since there is a wide variety of different solutions from conventional to more innovative ones that can help in reducing emissions. The viability of different solutions varies across industries and member states, which is why companies, Member States and other actors should be free to choose the ones that best suit their conditions.
Emissions reductions should take place cost-effectively regardless of technologies chosen, so the EU Emissions Trading Scheme should be the main tool of integrating cost of emissions into the market prices of different technologies.
Decarbonizing electricity production and electrifying other sectors should be the core of European climate strategy. A more integrated energy system would also allow the EU to reduce its consumption of fossil fuels through recycling energy that is currently wasted. For example, utilizing the waste heat from European industry could potentially allow us to reuse 300-350 TWh of energy per year – approximately equal to half of the energy produced with solid fossil fuels each year in the EU.
Improved transparency and facilitation of long-term cooperation between different sectors is vital. For example, a typical operator of a data center with waste heat potential will most likely need additional technical and economical know-how on if and how said waste heat should be utilized. Correspondingly, the local district heating provider will need to understand the type and quantity of waste heat produced by the data center to properly utilize it. In Finland, we have a strong tradition of local district heating networks that can provide a platform for sector integration.
What are the main barriers to energy system integration that would require to be addressed in your view?
Local Power Finland would like to emphasize, that the decarbonization of energy sector itself has already gone forward a long way. Main challenges lie with other sectors such as energy intensive industries, transport, agriculture and theintegration of these sectors with energy sector. Commission seems to address this issue now with the Green Deal program.
Looking at the local level, main barrier is probably found in lack of cooperation between sectors, mostly due to issues with transparency and incentives. Raised awareness of the possibilities of cross-sector cooperation and help for actors from different industries to identify potential business cases is needed. Secondly, misaligned incentives also lead to a lack of cooperation. In some cases, actors in different sectors will not find cooperation beneficial for themselves even if it would be a societally cost-effective way of reducing emissions. This is often a question of Member States’ and local level governance rather than an EU issue.
How could electricity drive increased decarbonization in other sectors? In which other sectors do you see a key role for electricity use? What role should electrification play in the integrated energy system?
Decarbonizing electricity production is already quite far. In the Nordics for example, about 90% of electricity is CO2-free. With all available technologies, including nuclear, all EU-electricity could be decarbonized. Electricity should then be used as the ‘fuel’ for other sectors like industry, transport, heating etc. As the Commission has shown in 2050 Roadmap scenarios, this requires a big increase in European electricity production, as further digitalization of the economy as a whole will also increase electricity demand, even if total energy demand might not rise very much. Investments in CO2-free electricity production capacity, including nuclear power, should be the backbone of EU’s climate and energy policy.
Electrification of vehicle transport is already on the way. Many industries, such as steel and chemicals, have plans to decarbonize their production with CO2-free electricity. Heating can also be electrified by using heat pumps, geothermal or direct electrical heating.
What role should renewable gases play in the integrated energy system?
Renewable gases could act as a fuel or play a role in energy storage to help balance the supply and demand of energy. For example, in times when electricity supply exceeds demand, excess energy can be used to produce renewable gases which can then be used to produce energy when demand rises above supply. Biogas production should be closely linked to agriculture.
What measures should be taken to promote decarbonized gases?
In order to support a more extensive adoption of decarbonized gases, the EU should support further research and innovation efforts. Additionally, avoiding the taxation of intermediate products and instead focusing on taxing the consumption of these gases would help companies adopt decarbonized gases. EU should encourage the productions and use on biogas in Member States.
What role should hydrogen play and how its development and deployment could be supported by the EU?
Hydrogen will most certainly be an important since it is already a part of European gas markets with several member states looking into expanding its use. Supporting research and development is again important to discover potential new applications of hydrogen.
How could circular economy and the use of waste heat and other waste resources play a greater role in the integrated energy system? What concrete actions would you suggest to achieve this?
District heating networks offer a platform for effective utilization of waste heat to reduce emissions in the heating sector. In order to tap into the potential of waste heat, connecting existing and future industrial installations to local district heating networks should be supported. Additionally, it is important to ensure that the regulatory framework supports the reuse of waste heat.
How can energy markets contribute to a more integrated energy system?
Well-functioning and transparent markets with clear price signals are important for finding the most cost-effective ways of cooperation between sectors. EU ETS should be expanded to cover more sectors, such as heating and cooling.
How can cost-efficient use and development of energy infrastructure and digitalization enable an integration of the energy system?
Investments in transmission and distribution networks are needed in order to cope with the increased electrification. EU funding for energy networks is important element here. The cross-border transmission targets set by European Council should be met.
Digitalization may help alleviate the issue of intermittency due to electricity production through wind and solar. Demand side management and smart grids could help shift demand from peak hours and additionally lower the cost of electricity for consumers.
Are there any best practices or concrete projects for an integrated energy system you would like to highlight?
There are several local level projects in Finland, one of them is the LEMENE-project in Lempäälä.
What policy actions and legislative measures could the Commission take to foster an integration of the energy system?
As said, the basis for an integrated energy system should be a well-functioning, transparent energy market, where suppliers and consumers can meet each other easily. A technology neutral approach is also vital since the viability of different solutions varies across industries and member states. Therefore, a mix of different solutions will be necessary. The Commission should consider the inclusion of additional sectors, such as heating, into the ETS.
Additionally, when reviewing the Energy Taxation Directive, the Commission should pay close attention to the taxation of reuse of waste heat and other similar issues to ensure that the regulatory network does not disincentivize companies and other actors from utilizing energy that is currently wasted.
To facilitate innovation and adoption of emerging technologies, the EU should stay committed to funding research and development through instruments like the Horizon programme. For example, further research and innovation into small modular nuclear reactors (SMRs) could deliver a stable low-carbon source of electricity and heat for Europe. SMRs could potentially be a cost-effective way of driving sector integration through the production of decarbonized gases, too.