Rhein on Energy and Climate

Vattenfall, the state-owned Swedish power company, has announced the take-over of Nuon, a Dutch power company heavily engaged in wind energy. This decision follows the take-over bid made by RWE, the German power giant, for another Dutch utility, Essent, and the completion of the lengthy take-over battle for the Spanish Endesa by the Italian Enel group.

The European power market is on its way towards consolidation, at the end of which only a dozen big players are likely to survive.

This is an inevitable consequence of technological and financial constraints, coupled with the EU-wide regulatory framework, which will govern the electricity sector in the future.

The European power sector will have to invest huge amounts in the generation of carbon-free electricity.

This will oblige power companies to focus on developing optimal carbon-free technologies, from large-scale wind to carbon capture and storage, nuclear and solar power.

Power generation will be separated from transmission and distribution.

Individual member states will no longer need to rely on national suppliers. Energy security will have to be ensured at the EU level.

A trans-European smart grid will transmit electricity from many diverse sources, like solar and wind power, at low cost from the North Sea to the Mediterranean and vice-versa.

Vattenfall wants to become one of the surviving big players, with a focus on the northern Europe. Its aim is to become carbon-neutral by 2050. To that end, it puts its bets on wind and carbon capture and storage. Its wind-generated power is set to grow six-fold until 2015, with heavy emphasis on off-shore generation.

This sounds positive. But it is not really. A company like Vattenfall, ideally situated to generate essentially all its power from renewable sources should not wait 40 years before stopping to emit green house gases.

To fight climate change effectively, the EU has to accelerate the transition to fossil-free power generation. The EU should be able to generate all its electricity from non-fossil sources by 2035.

To make this happen, the EU needs to adapt the rules for commissioning new power plants. It has failed to do so in its December 2008 climate package, allowing Poland and Germany to continue building coal-fired power plants.

It should revise that decision at the earliest possible moment: New power plants should only be generated by wind, hydro, biomass or nuclear. Any new coal-fired power plants will have to be equipped for carbon capture and storage as of 2020, when the technology is likely to be ready. Such a provision will therefore oblige investors to include the extra costs for CCS into their calculations.

The EU would send a strong signal to all parties at the Copenhagen Climate Conference by announcing its intention to make its power sector carbon-neutral by 2035.

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