Key policy experts at the Luxembourg-based European Stability Mechanism, an intergovernmental organisation focused on the long-term financial stability of euro member states, have asserted that the euro area’s future energy security depends heavily on renewable energy adoption, as geopolitical events and extreme weather continue to pose significant challenges.
In a blog post to be published on 24 July 2024, Violeta Klyviene, senior economist, and Matjaž Sušec, head of the policy strategy and institutional relations division at the ESM, argue that despite significant progress over the past two decades, recent setbacks caused by geopolitical events and extreme weather conditions make it prudent to diversify energy sources and increase reliance on renewables.
Energy security
According to Klyviene and Sušec , energy security--defined as the uninterrupted availability of energy at an affordable price--is essential for both corporate stability and citizen welfare. Diversified energy sources--including nuclear, fossil fuels and renewables like wind, solar and hydropower--enhance a country’s ability to mitigate supply shocks. However, reliance on energy imports from politically unstable regions poses risks. For instance, Algeria’s termination of its gas export agreement with Spain in 2022, in response to Spain’s support for Morocco’s autonomy plan for Western Sahara, underscored how energy supply can be used as a geopolitical tool, the ESM experts recalled.
According to the ESM, energy security has generally improved across the euro area, with increased reliance on renewables and nuclear energy reducing dependency on fossil fuels and imports.
However, some countries, such as the Netherlands and Germany, have seen a decline in energy security. The Netherlands faced challenges due to the phasing out of domestic gas production, while Germany’s decreased nuclear energy production and concentrated energy imports through the Nord Stream gas pipeline contributed to its lower energy security.
Market disruptions
The year 2022 was marked by significant disruptions in the energy market, noted Klyviene and Sušec, largely due to Russia’s war in Ukraine and extreme weather conditions. These events led to increased energy prices and volatility, adversely affecting consumers and businesses. Consequently, energy security deteriorated in over half of the euro area countries, primarily due to gas supply disruptions and a substantial drop in hydropower production. Despite these challenges, some countries managed to enhance their energy security by increasing their share of renewable energy and reducing reliance on Russian energy supplies. Finland, for example, utilised the highest share of renewables, while Luxembourg achieved the largest relative increase in renewable energy consumption in the euro area.
Renewable
The energy supply security index indicates that countries with diversified energy mixes and a high proportion of locally produced energy enjoy the highest levels of energy security in the euro area. Transitioning to renewable energy and improving energy efficiency are crucial for long-term energy security, said Klyviene and Sušec. In 2022, the average share of renewable energy in euro area consumption was 25%, highlighting the ongoing transition from imported, high-emission energy sources.
Efforts to increase the share of renewables are supported by various European Union policies, such as the Renewable Energy Directive adopted in autumn 2023, which mandates that at least 42.5% of EU energy must be renewable by 2030. This directive aligns with the Green Deal and REPowerEU initiatives, aiming to enhance energy security and achieve sustainable economic resilience.
Smaller members
Despite the overall progress, smaller euro area members like Cyprus, Malta and Luxembourg face significant challenges in improving energy security. High dependency on fossil fuels, limited diversification of energy sources, smaller workforces and constrained infrastructure and land hinder their ability to reduce reliance on energy imports. However, the recent push for renewables has helped these countries improve their energy security to some extent, noted the ESM.
In conclusion, Klyviene and Sušec stressed the importance of continuing efforts to increase the share of renewable energy and improve energy efficiency across the euro area. They maintained that achieving a decarbonised and broadly independent energy system is crucial for reducing long-term energy costs and enhancing Europe’s resilience to future geopolitical crises.