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European Commission releases strategy for offshore renewable energy expansion, hydrogen production and new grid infrastructure

  • Europe
  • Energy and infrastructure - Clean energy

23-11-2020

On 19 November 2020, the European Commission issued an “EU Strategy to harness the potential of offshore renewable energy for a climate neutral future” (COM(2020) 741 final). The Council of the European Union approved this strategy on 11 December 2020. It considers tapping the potential of the EU’s seas as crucial to achieve the carbon emission reduction targets for 2030 and becoming climate neutral by 2050. The strategy sets the framework to make offshore renewable energy a core component of Europe’s energy system by 2050.

Ambitious expansion plans

Taking into account today’s installed offshore wind capacity of 12 GW and subject to investments of up to EUR 800 billion until 2050, the European Commission considers the following capacity expansion targets as realistic and achievable:

  • 40 GW of offshore wind and 1 GW of ocean energy by 2030; and
  • 300 GW of offshore wind and 40 GW of ocean energy by 2050.

The strategy acknowledges that achieving these targets requires multiplying the capacity of offshore renewable energy by almost 30 times by 2050 and, hence, a massive change at a speed unparalleled by the past development of other energy technologies. On the other hand, the European Commission points out that achieving the objectives would not only deliver major gains in decarbonising electricity generation in general and, through the use of green hydrogen, hard-to-abate sectors in particular; it would also deliver major benefits in terms of jobs and growth, thus contributing to the post COVID-19 recovery and positioning the EU as a leader in clean technologies.

Diverse technologies including hydrogen production

While generation of power through bottom-fixed wind turbines dominates the offshore renewable energy space today, the strategy also addresses other offshore renewable energy technologies which are expected to be further developed and reach maturity over the coming years, in particular floating wind turbines, ocean energy technologies (wave and tidal), algal biofuels (biodiesel, biogas and bioethanol), ocean thermal energy conversion and floating photovoltaic installations.

In addition, the strategy underlines that offshore renewable energy is among the renewable technologies with the greatest potential to scale up and contribute to the 40 GW of green hydrogen production capacity by 2030 targeted in the EU’s Hydrogen Strategy of 8 July 2020 (COM(2020) 301 final, see our summary of that strategy).

As every sea basin in Europe is different in terms of specific geological conditions and the respective stage of offshore renewable energy development, the European Commission acknowledges that different technologies suit different sea basins. For example, both, the EU’s Atlantic Ocean and the Mediterranean Sea have a high offshore wind energy potential; however, the Atlantic Ocean is suitable for both bottom-fixed and floating wind energy, while Mediterranean Sea offshore wind projects will mostly be floating. Therefore, the strategy aims to present a general enabling framework, which addresses barriers and challenges common to all offshore technologies and sea basins, as well as specific policy solutions adapted to the different state of development of the relevant technologies and regional contexts.

Marine spatial planning with clear signals to business and investors

The European Commission estimates that the intended scale up of the offshore wind industry to reach the 300-40 GW offshore renewable energy by 2050 targets will only require less than 3% of the European maritime space and can therefore be compatible with, inter alia, the goals of the EU Biodiversity Strategy of 20 May 2020 (COM(2020) 380 final). Nevertheless, it appreciates that, to comply with the applicable EU environmental legislation and integrated maritime policy, the choice of the site for an offshore renewable energy project is a delicate process.

Therefore, the strategy points out that maritime spatial planning is an essential tool to anticipate change, prevent and mitigate conflicts between policy priorities while also creating synergies between economic sectors, e.g. in multi-use projects for aquaculture and offshore renewable energy.

The European Commission considers it as key that the coastal Member States integrate the offshore renewable energy development objectives from their national energy and climate plans (NECs) into the national maritime spatial plans which they must submit under the Maritime Spatial Planning Directive 2014/89/EU by 31 March 2021. This would signal to business and investors the Member States’ intentions with respect to the future development of the renewable offshore sector, helping both the private and the public sector to plan ahead – which is in particular crucial with a view to the long lead time of offshore renewable projects of up to ten years.

New approach to offshore renewable energy and grid infrastructure

As the spatial planning of offshore renewable energy is closely linked with grid development, the strategy also presents different options for offshore grid development which would support the necessary infrastructure to make large-scale offshore renewable energy a reality.

Most existing offshore wind farms have been developed as national projects with direct grid connections consisting of radial links to the shore. Cross-border interconnectors between shores of different Member States have been built separately. The European Commission expects this set-up to be further used, in particular in areas where offshore development is only beginning to take off.

However, to step up offshore renewable energy development in a cost efficient and sustainable way, the strategy considers it essential that future, more rational grid planning will include the development of so-called hybrid projects and, ultimately, the development of a meshed grid. Hybrid projects can be set up in different ways, including energy islands and hubs. Their main difference to radial links would be a dual functionality of the grid combining, on the one hand, electricity interconnection between two or more Member States, and, on the other hand, transportation of offshore renewable energy to the shore or other site of consumption. Such hybrid projects are expected to bring considerable savings in terms of cost and space and are considered as an intermediate step towards a fully meshed offshore energy system and grid similar to the transmission systems existing on-shore. An example for this approach is the Eurobar initiative presented by German power transmission system operator (TSO) Amprion.

In addition, the strategy refers to offshore hydrogen production and hydrogen pipelines as another option to deliver offshore energy on-shore.

Increasing importance of regional cooperation

To foster efficient planning for offshore renewable energy projects and grid infrastructure, Member State cooperation at regional level will become increasingly important for all European sea basins.

While it is for the Member States to decide whether, where and to what extent they will expand offshore renewable energies in their exclusive economic zones, certain issues around the identification of sites for renewable energy projects and coexistence with other uses can be best solved at a regional level. Likewise, grid planning which considers the possibility of multi-functionality of hybrid projects and, at a later stage, meshed grids, needs to go beyond national borders and cover the entire relevant sea basin.

Therefore, Member States should, in a first step, agree on long-term commitments for offshore renewable energy development in each sea basin, taking into account marine spatial planning. Relevant targets should be fixed in memoranda of understanding or intergovernmental agreements and be reflected in the Member States’ updated National Energy and Climate Plans (NECPs) in 2023-2024.

In a second step, the Member States should take these targets into account in integrated grid planning and development, which should also consider the onshore demand of hydrogen. To allow investors in offshore renewable energy projects to have a clear understanding of the timeframe and plans for the development of offshore and onshore grid infrastructure, this planning needs to consider the longer lead times of grid development (typically ten years or more) compared to offshore power generation. In addition, permitting processes should be streamlined between Member States to avoid unnecessary delays.

While the current EU legislative framework already contains certain instruments to promote the necessary coordination of Members States, TSOs and national regulatory authorities, the European Commission considers it necessary in the short term to set up more structured cooperation arrangements between these players. Looking further ahead, the regional coordination centres foreseen in the Electricity Regulation (EU) 2019/943 will complement the role of the TSOs in carrying out tasks of regional relevance, with further cooperation enhanced through the establishment of regional offshore independent system operators to operate and develop increasingly meshed offshore grids.

Clearer EU regulatory framework

The strategy highlights that amendments to the current EU regulatory framework will be necessary in several key areas in order to take into account the peculiarities of offshore renewable energy projects and grid infrastructure and provide the right incentives to mobilise investors:

  • A common approach to grid connection requirements for high-voltage direct current (HVDC) grids should be developed based on experience in the North Sea basin.
  • The determination of the market price for power generated from offshore renewable energy connected to hybrid projects or meshed offshore grids needs to be addressed. Compared to the established set-up of radial links, the European Commission expects an adverse effect on the revenues of the renewable energy project operators ranging from 1% to 11%. This effect needs to be compensated through an amendment of the EU regulatory framework (namely the congestion income reallocation provisions in article 19 of the Electricity Regulation (EU) 2019/943). The strategy recommends that, until such amendment has been implemented, Member States shall address the adverse effect through their incentive and support schemes.
  • The European Commission will ensure that the forthcoming revisions of the State aid rules and Renewable Energy Directive (EU) 2018/2001 provide a fit-for-purpose enabling framework that allows Member States to maintain incentive and support schemes which secure predictability of expected revenue streams for offshore renewable energy projects.

Further background on the potential amendments to the regulatory framework are also contained in a staff working document presented together with the strategy.

Mobilising private-sector investment

In order to realise the objectives of the strategy by 2050, the European Commission estimates that approximately EUR 800 billion worth of investment will be required. One third of that overall investment requirement is estimated to be needed for the development of offshore generation projects while the remaining two thirds will be needed for associated grid infrastructure.

The European Commission expects private capital to provide the majority of this investment, guided by the EU sustainable finance taxonomy. However, the strategy points out that efficient and well-targeted use of EU support will also play a strategic catalytic role, in particular with respect to grid development. Relevant instruments will include the budget guarantee under the InvestEU Fund to back investment projects of the European Investment Bank (EIB) and other financial partners, funds from cancelled projects of the NER 300 first call as well as the Recovery and Resilience Facility (RRF) in the context of the NextGenerationEU recovery plan. Cross-border activities could in particular benefit from the Connecting Europe Facility (CEF), e.g. for the joint development of a floating wind farm and cross-border offshore grid infrastructure development including hybrid and meshed projects.

In addition, the EU Renewable Energy Financing Mechanism, which will become operational through the first EU-wide tender for projects in 2021, can offer ways of sharing the benefits of offshore energy projects with Members States that do not have a coastline. Such States could provide funds for offshore renewable energy projects in the exclusive economic zones of other Member States and in turn receive statistical transfers of part of the renewable energy generated by these projects under the Renewable Energy Directive (EU) 2018/2001.

Focus on research and innovation

The strategy also recognises that research and innovation will play a crucial role in facilitating the large-scale deployment of offshore renewable energy. While the European Commission expects that the private sector will continue to have a leading role in research and innovation investments in the sector, public sector investments will also be important in scaling-up and deploying relevant technologies. In this vein, the European Commission proposes to review the targets and implementation agenda of the EU strategic energy technology plan to place greater emphasis on offshore energy technologies while also supporting cooperation between TSOs, manufacturers and offshore wind developers to start a large-scale HVDC-grid demonstration project in 2022. [Fine with your changes, but not sure what the “EU strategic energy technology plan” is.]

Stronger supply and value chain across Europe

Finally, the strategy addresses the need to scale up the capacity of the entire offshore renewable energy supply chain, including component supply, manufacturing, seaport infrastructure and installation vessels, to reach the 300-40 GW capacity target by 2050. This development shall be boosted through both demand-side policies (including long-term planning, regional cooperation and a clear regulatory framework within the EU as well as a more resolute approach to promoting the EU’s export interests through trade policy) and supply-side policies (including the identification of critical supply chain segments by the Clean Energy Industrial Forum on Renewables and design of relevant education and training schemes by Member States).

Outlook

Like several recent policy documents issued by the European Commission, the strategy is still relatively high level and requires further efforts at EU and national level. It sets out numerous key action points for the European Commission to be taken over the coming months and years to trigger the envisaged developments. Achieving the intended offshore renewable energy scale up requires collaboration of all parties concerned, namely Member States, regions, NGOs, the offshore renewable industry and other sea users. In this spirit, the European Commission will organise in 2021 a High Level European Offshore Renewable Conference to promote exchange of best practices and discuss common challenges as a first common step towards the implementation of the strategy through more detailed policies. In its approval of the strategy, the Council of the European Union calls on the European Commission to ensure swift follow-up to the conclusions of the approval and the strategy. This shall include (i) an overview of relevant EU financing instruments, in particular the EU Renewable Energy Financing Mechanism, (ii) guidance on concluding inter-governmental agreements between Member States on cross-border projects and on how coordination between Member States in maritime spatial planning and offshore grid planning can be improved, (iii) an in-depth analysis of the regulatory implications of hybrid projects and (iv) support for research and innovation.