Will COVID-19 serve as a stimulus for the energy transition in France?

Since the LTECV law was passed in 2015*, France has embarked on its energy transition with the aim of lowering greenhouse gas emissions, fostering sustainable green growth and boosting the country’s energy independence. As part of this transition, renewable energies have experienced considerable growth over the past five years, with wind and solar power installed capacity each surging by more than 50% since 2015. This rapid growth has been made possible in particular by various support schemes (feed-in tariffs, feed-in premiums and auctions) designed to make the green power generation sector economically more competitive.
 

Renewable energies prove resilient following the public health crisis, with the power system hit harder

The renewable energy sector has, on the whole, proved resilient amid the COVID-19 pandemic. Moderately impacted by the energy price crisis, renewable energy generally enjoys feed-in tariffs and long-term contracts that offer security over periods ranging from 15 to 20 years. Existing capacity has continued to operate while new project commissionings have been postponed. Furthermore, to cushion the impact of the crisis, the Ministry for Ecological and Inclusive Transition has pushed back deadlines for upcoming invitations to tender by several months.

However, the impact on France’s power system has been more severe. During the lockdown, RTE, the power grid operator, noted that electricity consumption had fallen as low as 20% below the usual level for the time of year, mainly as a result of the slowdown and the closure of some industrial sites, retail outlets and transport systems. With power plants being brought online in increasing order of marginal cost, renewable energy has taken priority in meeting demand for electricity over recent months, temporarily accounting for over 40% of total electricity generation. This has led to a sharp fall in wholesale electricity prices, with prices in the short-term market (known as spot prices) even moving into negative territory at certain times of day.

After COVID-19: opportunity or threat?

Neither renewable energy nor France’s power system as a whole are immune to the climate of uncertainty hanging over most sectors of the economy. The period after COVID-19 is likely to give rise not only to threats but also to opportunities worth seizing for France’s future energy transition. The main threats relate to the future portfolio of large power stations, where refinancing could be hampered by the risk of rising (albeit still moderate) interest rates making some activities less attractive.

There are also threats to the country’s power system. Although demand for electricity in France has gradually risen since lockdown restrictions were eased on 11 May, the high proportion of renewable energy meeting the country’s power needs over recent months highlights the requirement for a comprehensive future review of the robustness and security of power systems. With efforts to decarbonise the economy already underway, the proportion of total energy consumption accounted for by renewable energy is set to gradually increase, and the need to store fluctuating amounts of electricity generated from decentralised sources will become more and more pressing. Current power systems are not fully prepared for these structural changes and the business models needed to support this far-reaching transformation have yet to be constructed.

At the same time, opportunities are available to all operators in the French energy sector. In the short term, recent falls in oil, coal and natural gas prices as a result of COVID-19 are likely to threaten the progress of the energy transition and renewable energies in France, since they tend to encourage the use of fossil fuels. In response, it appears vital to put in place and develop sustainable local models for managing energy across geographical regions. The COVID-19 crisis has highlighted the need to relocate production systems; this could speed up the decentralisation of France’s national power system, consistent with the development of local renewable energy capacity.

Financial support mechanisms turn out to be essential if these goals are to be achieved. The post-COVID-19 stimulus package recently proposed by the European Commission, dubbed “Next Generation EU”, encompasses the European Green Deal. The €750 billion package aims in particular to speed up the progress of the energy transition in Europe, with the medium-term priority on consolidating the development of wind and solar power and rolling out a clean hydrogen economy. It is therefore by continuing to work towards an integrated, inclusive and decentralised energy model and stepping up existing research and development efforts, particularly in the area of energy storage, that we will see tipping points and opportunities to shift to a more energy-efficient and resilient carbon-free “world of tomorrow” come to light.

* Law on Energy Transition for Green Growth (Loi sur la transition énergétique et pour la croissance verte).

David Balussou - david.balussou@credit-agricole-sa.fr