Editorial comment
The Inflation Reduction Act in America and REPower EU in Europe are set to supercharge the renewable transition for the next decade with a combination of subsidies, tax cuts, and incentives. But, to make these policies as impactful as possible, roadblocks around energy market designs and permitting still need to be addressed.
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In a landmark moment for climate legislation, US President, Joe Biden, signed the Inflation Reduction Act, freeing up US$370 billion in federal funding to turbocharge the US economy and accelerate the shift to clean energy. The act will make use of grants and tax credits for domestic manufacturers and has been a game-changer for clean energy funding. Following Russia’s invasion of Ukraine, many countries across Europe face coming to terms with their long-term dependence on Russian hydrocarbons and legacy baseload power systems leading to spiralling costs for consumers. The central aim of REPower EU is twofold: to end dependency on Russian gas, and secure affordable renewable energy via €300 billion in loans and grants.
Going forward, Europe will require at least 1100 GW of renewable capacity by 2030 to continue on its decarbonisation journey and achieve its future net-zero goals. That will require us to redesign and reform the EU market, and Wärtsilä has identified three policy recommendations needed to enable this.
Firstly, an attribute-based capability market is imperative for adding capacity that can sustainably fulfil adequacy and system requirements, which is designed to attract investment in flexible capacity to support renewables, is needed. Similarly, attribute-based capability addition would also greatly benefit the US market. Secondly, we need to ramp up the deployment of flexible technology to support a renewable-based grid that can dynamically ramp up and down to balance the intermittent nature of renewables. Finally, strong, granular price signals are required to more accurately reflect the physical realities of the grid.
Europe also needs to tackle the issue of permitting and could look to the US for guidance on this. At present, the current system is too slow, with 80 GW of wind currently stuck in planning.1 Unlocking faster permitting will be key for the EU to excel at deploying wind farms and solar panels and help the bloc to remain competitive with the US. For the energy transition to be successful, competition in the market needs to be recognised and encouraged. This will accelerate the deployment of green technologies and lower costs, making it a no-brainer for consumers and countries.
The 2020s are a pivotal decade in our race against climate change and its impacts on not only the environment but also economies across the globe. The Inflation Reduction Act and REPower EU show the right level of ambition needed to help create the renewable energy future we want; now we need to address market designs and permitting to get renewable energy sources up and running at scale as quickly as possible.
References
- ‘EU wind installations up by a third despite challenging year for supply chain’, WindEurope, (11 January 2023), https://windeurope.org/newsroom/press-releases/eu-wind-installations-up-by-a-third-despite-challenging-year-for-supply-chain
