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Study completed on effects of EU 2030 energy and climate targets

Government Communications Department
Publication date 30.5.2016 13.00
Press release 233/2016

The use of renewable energy will increase and carbon dioxide emissions will decrease significantly in Finland’s electricity and heat sectors by the year 2030. The increase in renewable energy will be strongly focused on bioenergy. These are the findings of a study, published today, that examines alternative implementations of the EU’s 2030 energy and climate policy and their impact on the electricity sector in the EU and more specifically on Finland’s electricity and heat sectors, as well as the implementation of the objectives of the Government Programme in these sectors.

Assumptions about the recovery of economic growth and about fossil fuel prices coupled with tightening emission targets would raise the price of emission allowances and electricity significantly in the EU, based on the market modelling carried out in the study. If national renewable energy targets and subsidy schemes would be abolished in all EU countries, the price of emission allowances would rise significantly higher than in the situation in which national subsidy schemes for renewable energy would continue. The price of emission allowances is also reflected in the market price of electricity, which is somewhat lower if subsidies are in use. The study did not assess how probable it might be that national subsidy schemes would be abolished in all EU countries.

Based on electricity market modelling, the EU’s emission reduction targets can be achieved in the electricity sector by investing in wind power and solar energy on a very large scale at the EU level. Investments can also be implemented without subsidies if economic growth forecasts are realised and the costs of competing forms of production increase as prices of fuels and emission allowances rise. The use of coal is declining significantly, but its use will continue in many EU countries. Subsidising renewable energy would lead, on the basis of the study, to a lower price level for emission allowances and thereby also to greater use of coal at the EU level. The price of emission allowances is affected by renewable energy subsidies throughout the emissions trading area in Europe.

According to the study, investments in solar and wind power would not, however, be made in Finland before 2030 in addition to investments within the present subsidy scheme. Moreover, there is significant uncertainty, not examined separately in the study, relating to the development of consumer-specific small-scale solar energy solutions.

Rather than wind and solar energy, use of bioenergy will grow significantly as fossil fuels and peat are replaced by bioenergy in the production of electricity and heat in the emissions trading sector. Raising the prices of emission allowances in particular will enhance energy plants’ ability to pay for wood raw material and will further improve the position of bioenergy relative to peat and fossil fuels. Energy plants’ ability to pay for wood raw material will reach the price level of forest industry pulpwood procurement before the mid-2020s, and concern about the impact of wood energy use on the price of forest industry pulpwood in the latter part of the 2020s is justified.

The study has not separately assessed the impact that biomass sustainability criteria planned by the EU would have in biomass energy use. In electricity production, overall investment will remain modest, consisting mainly of possible new investments by the forest industry and co-production replacement investments. With respect to the co-production of electricity and heat, the implementation of replacement investments is uncertain, and if economic growth is slower than assumed and prices do not rise, investments will probably be implemented as separate production of heat rather than co-production plants.

In the EU countries, the increase in use of bioenergy in the electricity sector will be low compared with wind and solar power, and elsewhere in the world, too, development will be similar. From the perspective of new business opportunities, developing the domestic market of the wind and solar sectors would seem to be the best possible way of benefitting from growing investment needs in the EU and the rest of the world. Finland has a significant number of companies in the wind and solar power sectors, particularly, for example, in the manufacturing of components, electrical systems and special materials.

Based on interviews conducted in the study, companies view the role of the domestic market as very significant. Quantitative production targets and possible completely technology-neutral steering measures are not necessarily, according to the interviews, the most optimal way of promoting the development of Finnish technology; business opportunities can also be promoted by supporting in particular new-technology pilot projects.

Based on the study, in the electricity and heat sectors Finland can achieve the targets of Prime Minister Juha Sipilä’s Government Programme for renewable energy (over 50% in the 2020s) and self-sufficiency (over 55% in the 2020s). The targets, however, have been set for energy consumption overall, including the transport sector, for example. In the transport sector, it is likely to be more challenging than in the electricity and heat sectors to increase the proportion of renewable energy to 50%, in which case reaching the overall target may require proportions higher than 50% in the electricity and heat sectors. Moreover, with respect to abandoning the use of coal, the targets would not, on the basis of the study, be attained, even if prices of emission allowances were to rise significantly. Although the use of coal will decline significantly, it would not be discontinued completely in Finland.  

The study was conducted by Pöyry Management Consulting Oy year as a background study on the EU 2030 Energy and Climate Strategy and as part of the implementation of the Government’s 2015 plan for analysis, assessment and research.

Final report of the study (in Finnish)

Further information on the Government’s Analysis, Assessment and Research Activities is available on the website tietokayttoon.fi/en

Inquiries: Jenni Patronen, Principal, Pöyry Management Consulting Oy, tel. +358 10 332 4330 jenni.patronen(at)poyry.com and Anja Liukko, Government Counsellor, Ministry of Employment and the Economy, tel. +358 295 062 078, anja.liukko(at)tem.fi

 
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