Power sector decarbonisation in the South East European Union member states by 2040 (ENG)

The goal of this study is to identify least-cost, Paris-compliant (United Nations, 2015) solutions for the decarbonisation of selected power markets while fitting national circumstances. The focus lies on techno-economical scenarios, which can then inform the policy debate. The geographical scope of the project is focused on EU countries in South East Europe, namely Bulgaria, Greece, Hungary and Romania. Results are available for each country individually, but will be shown in aggregate in this paper.

In this study three core scenarios were defined. They represent the implications of two different decarbonisation pathways compared to a baseline without a net-zero target for the power sector. The derived scenario architecture therefore allows to assess the general merit of the different energy strategies, particularly the benefits of different technological pathways, with a focus on the interplay between natural gas, hydrogen and storage.

• The “baseline scenario” represents a continuation of the current national plans & policies.
• The “gas lock-in” scenario represents decarbonisation of the power sector by 2040 while relying on natural gas for the transition.
• The “smart transition” scenario represents a decarbonization by 2040 while substituting natural gas as a transitional fuel with storage to the extent possible.

For each of the scenarios, a model-based assessment of different indicators of merit was conducted. Indicators include costs, distributional effects, CO2 emissions and necessary investments over the period until 2050.

Overall, the study results demonstrate that a decarbonisation of the power sector by 2040 is possible while saving costs compared to the fossil baseline scenario with no decarbonisation targets in place. Compared to the
baseline scenario, the energy transition scenarios cut cumulative CO2 emissions by 2050 in comparison to 2022 by half while reducing overall cumulative generation costs by 5% in the gas lock-in scenario and by 13% in the smart
transition scenario. Furthermore, total yearly emissions in the year 2030 can be reduced by 37% in the gas lock-in scenario and by 51% in the smart transition scenario as well as by 100% in the year 2040. Security of supply is ensured in all energy transition scenarios.

The baseline scenario, and to some extent the gas lock-in scenario invests heavily into natural gas, which proves a “dead end” in the long-term, leading to overall higher costs and potentially stranded assets. If capacity investments are hydrogen-ready and efficient storage technologies are deployed, cumulative natural gas demand in the power sector can be reduced by 15% while reducing overall costs by 13% (smart transition vs. gas lock-in).

Li-ion batteries are deployed in the smart transition scenario, helping to in- crease cost efficiency. Storage also helps to switch the RES mix from wind to more easily scalable PV which would allow to accelerate renewable energy expansion in the region.

In addition to short-term battery storage, long-term storage is a necessary enabler of deep decarbonisation to ensure security of supply. Based on the current technological outlook, hydrogen is of key importance here.

Combined H2-based generation capacities of the region range in between ~23-35 GW in 2050 in the two energy transition scenarios. The role of hydrogen in regards to volumes should not be overstated though, since generation shares on demand are limited to 6–9% of demand, implying overall relatively low actual hydrogen demand.

Other storage technologies like batteries can effectively reduce the need for H2 capacity and generation. Deploying batteries reduces demand for H2 capacities by 35% in 2050. Investments into H2 plants should therefore be considered carefully, not overestimating the future needs.

Gas makes up between 15% and 30% of energy consumption, in total ~330 TWh for all countries combined for 2020 (Eurostat, 2022). The power sector plays an important role here, especially for Greece where in that year it accounted for 65% of total consumption compared to 43% in Bulgaria, 27% in Hungary and 29% in Romania. Importantly, an overwhelming share of ~80% of gas imported in the region came from Russia in 2020.

Thus, any power sector strategy building on a “gas-bridge” could worsen the present dependencies in the future. Scenario results of this study show that a smart transition policy is effective in reducing gas demand of the region in the mid-term. Until 2030, gas consumption in the power sector can be reduced by 10%-20% and by up to 80% until 2035 compared to historic reference levels (Eurostat, 2022) in all countries by investing heavily into RES and storages and switching fuel to hydrogen. A continuation of the status quo (fossil baseline scenario) with no increased climate ambition on the other hand leads to a significant increase in gas demand by up to 60% in the 2030s. This could lead to an increased reliance on Russian gas imports, in contrast with current political efforts at the EU level to reduce dependence on Russian energy sources.

As current gas dependence and the role of gas in the power sector scenarios vary between the countries, the local perspective should be considered and instruments balanced carefully. In the case of Greece, a lignite phase-out in the early 2020s causes a temporarily higher gas demand in the power sector in all analysed scenarios. At the same time, dependence on Russian gas differs across countries. With Romania having an overall smaller dependence due to domestic production, and Greece having diversified import options with LNG, Bulgaria and Hungary are especially dependent.

In addition to energy efficiency and expansion of renewables, the approach to counteract gas shortage in the short and medium term, is based on three types of gas infrastructure projects. Firstly, gas pipelines which are not physically connected to Russia. Secondly, additional LNG import capacities to obtain gas from countries outside of Europe, such as FSRUs, where path-dependence is lower than in the case of onshore LNG terminals. Thirdly, expansion of gas production facilities, especially in Romania where big gas reserves are located. These projects will contribute towards providing any future gas demand less dependent on import from Russia.

The problem of gas dependence can be reduced by a decarbonisation of the power sector in the long-term. However, industry and residential heat demand make up large shares of the consumption profile of most countries. Additional policy efforts will be required to ensure security of supply while moving towards energy sovereignty. This also needs to be reflected in upcoming EU policy efforts in addition to current goals within the REPower framework.

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