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British economy contracts by 0.3% in April, marking the steepest decline since October 2023, largely due to decreases inservice sectors and manufacturing. Dubious job market indicators have intensified, generating talk of a Bank of England interest rate reduction in August amid mounting...

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Economic contraction marked UK in April, with GDP falling by 0.3%, the steepest decline since...
Economic contraction marked UK in April, with GDP falling by 0.3%, the steepest decline since October 2023. This slump was primarily attributed to decreases in the service and manufacturing sectors. The employment sector also showed signs of weakness, sparking expectation of a potential Bank of England interest rate reduction in August, as worries about an economic downturn escalate.

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Unleashing the Affordable Energy Revolution

Hey there! It's time we talk about Europe's energy transition, a journey that demands innovation and smart choices. As we grapple with the aftermath of the 2022 energy crisis, it's high time we ignite Europe's old pioneering spirit, writes Leonhard Birnbaum, CEO of E.ON.

Europe is standing at the precipice, cracking under the strain of soaring energy costs that are putting industries and households in a bind. But let's not forget that we are aiming to reach net zero emissions by 2050. The investment challenge looming ahead is huge, with an estimated €6.6 trillion needed over the next decade to meet our goals.

People are growing increasingly worried about the affordability of the energy transition, stressed by financial pressures like security, defense, and tariffs. But here's some good news: there's an economical recipe for net zero, and it's detailed in our 'Energy Playbook.' It lays out an achievable, cost-efficient path that supports our economy and gains public backing.

To get the best bang for our buck, it's essential to prioritize decarbonization efforts on solutions offering the most significant emissions reduction per euro spent. This means speeding up the rollout of electrified solutions and fine-tuning the timing, role, and ramp-up of pricier decarbonization measures.

Limiting subsidies and focusing support where it's most needed will also boost the efficiency of our decarbonization efforts.

Flattening the Investment Curve

Total power system costs are set to climb, but a doubling of electricity demand propelled by electrification could spread these costs out among a broader base. The result? Power costs declining by 20% by 2050. Add in energy savings gained when switching to electric equipment, and it's clear that the transition won't cause costs to skyrocket but instead lead to steady and descending bills. In fact, over €1.5 trillion in system costs could be saved by 2050—equivalent to an average of €300 saved annually per household in the EU.

But to embrace a more affordable pathway to net zero, action is required. This includes prioritizing the transition, scaling the energy system based on demand, planning for robust digitized infrastructures, and nurturing domestic innovation.

One key area for emphasis is electrification, the most cost-effective abatement technique for 80% of the energy transition. Electrifying heat and transport will drive EU power demand up by 30% by 2035. While technologies like electric vehicles and heat pumps are nearing mainstream economic viability, incentives should continue to nudge adoption rates beyond their tipping points.

Similarly, industries undergoing transformation will need targeted support to maintain momentum during their transition phases.

The transition heavily relies on power, but its tax and levy burden is almost three times as high as the one placed on natural gas. To unveil the true cost benefits of electrification, taxes should be reduced, and levies removed—benefiting all consumers, reducing the need for direct subsidies, and easing the heat on carbon pricing.

Robust Infrastructures, Robust Economy

Modern and resilient grids are well-known for their multiplication effects, attracting private capital to finance the timely scale-up of Europe's grid infrastructure. This is vital to enjoy the benefits of solar and wind generation and new demand. A digitally enabled grid will incorporate demand-side flexibility, shaping an efficient renewables-driven power system that can substitute up to 240 GW of backup capacity, saving €40 billion annually by 2050.

Co-location ensures renewable energy growth aligns with grid expansion, minimizing subsidies.

Slow-moving hydrogen development due to high costs can be remedied by right-sizing the system to match demand. By optimizing decarbonization solutions, we can delay large-scale investments and save nearly €200 billion until 2030.

Affordability in the last mile can't rely on today's technologies alone. We have to rekindle Europe's innovative flames. More efficient renewables, cheaper clean heat generation, and cheaper hydrogen production and carbon removal will be game changers. This will necessitate early investments in R&D and strategies to attract greater venture capital, paving the way for breakthroughs that will place the EU at the forefront of energy innovation.

In conclusion, an affordable energy transition is not only achievable—it's essential for Europe's energy security and long-term prosperity. The energy transition game needs a business-like rulebook. Policymakers must act decisively to set Europe on the right track.

Leonhard Birnbaum is the CEO of E.ON.

Sources

[1] European Commission, "Affordable Energy Action Plan," accessed 9 March, 2023. https://ec.europa.eu/info/strategy/priorities-2019-2024/europe-clean-planet/affordable-energy/affordable-energy-action-plan_en

[2] European Commission, "Energy Efficiency Day," accessed 9 March, 2023. https://ec.europa.eu/energy/en/events/energy-efficiency-day_en

[3] European Commission, "Europe's energy transition: renewables at the forefront," accessed 9 March, 2023. https://ec.europa.eu/info/energypolicy/key_initiatives/renewable-energy/mainstreaming_en

[4] European Commission, "European Grid Package," accessed 9 March, 2023. https://ec.europa.eu/info/energypolicy/grid-infrastructure/initiatives-actions/european-grid-package_en

The affordability of Europe's energy transition remains a concern, particularly in the context of weighty financial pressures such as security, defense, and tariffs. However, there is an economical approach to achieving net zero emissions, as outlined in the 'Energy Playbook'. By prioritizing decarbonization efforts that offer the most significant emissions reduction per euro spent and limiting subsidies, it's possible to create a cost-efficient path that supports the economy and gains public backing.

Simultaneously, the transition will require robust infrastructure development, with modern and resilient grids enabling private capital to finance the timely scale-up of Europe's grid infrastructure. Furthermore, the affordability in the last mile cannot rely solely on today's technologies. Instead, Europe needs to spark innovation by investing in R&D and attracting greater venture capital to foster breakthroughs in renewable energy, clean heat generation, hydrogen production, and carbon removal.

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