REPowerEU relies on rooftop solar and batteries despite challenges

Solar is set to play an outsized role in EU energy independence relative to other renewables, with the potential to lower power prices while boosting the market for batteries according to analysts, but clarity is needed on solar panel manufacturing.

The European Commission (EC) released its EU Solar Strategy on 18 May, fleshing out steps to reach targets for solar set in its initial 8 March RePowerEU proposal to free itself from Russian natural gas by 2030.

Solar will be used to cut down the consumption of 9 billion cubic meters of natural gas annually by 2027.

This can be achieved in part, the EC said, through the "quick and massive" rollout of 19 TWh of PV on rooftops across the bloc by the end of 2022 under a plan called the Rooftop Solar Initiative.

To do this, it will use mandates in member states to install solar on both public and commercial buildings, offer subsidies and finance, and limit permitting wait times.

Including the 2022 rooftop solar goal and other targets, the solar strategy will aim to install the equivalent of 740 GWdc by 2030, according to trade body SolarPower Europe.

The REPowerEU plan calls for the bloc's renewable capacity to reach 1,236 GW in 2030, up fourfold from roughly 340 GW in 2021 according to S&P Global estimates.

The lion's share of that work will be done by the solar sector because of the barriers to installing onshore wind and longer lead times for offshore wind, according to the company's April scenario for accelerated REPowerEU renewable deployment.

To meet its solar goals, the EC has already earmarked €19 billion ($20 billion) from its existing post-pandemic Recovery and Resilience Facility (RRF) financing package, although more funding should come from private investors.

The proposals could have gone further. Earlier in May, energy ministers from Spain, Austria, Belgium, Lithuania, and Luxembourg sent a letter to the EC calling for more subsidies for solar manufacturing and also to raise EU solar targets to 1 TW.

Green umbrella group Climate Action Network (CAN) Europe noted that while the renewable ambition was a "good step," it was still not enough to meet the EU's Paris Agreement goals.

Alongside think tank E3G, it criticized the REPowerEU proposals that aim to secure non-Russian natural gas supplies.

Prior to the publication of the strategy, CAN Europe published a report finding rooftop solar faced "significant barriers at [a] national level" in EU countries that lacked suitable regulatory frameworks.

But Europe's solar sector has little cause for complaint. "The ambition to reach close to 600 GWac of solar power through 2030 is highly positive for the industry. The strategy presented contains a multitude of actions to be taken by the EU and the member states, but details on the implementation are still lacking," wrote S&P Global Research and Analysis Manager Josefin Berg in a recent insight.

Rooftop solar ambition

Solar PV supplied around 5% of total EU power in 2020 and met just 1.5% of heating needs in 2019.

While rooftops already supply more power than solar farms, the EC said, the potential of rooftop PV remains untapped. A 2019 EU study found rooftop solar alone could supply 25% of the EU's power needs.

Under the Rooftop Solar Initiative, owners of all larger public or commercial buildings must either sign a renewable Power Purchase Agreement or install solar energy for new buildings by 2026, and for existing ones by 2027.

The energy can come from either rooftop PV or solar thermal systems, which combined and used with heat pumps can replace natural-gas fired boilers. The EC wants heating demand covered by solar heat and geothermal combined to triple by 2030.

The mandate extends to large residential buildings in 2029, but not all buildings are well-suited. "Some roofs will not take the weight. Some roofs face the wrong way, which impacts the amount of electricity produced against the fixed cost of the panel, pushing up average unit cost," Associate Professor in Sustainable Energy Policy at University of Exeter Peter Connor told Net-Zero Business Daily by S&P Global Commodity Insights.

High-occupancy apartment buildings might have a lower ratio of solar power produced to inhabitants, weakening the business case while still remaining "useful."

He added that solar thermal also may not be suited for all buildings because it needs space for a water tank.

To enable the initiative, the EC wants EU countries to provide financial support and roll-out "a one-stop shop" for roof renovations, energy storage, and PV.

PV, batteries quick fix for high power prices

Retail electricity rates rose sharply in late 2021 due to an increase in natural gas and other commodity prices, wrote S&P Global Senior Analyst Holly Hu in April.

Since the invasion of Ukraine, prices for the European benchmark year-ahead power contract, German Cal 2023, have reached a record monthly level in May.

High European power prices build the business case for both power producers' and consumers' use of energy storage, for example, batteries, wrote Hu.

Because of this, Hu said there was a stronger outlook for batteries used to provide flexibility to dispatch renewable power at different times.

One reason for putting solar at the forefront is that it is "one of the most competitive source [sic] of electricity in the EU," that can be used for energy in lieu of increasingly volatile fossil fuels, the EC said.

To help make power cheaper, the EC plans to work with member states to ensure that poorer consumers have access to PV-sourced electricity, whether through individual loans, social housing, or energy communities. It will ensure multi-apartment building dwellers have a right to "collective self-consumption" of PV.

The Renewable Energy Directive, now under revision by co-legislators, also includes additional provisions for energy storage, which has faced "regulatory barriers" and market discrimination in the past, the EC said.

Energy communities provide refuge

To relieve energy poverty, the EC aims to put a "renewables-based energy community" in every EU city over a certain size by 2025 through the Rooftop Solar Initiative.

The EU has stumbled in the quest for community energy before. The 2019 Electricity Market Directive and the 2018 Renewable Energy Directive required countries to transpose laws enabling so-called "renewable energy communities" and "citizen energy communities," but many EU countries have not yet done so, CAN Europe said.

Charges and network tariffs discriminate against community energy operators, and while legislation gives such "prosumers" a right to sell their excess production, the principle is not widely put into practice in apartment buildings.

The EC's strategy recommended EU governments avoid this discrimination while rolling out smart meters, local energy markets, and dynamic pricing. It encouraged them to subsidize community energy projects of up to 6 MW in capacity.

"Community-owned wind energy has been a thing for a while, but is only a relatively small fraction of all wind turbines ... Other community initiatives do things like bulk-purchase PV or similar, or act to raise funds for new energy systems in community buildings," said Connor.

Building resident groups might form to finance heating more often in the future. "We're still in the early days of supporting low-carbon heating tech in comparison with electrical systems like wind and solar PV, and the social groups to support them are less advanced, most likely as the financial benefits aren't as obvious," Connor said.

Supply chain issues

Another barrier the solar strategy foresees is that there are not enough solar panel component manufacturers or installers to reach EU rooftop solar goals.

To tackle this, the solar strategy aims to train more solar installers through the EU's 2020 Pact for Skills, a program that promotes workforce reskilling through industry roundtables.

An EU Solar PV Industry Alliance will be set up not only to reach an existing industry target for 20 GW of solar panel manufacturing capacity in the EU, but also to provide manufacturers with buyers and financiers and secure needed material imports from abroad.

But Berg pointed out in the insight that the EC did not propose to directly and immediately support solar panel manufacturers, including 14 announced projects that lacked financing.

Hydrogen flashpoint

The EC is also urging co-legislators to change the Renewable Energy Directive to include hydrogen sub-targets for industry, aiming to meet its REPowerEU bloc-wide production goal of 10 million metric tons of hydrogen as targeted.

It plans further subsidies for hydrogen investments under the Innovation Fund, through a mechanism known as carbon contracts for difference.

But German power utility RWE is concerned that newly proposed additionality criteria for renewables that limit green hydrogen subsidies could dampen the ramp-up of the sector. The delegated act on Renewable Fuels of Non-Biological Origin (RFNBO) is now under consultation.

Part of the REPowerEU proposals, the EU External Energy Strategy, focuses on building international partnerships, for example, on hydrogen imports to the EU.

States will also have access to an EU Energy Platform to negotiate with international partners to facilitate purchasing of gas, LNG, and hydrogen as well as building infrastructure.

Posted 24 May 2022 by Cristina Brooks, Senior Journalist, Climate and Sustainability

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.