ICIS: Coronavirus and Brexit likely to ensure EU 2020 renewable target achievement

Author: Matthew Jones

2020/04/07

This story has originally been published for ICIS Long-Term Power Analytics subscribers on 25 March 2020 at 13:04 CET.

While the coronavirus outbreak is already having a significant impact on the European renewables sector, one unintended consequence of the pandemic is likely to be the achievement of EU and member state binding renewable energy targets for 2020. This is due to the consequences of a prolonged downturn in demand, which will not be normalised for by the EU’s official statistics office (Eurostat), meaning that renewables look set to make up a higher share of consumption in 2020 across the EU. The likelihood of target achievement had already increased from February due to Brexit, since the UK was among the worst performers in the EU for renewable share but will now not be included in the final numbers.

Background

  • The EU as a whole has a binding target of 20% renewables in final energy consumption to reach by 2020, laid out in the 2009 renewable energy directive
  • The share is made up of three sectors: Renewables in electricity (RES-E), in heating and cooling (RES-H&C) and transport (RES-T)
  • Each member state has an individual binding target for the share of renewables in their final energy consumption in 2020
  • The EU statistical agency Eurostat announces the official RES share statistics with a one-year delay after the year in question is completed
  • The most recent results, released in January, showed the EU had achieved an 18% share in 2018, meaning that the bloc was 2 percentage points short of the 2020 target
  • Given the slow progress in recent years and the gap towards the target, we suggested in January that the EU as a whole could be on course to miss its binding target

Analysis

  • Demand impact
    • The impact of the coronavirus outbreak on European demand remains unclear as it will depend on the level of restrictions in place in each country and for how long such measures and implemented
    • However, earlier this week we ran a scenario highlighting the potential impact of a 10% drop in demand across Europe between March and June
    • The results from this scenario for the EU as a whole show a renewable share increase within the electricity sector (RES-E) of 2.4% as the fall in demand is far greater than the fall in renewable output
    • While Eurostat normalises for wind and hydro variability in order to reduce the impact of atypical years on the results, no such mechanism exists for demand. As a result, the lower level of demand will lead to a higher share of renewables in EU consumption in 2020 from the official statistics
  • Brexit
    • The prospects of the EU reaching the binding target had already increased from February due to the UK’s withdrawal from the EU and the decision not to amend the 20% target
    • Since the UK was the fourth worst performer in the EU, 4 percentage points behind its target in 2018, the removal of the UK means that the bloc is now closer to the 20% target than it was before Brexit
    • The graph below, provided to ICIS by Eurostat, shows that the EU27 reached a share of 18.9% renewables in final energy consumption in 2018, which is 0.9 percentage points higher than the result for the EU 28
    • When combined with further expansion in renewable capacity since 2019 and the anticipated lower demand in 2020, this should enable the EU to reach its binding 20% renewable target

  • Individual member state achievement
    • Of the EU 27, 15 member states had not yet reached their 2020 targets in 2018 (see graph below)

  • The distance ranged from 0.1 percentage points for Romania to 6.6 percentage points for the worst performer, the Netherlands
  • Many countries in the EU will be affected in the coming months by a slowdown in renewable capacity buildout due to the impact of coronavirus. However, in terms of reaching renewable targets this will be outweighed by the impact of falling demand
  • Our modelling on a 10% demand drop between March and June across Europe leads to member state RES-E shares increasing by between 0.4% and 5.1%
  • While developments in the heating & cooling and transport sectors would also be included in the Eurostat calculations, it seems likely that the demand drop will enable several member states that were on course to miss their targets to be able to achieve them

Outlook

  • The combination of Brexit and lower demand associated with the coronavirus pandemic should enable the EU as a whole as well as many member states to reach their 2020 renewable targets
  • The achievement of targets does not have a direct bearing on renewable build-out in the market, which will be slowed down by the impact of coronavirus
  • However, the achievement of targets will mean that several member states avoid potential fines administered by the European Court of Justice

Matthew Jones is a Senior Analyst - EU Carbon & Power Markets at ICIS. He can be reached at Matthew.Jones@icis.com

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