While we enter the fourth year of what is considered the “make or break” decade, challenges for the energy industry are just becoming more complex.
1. Transitioning away from fossil fuels: challenges ahead for oil and gas companies
2023 ended with a one-of-a-kind pledge made by the oil and gas industry at COP28: global leaders agreed to “transition away from fossil fuels in energy systems, in a just, orderly and equitable manner, so as to achieve net zero by 2050.” Some might say it is not unexpected, on the contrary, it is a late commitment, considering that to reach our ambitious climate targets (and for Europe to be the first carbon-neutral continent by 2050) we have to phase out fossil fuels. Nonetheless, it was significantly important that global leaders said it out loud. However, the transition will be gradual and oil and gas will still play a role in the near future.
Indeed, companies have to adapt and this will be one of the challenges of the year. Companies’ strategies, investments and portfolios, must all be rethought on the road to carbon neutrality. Companies in Central Eastern Europe, such as the energy giant ORLEN are already updating their energy and sustainability strategies to reflect new directions. All the States have updated (or are updating) their National Energy and Climate Plans with more focus on clean energy technologies and low-carbon energy sources.
Yet, oil and gas will still make the headlines in CEE this year as well. The LNG terminal in Krk will probably celebrate the 100th cargo (having received the 81st on the 2nd of January), signalling how LNG is still important in the region for the security of supply. Also the Alexandroupolis Floating Storage Regasification Unit (FSRU) in Greece is expected to be commercially operational in the first quarter of 2024, with a regasification capacity of 5.5 billion cubic metres(bcm) per year to reach final consumers in Greece, Bulgaria, Romania, North Macedonia, Serbia and further to Moldova and Ukraine to the East and Hungary and Slovakia to the West. Finally, we are also looking forward to further developments for the FSRU in Gdańsk, Poland, whose main supplier will be probably selected this year while the completion date is scheduled for 2027-2028
2. New clean energy technologies and the challenge of competitiveness
Renewables are also set to grow this year, in some countries more than others, such as, for example, Poland and Hungary which witnessed a solar boom in the past year. Or in Serbia, where the first photovoltaic panel factory is going to be built, shifting a bit also the idea of producing renewable energy components in Europe as well. Yet the competition with countries like China (for renewable energy components and EV batteries) and the United States (with all the recently-announced subsidies and financing) will continue. It remains to be seen how new instruments launched by the European Commission will be used and developed this year: like the European Hydrogen Bank and the Net Zero Industrial Plan. Also considering that the EU parliamentary elections will take place this year in June and the new representatives and commissioners will have to keep working in this direction if Europe wants to maintain a leading position in the fight against climate change.
Nonetheless, global research and consultancy group Wood Mackenzie is predicting that even though total global solar capacity will continue to grow rapidly over the coming decade, the pace of growth in annual installations will start to slow in 2024 compared to the rates seen in recent years. Average annual growth in capacity installations over 2019-23 was 28 per cent, including 56 per cent growth in 2023. By contrast, annual average growth from 2024-28 will be about zero, including a few years with contractions. However, growth in the global solar market is following a typical S-curve, so it seems there is nothing to be worried about.
3. The nuclear renaissance
In 2024, nuclear power is expected to be looked at as a major solution to the energy crisis. Yes, there are still some challenges related to safety and public acceptance (compared to other low-carbon sources like renewables for example) but especially in CEE it is gaining momentum. And it is not just nuclear reactors we are talking about, but also new technologies like small modular reactors (SMRs). Several countries from Central and Eastern Europe have shown interest in developing and putting the first SMRs into operation, including Romania, Czechia, Poland and Slovakia. These countries, with the exception of Romania, will also be the recipient of the US-backed Phoenix project, worth 2 million US dollars, which will finance a feasibility study of SMRs.
Also on an EU level, there is a lot of interest in SMRs, after the European Commission announced the ambitious Declaration on EUSMRs 2030: Research & Innovation, Education and Training, in April 2023. As highlighted by the Commission, for those Member States that choose to include nuclear in their energy mix, SMRs will serve as complementing assets, as a promising option to replace old coal power plants and complement the penetration of renewables. SMRs should offer the flexibility of use for district heating, desalination, process heat for energy-intensive industries and production of hydrogen.
4. Hydrogen: can pilot projects in CEE turn into reality?
Hydrogen will still be key in CEE and in Europe as a whole. At the end of 2023, the European Parliament and the European Council reached a provisional agreement about a voluntary mechanism to support the development of hydrogen in line with the European Hydrogen Bank and the establishment of the European Network of Network Operators for Hydrogen (ENNOH). Earlier in November, another provisional agreement was reached which envisages the separation of gas and hydrogen supply and generation from the operation of transmission networks. Now, the delegated act defining low-carbon hydrogen is expected twelve months after the entry into force of the text (the Commission proposed six months). So it remains to be seen if these legislative proposals will bring more clarity around hydrogen-related projects and if it really can be considered the “Holy Grail” of the energy transition.
And of course, there are several hydrogen projects developed in the CEE/SEE region that aim to establish a hydrogen value chain covering production, transportation and storage to end customers. However, all these corridors and projects are only at an initial phase and it remains to be seen what can be achieved this year on the road to reach the 20 million tonnes of hydrogen (10 mt produced domestically and 10 mt imported) as envisioned by the REPowerEU plan.
5. Is an early synchronisation feasible?
Finally, we are looking forward to further developments in the Baltic power synchronisation. In fact, the three Baltic countries (Estonia, Latvia and Lithuania) are the last remaining EU countries with electricity networks that are still synchronised with Russia and Belarus. Over the past 12 years, the region has received significant political, technical and financial EU support exceeding 1.2 billion euros worth of grants.
More recently, the European Commission announced that it has signed a Political Declaration confirming its commitment to proceed at “full speed” to connect the electricity networks of the countries with continental Europe via Poland by February 2025. However, according to a study carried out by the University of Gdańsk, even an early synchronisation in 2024 can be considered a safe option.
