Europe faces the difficult task of achieving its energy independence and security. The Union is juggling soaring energy prices and price volatility while trying to also keep its ambitious climate goals on track. So far, the mild winter has helped reduce the impact, but this can still change.
Increased renewable energy production, such as wind and solar, has been a go-to strategy for Europe, but increasing power generation capacity alone is not enough. We need energy storage.
In this article, we look at the current energy situation in Europe, energy storage’s role, and the challenges the energy storage sector faces.
The Challenges
The Russian invasion of Ukraine, which started earlier this year, has severely brought an urgency to solve Europe’s transitioning energy situation. The war has brought increasingly strict sanctions on the Russian energy sector, further energy supply disruptions, and a substantial increase in energy market volatility, coupled with sharp increases in energy prices. Due to Europe’s heavy reliance on Russian energy supplies before the invasion, these effects are especially felt in the euro area [1], causing, for example, Germany to reach a September 2022 average monthly wholesale energy price of 360 EUR/MWh, compared to just above 128 EUR/MWh a year earlier [2].
In response to the energy market turmoil caused by the war, the EU has accelerated and intensified existing plans toward its clean energy transition and energy independence through the REPowerEU plan [3]. On the energy independence side, this plan aims to reduce dependence on Russian gas by nearly 2/3 already by the end of 2022. 1/3 of the total dependence on Russian gas, i.e. half of the planned reduction, is to be substituted by increasing liquefied natural gas imports from suppliers such as the US and Qatar. Meanwhile, another 6% of the total is to be substituted by pipelines from countries such as Norway. However, this still leaves a reduction of about 27% of the total Russian gas dependence unaccounted for to reach 2022 goals. To address such energy gaps in line with the EU’s 2030/2050 carbon neutrality goals, the REPowerEU plan has prompted an accelerated rollout of renewable energy in the short- to medium-term. The plan is further proposing to increase the EU’s 2030 target for the share of renewables in the EU’s energy mix from the current goal of 40% to 45%, corresponding to a planned total renewable energy generation capacity of 1,236 GW by 2030 [5].
How this affects the EU’s energy transition
Increased use of renewables puts a greater need for significant structural changes to the energy system. Before REPowerEU, several different pathways were proposed towards achieving the EU’s energy transition goals and carbon neutrality by 2050. Each pathway includes a mix of several energy sources, of which renewables take up a majority stake (see below).
Regardless of their differences, all pathways share the common requirement for a more flexible energy system [6]. This requirement comes from the variable and fluctuating nature of renewables across daily and seasonal cycles.
Energy storage is a key solution for this flexibility need. Energy storage is the leading method to provide flexibility to our power system and address the intermittency of renewables. Securing the supply of renewable power, regardless of when it was produced, is a crucial factor for maintaining a stable grid. Therefore, increased market adoption of energy storage will be necessary not only to achieve carbon neutrality by 2050 but also for 2030 goals.
In the pre-Ukraine war plans, the EU already required ~200GW of energy storage available by 2030 to secure the flexibility needed [7]. This need has increased substantially, although exact targets are still pending [8].
The few that reach the market
The EU’s energy storage sector is bustling with innovation, and many energy storage technologies are currently in development. These can be divided into the general sub-categories of mechanical, electrochemical, electrical, chemical, and thermal energy storage. Each of these technologies has its pros and cons depending on the application and, therefore, has a unique business case. However, a common theme among many of these companies is a lack of ability to commercialize their technology. As a result, many energy storage technologies remain an idea or a slowly moving research project.
These technologies need early commercialization to determine the business case most suited to them, their real-world applicability to the current power infrastructure, and the technology’s ability to scale. A common trap is an overreliance on innovation, leading to technologies failing to leave the lab or get further than a pilot project. The winning companies will be the ones that can achieve early commercial traction and therefore bridge their innovation excellence with real-world commercial applicability.
Supporting energy storage’s commercialization
As hands-on investors, we directly support energy storage companies on the road to market. Coupled with investment, we provide active management support for the early commercialization of energy storage technologies. This early commercialization stage is crucial to steer end-product development and build the traction needed for scaling. Therefore, we help develop and pitch paid pilots through our network of corporate partners while simultaneously guiding company management to reach commercial readiness and scale more quickly.
If you’d like to discuss this further, contact us directly at: max@lvspartners.com.
[1] The impact of the war in Ukraine on euro area energy markets, ECB Economic Bulletin, Issue 4/2022.
[2] EU: monthly electricity prices by country 2022 | Statista
[3] REPowerEU: affordable, secure and sustainable energy for Europe | European Commission (europa.eu)
[4] The impact of the war in Ukraine on euro area energy markets, ECB Economic Bulletin, Issue 4/2022.
[5] REPowerEU: affordable, secure and sustainable energy for Europe | European Commission (europa.eu)
[6] Executive summary, Study on energy storage – Contribution to the security of the electricity supply in Europe, European Commission, Directorate-General for Energy,, March 2020
[7] Delta-EE, CAN EUROPE MEET 2030 REPowerEUvTARGETS WITHOUT ENERGY STORAGE?
[8] EASE Briefing, REPowerEU Plan Briefing: What’s in for storage? Picture link: black transmission tower photo – Free Sweden Image on Unsplash