How to ensure Europe’s security of supply in a new balance of power
Since the 1990s, after the collapse of the Berlin Wall, the fall of the Soviet Union and the end of the Cold War dominated by the Russia-America bipolar world order, decades of hope for a better future ensued with democracy, free trade and innovation.
Today, the values of the past decades are losing ground, with the good we saw in those decades now in retreat. Whether it be in the rise of autocracy, democratic backsliding, the politicisation of science, or the decline of free trade, the world is clearly on a new trajectory from the one of just 20 years ago. We seem to have been shot back to some of the scariest points of the 20th century, with a renaissance of economic alliances, trade tensions, and aggressive industrial competition if not outright conflict that is uprooting the world we live in.
Russia’s invasion of Ukraine is the ultimate consequence of this geopolitical shift. Global markets were turned on their head overnight and the effects of this attack are having a lasting effect in Europe and beyond. This major disruption exposed Europe’s dependence on Russian fossil fuel imports and showed how risky trade dependencies with unreliable partners can turn into threats or attacks to a country’s security of supply.
But what exactly do we mean by security of supply?
What is Security of Supply?
The European Environment Agency defines security of supply as “the availability of energy at all times in various forms, in sufficient quantities, and at reasonable and/or affordable prices.” These conditions must come without coercion from third parties.
How did Europe’s security of supply change after Russia’s invasion of Ukraine?
In 2022 before Russia’s invasion of Ukraine, the EU relied on Russian pipeline gas for 40% of its supply. Today the EU imports are well below 10% of that gas largely thanks to the EU higher renewable ambition – labelled as REPowerEU – energy savings incentives, supply diversification and gas storage efforts.
Supply Chain Diversification
Diversifying our supply chains requires that we expand supply chains and avoid reliance on a single supplier. In the case that one supply source experiences disruptions, there will be many alternative sources to keep everything running in a secure manner without collapsing the whole system. As climate catastrophes are becoming more frequent and geopolitical tensions are posing both cyber and physical threats to supply, having diversified sources is crucial to keep things running.
Throughout last year, the EU worked on strengthening relations with international partners other than Russia to secure energy imports mainly in the form of liquified natural gas (LNG). The US became the first exporter of LNG to the EU, followed by Qatar and Nigeria, whereas pipeline gas, previously coming from Russia, was partially replaced with supplies from Norway, Algeria and Azerbaijan.
With the EU permanently reorienting its energy trade with alternative partners and supplier, Russia’s place in the global energy trade has irremediably changed. Once the world’s largest exporter of fossil fuels, Russia now plays a diminished role due to its curtailments of natural gas supply to Europe and European sanctions on imports of oil and coal. Despite increasing exports to Asian markets, the Kremlin was unsuccessful in finding alternative routes for all the flows that previously went to Europe.
Homegrown renewables
Europe’s future independence lies in energy security. For energy security, Europe must persist in the energy transition to power itself with homegrown clean and renewable energy. REPowerEU translated this ambition into clear binding targets with 605 GW of additional renewable capacity and 20 million tonnes of renewable hydrogen to be reached by 2030.
Deploying more wind and solar won’t be enough, however, without new storage technologies, a robust electricity infrastructure, and flexible assets to integrate and balance variable generation.
Energy Savings
Saving energy was one of the most successful emergency measures enacted in 2022 by the EU to respond to the energy crises. With day-ahead electricity prices skyrocketing in August 2022 to an average of €405/MWh – 532% higher than in January 2021 – the EU passed gas and electricity demand reduction targets.
Gas Storage
Faced with Russia’s growing gas crunch and the risk of having insufficient gas supplies for the winter, the European Commission passed in June 2022 the Gas Storage Regulation. This emergency measure introduced a binding target upon all EU member states to fill their underground gas storage to at least 80% by 1 November 2022.
The target was amply met by most EU countries, which were thus able to leave the winter season with their storage at 56% on average.
How to rethink Europe’s security of supply in a net-zero future?
The climate crisis has completely transformed our understanding of energy security. What powered our economies thirty years ago will not be able to power our economies of the future. We are in other words, going through an ‘energy trilemma’, one that requires finding a strategic balance of affordability, sustainability, and security of supply.
If Europe wants to tackle its emissions goals in the coming decades, while reducing supply chain dependencies and ensuring energy security, investment in renewables and electricity infrastructure must drastically increase. To this purpose, a fitting electricity market design is crucial to increase investors’ confidence and result in more long-term investments for our energy transition, while shielding consumers from volatile markets and the risk of future price crises.
But how should our electricity market design look like to to catalyse and support our clean energy transition?
How can the electricity market design ensure energy security in Europe?
Europe’s power market needs an evolution that builds on the existing structure which has been refined over more than two decades. As shown in our landmark study on a Market Design fit for net zero, the EU electricity market could benefit customers by establishing a new balance between long-term and short-term price signals. For this to happen, the market design reform should incorporate the right mix of long-term contracting and hedging tools such as power purchasing agreements (PPAs), contracts for difference (CfDs) and capacity mechanisms to boost firm and flexible capacity while improving liquidity in forward markets.
To ensure the proliferation of these long-term instruments it is critical to remove legislative barriers hindering their use. This is especially the case for private PPAs. Public authorities can play a complementary role when investment signals do not come from the market. State-backed CfDs, for instance, are often successfully used for large-scale renewable projects. However, CfDs should not be applied retroactively. And their use should remain voluntary to avoid hampering small-scale projects and constricting the private initiative.
Beyond generation, special attention should be paid to investing in Europe’s aging infrastructure. Europe’s distribution grids are the backbone of the transition, investing in resilient infrastructures would allow the integration of massive renewable generation further reducing our dependence on imported fossil fuels. Without the proper investment in our infrastructure, however, Europe’s energy security challenges risk becoming insurmountable.
What are the main challenges to a resilient energy system?
Future-proofing our energy system to withstand the multiple challenges ahead should start with understanding the very nature of these challenges. Let’s take a look at them.
Scarce access to critical raw materials
Critical raw materials such as nickel, cobalt, and copper among other goods will all play significant roles to support the electrification of our power system, but a majority of these raw materials are mined outside of the EU. For example, 70% of the world’s cobalt supply currently comes out of the Democratic Republic of Congo. A high percentage of its refining and manufacturing however is overseen by China.
Any potential disruption to the industry supply chain could reverberate disruptions to other key operations in grid development. This is why sources and suppliers must be diversified, so that one disruption will not halt the entire process. Having multiple sources, including raw materials from operations and within the EU will have many benefits, including increased industrial market competitiveness and manufacturing capacity for goods with global suppliers like China and the US.
Physical and Military threats
On September 26, 2022, a series of explosions inflicted serious damage to Nord Stream 1 and Nord Stream 2 pipelines, which lie along the base of the Baltic Sea. The Nord Stream 1 pipeline alone was responsible for about 35% of all natural gas imports from Russia to Germany and other western European states. The damage to the pipelines caused report of a 12% increase in gas prices. Though the EU and Russia have been partners in business for many decades now, the European Commission has committed to significantly axe business and trade with Russia.
The Nord Stream pipeline explosions made clear that Europe’s physical security of supply is at serious risk. If small, targeted attacks can impose this much damage to our energy security, then resilience and defense of our infrastructure must be among the top items on our agenda. Vulnerabilities in our systems must be closely monitored to ensure energy security. But how can our industry manage these threats?
Responding to physical threats requires a concrete crisis resilience strategy involving both preventative measures and a response strategy. While there is no way to guarantee the total security of our infrastructure, there are several things we can do to prepare for physical threats. This includes drawing up risk-preparedness plans and proper management plans for crises scenarios to avoid power shortages. Management of grid infrastructure and closer monitoring of the areas with critical infrastructure can also help to prevent any attacks on our systems.
Cyber threats
It is clear that in a decentralised energy system, where renewables will form a growing share of Europe’s energy mix, digitalisation is absolutely necessary to properly manage our energy system. To process and support the massive amounts of data and signalling, Artificial Intelligence (AI) yields a massive untapped potential. Unleashing it, however, calls for an urgent step up in the digitalisation of our distribution grids. Yet with increased digitalisation, cyber security will become more and more of a challenge to take into account.
Integrating renewable energy sources such as solar and wind requires exchanging a great amount of data with the distribution grids. Digitalisation and AI will enable increased communication among system operators and all relevant actors. Yet, this greater data influx leaves us more vulnerable to cyber security threats.
If data is altered, AI would act on incorrect data. Preventing information distortion thus requires increased monitoring of the technology at hand and specific protocols to tackle potential cyber-attacks by denying outside access to sensitive data. Protocols for cyber threats need to be drilled into people’s minds in the same way that physical threats are going into the future.
The sheer volume of the threats facing our energy system can seem daunting. Some European countries, however, are already learning by doing, providing important lessons for the rest of Europe on how to best tackle physical and cyber threats. Ukraine is a clear case in point.
Ukraine’s fight to keep the lights on – lessons learned
Some valuable lessons can be learned from Ukraine as it strives today to keep its infrastructure going amid Russia’s ongoing invasion.
Ukraine has had to endure devastating attacks on its infrastructure from missiles and beyond. But despite these attacks, the country has shown admirable resilience to these threats and even managed incredible feats, including the construction of a new onshore wind farm.
“The darkest day of Ukraine's power system – literally”
It was 10 October 2022, when Russia’s large-scale missile and drone attack began on Ukraine’s power infrastructure. On that day, 83 missiles were sent and 43 were downed.
Russia targeted mostly high-voltage and high-power transformers and power generation assets. DTEK lost almost 40% of its generators in Ukraine because of this attack. Back then Ukraine did not have the air defense it has now.
But the darkest day for Ukraine’s power infrastructure was the 14-hour blackout experienced on 23 November 2022. After more than 70 cruise and ballistic missiles, Ukraine lost more than 3000 MW in less than 5 minutes. This triggered the frequency protection at the country’s nuclear power plants which were disconnected from the grid. During the blackout, hospitals continued to operate and perform surgeries under the lights of an iPhone.
System operators managed to reassemble the Ukrainian grid within 14 hours, which is a record time considering the challenge faced.
“Our systems will no doubt face adversity and significant bumps in the road, however we cannot allow these challenges to stop our transition” – says Vadym Utkin, Energy Storage Lead at DTEK at Power Summit 2023.
“Allow the system to fail but fail gracefully, in such a way that you can rebuild it very quickly.
In a world threatened with ever-worsening climate catastrophes and high geopolitical tensions, the need for contingency planning is clear, both on the government and company levels. To increase resilience, a great deal of coordination and sharing of information is needed when acing security risks like the ones Russia is posing right now. It also requires that Europe reevaluates measures on risk assessments, especially when looking at energy flow cross-continent.
National governments as well as utilities should take a closer look at their supply chains, generation and distribution processes to factor in a new security dimension when planning new projects, deploying additional capacity, and managing assets. Increased transparency and closer monitoring of these processes will have to be a trend in the coming decades, acting as a first line of defense. Innovative software, AI, and digitalisation will be critical enablers of a more resilient industry across Europe.
Security of supply requires diversification to happen on all facets and must be recognised as a top priority for our rapid transition. While there are certainly challenges ahead, the fact remains that Europe has all the tools, technologies and collective intelligence it needs to achieve its decarbonisation goals while ensuring security of supply and achieving energy independence. Though we will likely encounter many hurdles along the way, our united push towards Net Zero by 2050 must continue. Europe has an arsenal of policy, products, and services to defend itself from the changing Balance of Power, and the energy transition is the central theme tying them all together.
