By midcentury, Europe is expected to have a power grid three to four times as large as it has today, with electricity forming a key decarbonisation vector. To deliver energy security, emission reductions, and economic growth, Europe needs to reframe its electricity decarbonisation strategy to aim for 24/7 carbon-free energy (CFE).
24/7 carbon-free energy means that every kilowatt-hour of electricity consumption would be met with carbon-free electricity sources, every hour of every day, everywhere. 24/7 carbon-free energy is both the end state of a fully decarbonised electricity system, and achieving it necessitates a transformative approach to energy procurement, supply, and policy design.
To deliver 24/7 carbon-free energy, Europe needs to invest in commercialising next-generation clean technologies, create an electricity market capable of delivering reliable and resilient supply of carbon-free electricity, and improve carbon accounting rules so that energy procurement contributes to investments in next-generation clean technologies.
Many studies have now shown that variable renewable energy alone will not be enough to deliver a decarbonised grid without compromising reliability and cost. As our colleague Leslie Abrahams summarised earlier this year, “Wind, solar, and battery storage will likely be a cornerstone of this future expanded electricity grid, but we likely cannot rely on these alone, as they’re weather dependent — varying in output by a factor of two or more depending on the hour, day, and season — and unavailable on demand to match the electricity load.”
Studies have confirmed that we need “clean firm” (that is, zero- or ultra-low carbon dispatchable) power technologies to balance the weather-dependent renewables, especially over weekly, monthly, and seasonal timescales. Unabated fossil fuels are currently most often used to balance that variability, and we must replace that high-emitting source with carbon-free alternatives. Increasing the real-world deployment of clean firm technologies is imperative, particularly for Europe as it looks to diversify energy supplies and deliver energy security. By 2035, McKinsey estimates that, even in a renewable energy dominated grid, Europe will require over 100 GW to maintain reliability and reduce costs. European policymakers need to update their strategies to reflect the needs of a clean power system that will enable the complete decarbonisation of electricity systems in a practical way.
Enabling the commercialisation of emerging technologies for 24/7 carbon-free energy
The UN-led 24/7 Carbon-Free Energy Compact, which CATF joined as the first NGO member, concluded that “due to the remarkable ongoing progress in clean energy and enabling technologies, the transition to a fully decarbonised electricity sector is possible.” However, technology optionality and eligibility remain limited across Europe, and deployment of emerging technologies remains low.
The first step towards 24/7 carbon-free energy is increasing the number of clean technology options on the table. For this to happen, proactive planning of technology deployment to ensure commercialisation is crucial. A clean, reliable, and resilient grid requires a diverse portfolio of clean firm power technologies. There is a relatively short list of options that fulfill this role: today, we have conventional and next-generation nuclear energy or carbon capture and storage on fossil power plants; and there are potential technologies such as superhot rock geothermal and fusion energy that could fit into this category if scaled in the future. Apart from such power generation technologies, long-duration, multi-week storage – if demonstrated at reasonable cost – could also be useful for providing round-the-clock zero-carbon power in all seasons.
Some early-stage clean firm technologies are still facing the proverbial “valley of death” – the funding gap that looms between a technology’s demonstration stage and its widespread deployment. Europe, along with other global partners, needs to bring these technologies to a take-off point – where they can scale substantially and enable 24/7 carbon-free energy.
To reach this future, Europe needs to strengthen its innovation policy. This includes diversifying technology innovation, embracing optionality, bridging the gap between development and demonstrations, overcoming ecosystem barriers by addressing enabling infrastructure needs (e.g. CO2 pipelines and storage, transmission, and more) with proactive planning and coordination, as well as supporting countries outside of Europe in their planning and deployment of carbon-free technologies.
A comprehensive electricity market design reform to support 24/7 carbon-free energy
The second step for ensuring a clean grid is designing an electricity market that supports 24/7 carbon-free energy.
In March 2023, the European Commission published a draft electricity market design reform proposal in response to high electricity prices driven by the Russian invasion of Ukraine. While the current reform rightfully aims to improve the ability of customers to hedge costs using contracts, the reform does not address much more significant structural gaps related to competitively incentivising clean firm power and long-duration storage technologies to ensure reliability as more renewables are deployed. A future-proof reform will be needed if Europe is serious about ensuring a reliable and low-cost electricity grid that delivers clean energy 24/7 across all seasons.
To support the development of clean firm generation, there is a growing consensus that an energy-only market compensation based on short-term marginal cost pricing (like much of Europe today) cannot deliver adequate levels of capital investment, because capital cost recovery is uncertain when the only revenue streams are uncertain and often volatile, as electricity markets have been shown to be. Hybrid markets (containing short- and long-term markets, which recognise and provide certain compensation for the value of always-available clean power) can significantly help de-risk investment for technologies needed to balance renewables, such as nuclear, geothermal, carbon capture and storage, and long duration storage, and have been shown to work in U.S. markets.
To ensure markets are able to support 24/7 carbon-free energy, the Commission and/or Member States need to draft guidance for the design of long-term capacity renumeration mechanisms. This design needs to ensure the capacity mechanisms are competitive, technology-neutral, and allow for long-term support for clean firm dispatchable generation and storage resources that will support investment. Finally, a European-wide authority, needs to be tasked with evaluating the reliability value of various clean resource types on an annual basis to ensure technologies are compensated fairly and ensure resource adequacy.
Accounting to incentivise 24/7 carbon-free energy through voluntary advance procurement markets
The above two reforms address the basic market infrastructure that will enable the commercialisation of 24/7 decarbonisation through mandate. In addition, in recent years, voluntary corporate advance procurement and public procurement of clean energy has been a positive driver for clean energy in the EU by covering the “green premium” for power that is not provided by unabated fossil sources. Corporations in the EU conclude PPAs, thus accelerating the adoption of clean technology options.
However, the vast majority of procurements have consisted of buying “renewable energy credits” that equal total annual energy requirements of the buyer, but do not match the timing or location of the buyer’s consumption. As a result, the potential of corporate purchases remains not fully realised.
Therefore, the final step is to alter carbon accounting rules so that voluntary advance market energy procurement creates the market signals for round the clock, all season clean energy — not just variable energy when it is available — and contributes to investments in next-generation clean technologies that can be delivered to load in all locations and at all times.
Currently, the rules that businesses follow do not accurately measure the emissions associated with purchases tied to the timing and location of a buyer’s electricity use. Rather, buyers follow rules laid out in the greenhouse gas accounting (GHG) framework of the voluntary, NGO-run framework: the GHG Protocol.
The section of the GHG Protocol that governs electricity use emissions (known as Scope 2) is fundamentally flawed. Current accounting and reporting based on annual purchases of energy certificates matched with a company’s annual consumption across broad geographic boundaries can easily result in greatly reduced or zero reported emissions inventories (referred to as “Scope 2 market-based emissions”) and be interpreted to support a company’s claims of “using 100% renewable energy”. Because this system fails to consider both the timing and deliverability of clean supply to a buyer, it does not capture the system value of firm and dispatchable carbon-free generation and balancing resources needed to achieve net-zero goals. Instead, it gives equal credit to electricity procurement transactions irrespective of the degree to which those transactions actually changed the electricity that the buyer is using to serve its load. As a result, buyers are incentivised and rewarded for procurement that fail to capture the highest level of climate benefit.
This missed opportunity to align the power of buyer demand with grid decarbonisation comes at a huge cost to shared decarbonisation obligations.
24/7 carbon-free energy procurement, on the other hand, entails granular, hour-by-hour carbon accounting that will support the development of a diverse mix of firm and variable resources necessary to balance carbon-free energy supply with consumption in all locations and at all times. Procuring carbon-free energy supply to match consumption on a 24/7 basis will require transitioning from annual to hourly consumption, supply, and emissions factor data. 24/7 accounting also will require more granular market boundaries intended to make purchased carbon-free energy supply better reflect “deliverability” to the location of customer consumption.
Through this level of 24/7 accounting and carbon-free energy certification, it is more likely that a company buying energy certificates will actually be contributing to the decarbonisation of the local grid.
If Europe is to successfully ensure electricity security and decarbonisation in a cost-effective way, policymakers need to:
- Partner with stakeholders to design an innovation policy framework that plans for the commercialisation and deployment of next generation technologies, the deployment of their enabling infrastructure (e.g. transmission, hydrogen and carbon dioxide transport and storage), and that ensures the scale-up of clean tech projects thus delivering cost reductions. Importantly, planning will need to anticipate the needs beyond 2030 to enable investments at the rate necessary to meet our goals. Policymakers need to focus not only on near-term targets, but also motivate investment in large enabling infrastructure projects (e.g. CCUS pipelines, H2 pipelines, transmission, CO2 storage, etc.).
- Ensure that low-carbon electricity procurement markets support investments in next generation clean technologies (e.g hydropower, geothermal, energy storage, nuclear, carbon-free hydrogen, and fossil fuels with carbon capture and storage).
- Alter carbon accounting rules so that corporate buyers and governments are enabled and incentivized to procure a clean energy portfolio that meets their demand profiles, and especially incentivized to procure clean firm technologies that can complement variable renewable generation to achieve full power system decarbonisation.