Electricity market reform must rethink energy efficiency for renewables era

The thinking around energy efficiency is still stuck in the fossil fuel era, says Sofie Irgens. We must move on from focusing on fuel economy and ramp up discussions on electrification, flexibility and reducing demand, she argues.

Sofie Irgens is senior vice president and heads the climate solution accelerator division at the Danish multinational Danfoss.

This outdated understanding of energy efficiency jeopardises our ability to meet global climate goals and boost energy security across Europe.

The transition to renewables is in full swing, but we cannot continue to build out renewables without also fundamentally overhauling our energy grids to accommodate this massive influx of renewable electricity. To drive this overhaul, we will need to rethink energy efficiency for the era of renewables.

European leaders have a golden opportunity to do this through ongoing negotiations to revamp the design of the EU’s electricity market. These reforms aim to provide a long-term solution for avoiding price spikes in Europe’s electricity market, which relies heavily on the cost of fossil fuels used in electricity generation.

However, a long-term solution must consider that our energy system will comprise fewer fossil fuels yearly.

Now more than ever is the time to begin thinking about electrification and flexibility as part and parcel of energy efficiency in the European energy market. We now have a wide range of cost-efficient tools and technology to achieve net zero, but this can only become a reality if they are prioritised in the upcoming reforms.

Technologies already exist

Decision makers often simply don’t know we already have the technologies we need today to develop a more efficient renewable energy grid. It is outdated thinking, lack of awareness, and regressive restrictions which are holding them back.

For example, most renewables produce electricity, so we need to electrify wherever possible to actually use that renewable electricity. However obvious this may seem, the fact is that by transitioning to a fully electrified energy system, we can cut up to 40% of final energy consumption.

This is because most electric technologies have a lower rate of energy loss than fossil-driven equivalents. Take heat pumps 3 to 5 times more efficient than fuel alternatives. Or electric vehicles have an energy loss of only 15-20% compared to 64-75% for internal combustion engines.

Despite these clear facts, some ambitious initiatives to electrify across Europe are meeting headwinds. Stalling these initiatives delays the implementation of our greatest tools for decarbonizing transport and heating. The solutions are right before us, but steps are being taken in the opposite direction.

A flexible Europe is an efficient Europe

Energy efficiency is not simply about using less energy but also about being smart with how you use it. Using it at the right time through demand-side flexibility is a game-changer.

A recent study finds that by maximising existing flexibility technologies such as peak-shaving and flexible hydrogen production, the EU and UK can save 40 million tons of CO2 emissions annually.

This is because demand-side flexibility enables us to avoid periods where demand outstrips supply, an issue which forces us to fire up fossil-fuel power plants.

A rollout of such technologies can also bring annual societal cost savings of €10.5 billion by 2030. We shouldn’t be holding these technologies back for an energy crisis. We should be using them immediately.

Despite these clear benefits, the International Energy Agency (IEA) says that more efforts are needed by governments on demand-side flexibility. In Europe, several high energy-consuming countries including Spain and Poland have barely gotten the regulatory process off the ground.

Era of renewables must also be the era of energy efficiency

Energy efficiency must not be an afterthought to renewables. We must prioritise it to ensure energy security, boost the economy, and fundamentally transform how energy is governed and consumed.

If indeed the goal is “to reduce the dependence of electricity bills from the price of gas,” as EU Energy Commissioner Kadri Simson stated, then there is no quicker and cost-effective way to do this than by rethinking energy efficiency for the era of renewables.

The good news is that we already have abundant necessary technology. We don’t need magic, but we do need immediate political action to scale the solutions.