Energy & Climate Security Risk Index
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Energy & Climate Security Risk Index
The Energy Security Risk Index reflects the four dimensions of energy security (geopolitics, economics, reliability, and environment), covering 42 individual risk indicators, based on thousands of data points. Each of the four dimensions of energy security constitute a sub-index.
About the Index
Geopolitics
• Security of World Oil Reserves
• Security of World Oil Production
• Security of World Natural Gas Reserves
• Security of World Natural Gas Production
• Security of World Coal Reserves
• Security of World Coal Production
• Security of Petroleum Imports
• Security of Natural Gas Imports
• Crude Oil Price Volatility
Affordability
• Oil & Natural Gas Import Expenditures
• Oil & Natural Gas Import Expenditures per GDP
• Energy Expenditures per GDP
• Energy Expenditures per Capita
• Retail Electricity Prices - HH
• Crude Oil Prices
• Energy Expenditure Volatility
• Science & Engineering Degrees
• CO2 Costs
Reliability
• World Oil Refinery Utilization
• Petroleum and Gas Stock Levels
• Energy Consumption per Capita
• Household, Commercial, and Industrial Energy Efficiency
• Electricity Capacity Diversity
• Electricity Capacity Margins
• Electricity Transmission Line Mileage
• Transmission and Distribution Losses
• Transportation Energy Use per Capita
• Transportation Energy Use per GDP
• Gas Infrastructure Reliability
Sustainability
• Energy Intensity
• Fossil Energy Intensity
• Transportation Non-Petroleum Fuels
• CO2 Prices
• Energy-Related CO2 Emissions per Capita
• Energy-Related CO2 Emissions Intensity
• Electricity Non-CO2 Generation Share
• Land Cover
• Waste per Capita
• Waste Recovery
Sector overview
Energy & Climate Risk
The Russian invasion of Ukraine has put European energy and climate security through its most difficult test so far. The energy crisis that began before the war was precipitated by the Kremlin to pressure Europe, or at least some Member States, into complicity. The spike in energy prices, aggravated by the slow pace of the energy transition and the excessive reliance of many EU Member States on Russian fossil fuel exports have been key contributing factors to the sharp increase of the Energy and Climate Security Risk Index (ECSRI) for the European Union.
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In light of Russia’s increasingly aggressive rhetoric towards Ukraine in recent years, Germany failed to recognise the warning signs and instead continued to follow the “Wandel durch Handel” (change through trade) doctrine under the assumption that economic interdependences would be sufficient to quell any Russian plans for military aggression. Germany has emerged as one of the most vulnerable EU countries in terms of security of supply and overall energy and climate security. Its growing dependence on imports of Russian natural gas has strongly contributed to the strong increase in geopolitical risks.
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The energy and climate security risk position of Italy has moved more or less in sync with the general EU trend since 2015. Most EU countries have made significant progress in decarbonising their energy sectors in-creasing the share of renewables in power generation and boosting energy efficiency. Italy is no exception. Over the past decade, the sustainability risks have gone down by a quarter on the back of the rise in renewable energy share in final energy demand and the stronger market signal to accelerate decarbonisation coming from higher CO2 prices.
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Bulgaria has seen the fastest improvement of its energy and climate security position in the SEE region. The main reason has been the relative decline in energy poverty, the pressure on the macroeconomic stability from oil and gas imports and the significant expansion of renewable energy sources in power generation. This — coupled with a diverse power supply system in which nuclear power contributes to a third of the overall power generation, and the opening of LNG imports in 2019 — brought down even traditionally high reliability risks.
Despite the integration of large volumes of renewable energy sources and the closing of coal-fired power plants, key sustainability risks remain higher than in Bulgaria and Romania. In particular, the share of non-CO2 electricity capacity remains significantly below that for Romania and Bulgaria. The energy consumption per capita in the transport sector has increased and also stands noticeably above the values in Romania and Bulgaria.
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Romania’s energy and climate security position has improved markedly in the affordability and sustainability categories as energy consumption has fallen significantly and RES-based power generation investments have skyrocketed. As in the other two SEE countries, the decline in oil and gas prices and the shrinking of energy poverty have been improving Romania’s affordability risks. The country has also become even less dependent on oil and gas imports from Russia and will be the most prepared to become mostly self-sufficient in the wake of the Russian war in Ukraine.
Energy & Climate Risk
The Russian invasion of Ukraine has put European energy and climate security through its most difficult test so far. The energy crisis that began before the war was precipitated by the Kremlin to pressure Europe, or at least some Member States, into complicity. The spike in energy prices, aggravated by the slow pace of the energy transition and the excessive reliance of many EU Member States on Russian fossil fuel exports have been key contributing factors to the sharp increase of the Energy and Climate Security Risk Index (ECSRI) for the European Union.
Read more
In light of Russia’s increasingly aggressive rhetoric towards Ukraine in recent years, Germany failed to recognise the warning signs and instead continued to follow the “Wandel durch Handel” (change through trade) doctrine under the assumption that economic interdependences would be sufficient to quell any Russian plans for military aggression. Germany has emerged as one of the most vulnerable EU countries in terms of security of supply and overall energy and climate security. Its growing dependence on imports of Russian natural gas has strongly contributed to the strong increase in geopolitical risks.
Read more
The energy and climate security risk position of Italy has moved more or less in sync with the general EU trend since 2015. Most EU countries have made significant progress in decarbonising their energy sectors in-creasing the share of renewables in power generation and boosting energy efficiency. Italy is no exception. Over the past decade, the sustainability risks have gone down by a quarter on the back of the rise in renewable energy share in final energy demand and the stronger market signal to accelerate decarbonisation coming from higher CO2 prices.
Read more
Bulgaria has seen the fastest improvement of its energy and climate security position in the SEE region. The main reason has been the relative decline in energy poverty, the pressure on the macroeconomic stability from oil and gas imports and the significant expansion of renewable energy sources in power generation. This — coupled with a diverse power supply system in which nuclear power contributes to a third of the overall power generation, and the opening of LNG imports in 2019 — brought down even traditionally high reliability risks.
Despite the integration of large volumes of renewable energy sources and the closing of coal-fired power plants, key sustainability risks remain higher than in Bulgaria and Romania. In particular, the share of non-CO2 electricity capacity remains significantly below that for Romania and Bulgaria. The energy consumption per capita in the transport sector has increased and also stands noticeably above the values in Romania and Bulgaria.
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Romania’s energy and climate security position has improved markedly in the affordability and sustainability categories as energy consumption has fallen significantly and RES-based power generation investments have skyrocketed. As in the other two SEE countries, the decline in oil and gas prices and the shrinking of energy poverty have been improving Romania’s affordability risks. The country has also become even less dependent on oil and gas imports from Russia and will be the most prepared to become mostly self-sufficient in the wake of the Russian war in Ukraine.
Geopolitical Risk
The geopolitical risk sub-index has increased for all EU Member States as global fossil fuel production and reserves are getting increasingly concentrated in the hands of a few authoritarian states. On top of that, the security of oil and natural gas imports, which are specific for each country, has worsened noticeably for Italy and Germany, as well as for the whole EU.
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Germany faces severe geopolitical risks when it comes to energy supply. The overall geopolitical risk index shows an increase of 36% since the annexation of Crimea in 2014, a development mainly caused by the worsening of its natural gas security. Germany has become much more vulnerable over the last two decades by increasing its gas consumption (especially in the energy and industrial sectors) and continuously deepening its reliance on Russia, neglecting true gas supply diversification options in favour of the Nord Stream I and II projects.
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Similar to Germany, Italy faces considerable geopolitical risks to its energy and climate security – 10% higher than for the European Union as a whole in 2021. The worsening of the security of natural gas imports is the main contributing factor for this negative development. While Italian natural gas demand had been falling prior to the annexation of Crimea, this trend reversed after 2014, leading to growing dependence on Russian imports.
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The geopolitical risks to Bulgaria’s energy supply have decreased since 2014, mainly on the back of some progress towards natural gas supply diversification, with the first ever large volumes of LNG deliveries from Greece in 2019. For the first time, Bulgaria replaced around a quarter of the gas supply from Russia with non-Russian volumes. 2021 saw a renewed increase of the risk, mainly due to higher oil price volatility and a partial rebound of gas imports from Russia. Going forward geopolitical risk is set to fall further with the pivot away from Russia since Gazprom unilaterally cut flows to Bulgaria in April 2022 due to Bulgaria’s refusal to pay in roubles, and with additional volumes from Azerbaijan via the IGB pipeline expected towards the end of 2022.
Greece has positioned itself as a natural gas hub in Southeast Europe. It receives large volumes via pipeline from Azerbaijan and Russia and it has an LNG import terminal. However, a long-term vulnerability is that Greece has kept increasing its overall dependence on natural gas, mainly in the power sector. This is bound to also expand the share of Russian gas in the mix despite statements by Greek politicians to the contrary. Two of the largest gas companies in Greece recently extended their long-term contracts with Gazprom until the latter part of the 2020s.
Romania has traditionally been a leader in energy supply security as it is the largest oil and gas producer in the region. Although Romania exports refined petroleum products, predominantly gasoline and diesel oil, it still is a net importer of oil and gas. However, Romania is one of the most energy-independent countries in Europe and is a net exporter of electricity. The aggregated depletion rate of hydrocarbon reserves is 10% per year; meaning that without supplementary sources, in the next five to ten years Romania’s import dependence will double from current levels. Therefore, although Romania has reduced its geopolitical risks, it remains quite vulnerable to oil and gas price volatility as well as the maintenance of hydrocarbon production.
Geopolitical Risk
The geopolitical risk sub-index has increased for all EU Member States as global fossil fuel production and reserves are getting increasingly concentrated in the hands of a few authoritarian states. On top of that, the security of oil and natural gas imports, which are specific for each country, has worsened noticeably for Italy and Germany, as well as for the whole EU.
Read more
Germany faces severe geopolitical risks when it comes to energy supply. The overall geopolitical risk index shows an increase of 36% since the annexation of Crimea in 2014, a development mainly caused by the worsening of its natural gas security. Germany has become much more vulnerable over the last two decades by increasing its gas consumption (especially in the energy and industrial sectors) and continuously deepening its reliance on Russia, neglecting true gas supply diversification options in favour of the Nord Stream I and II projects.
Read more
Similar to Germany, Italy faces considerable geopolitical risks to its energy and climate security – 10% higher than for the European Union as a whole in 2021. The worsening of the security of natural gas imports is the main contributing factor for this negative development. While Italian natural gas demand had been falling prior to the annexation of Crimea, this trend reversed after 2014, leading to growing dependence on Russian imports.
Read more
The geopolitical risks to Bulgaria’s energy supply have decreased since 2014, mainly on the back of some progress towards natural gas supply diversification, with the first ever large volumes of LNG deliveries from Greece in 2019. For the first time, Bulgaria replaced around a quarter of the gas supply from Russia with non-Russian volumes. 2021 saw a renewed increase of the risk, mainly due to higher oil price volatility and a partial rebound of gas imports from Russia. Going forward geopolitical risk is set to fall further with the pivot away from Russia since Gazprom unilaterally cut flows to Bulgaria in April 2022 due to Bulgaria’s refusal to pay in roubles, and with additional volumes from Azerbaijan via the IGB pipeline expected towards the end of 2022.
Greece has positioned itself as a natural gas hub in Southeast Europe. It receives large volumes via pipeline from Azerbaijan and Russia and it has an LNG import terminal. However, a long-term vulnerability is that Greece has kept increasing its overall dependence on natural gas, mainly in the power sector. This is bound to also expand the share of Russian gas in the mix despite statements by Greek politicians to the contrary. Two of the largest gas companies in Greece recently extended their long-term contracts with Gazprom until the latter part of the 2020s.
Romania has traditionally been a leader in energy supply security as it is the largest oil and gas producer in the region. Although Romania exports refined petroleum products, predominantly gasoline and diesel oil, it still is a net importer of oil and gas. However, Romania is one of the most energy-independent countries in Europe and is a net exporter of electricity. The aggregated depletion rate of hydrocarbon reserves is 10% per year; meaning that without supplementary sources, in the next five to ten years Romania’s import dependence will double from current levels. Therefore, although Romania has reduced its geopolitical risks, it remains quite vulnerable to oil and gas price volatility as well as the maintenance of hydrocarbon production.
Affordability Risk
The Affordability pillar assesses the impact of energy prices and energy imports on macroeconomic stability, as well as energy poverty at the household level. Some of the indicators directly show the effect of energy prices, in particular crude oil, natural gas and electricity prices for household and business consumers. Furthermore, the Affordability sub-index takes into account national expenditures on oil and gas imports and their weight relative to national GDP. Overall energy expenditures are considered as a major risk factor.
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After a period of relatively low energy expenditures, affordability risk levels for Germany have skyrocketed in 2021, driven by the surge in fossil fuel prices and the country’s above-average CO2 costs, retail electricity prices, and energy expenditures per capita. The high CO2 costs reveal that despite the success in its energy transition, Germany remains a highly carbon intensive economy.
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The spike in oil and gas prices has contributed strongly to the increase of affordability risks in Italy. Together with the impact of higher CO2 costs, the country’s industrial competitiveness has been deeply eroded in recent years. Italy’s slower progress, compared to other Western European countries, towards the EU’s key decarbonisation goals such as decreasing the share of fossil fuels in the transportation and electricity sectors have maintained the country’s exposure to the volatility of fossil fuel prices.
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Bulgaria is among the worst performers in the SEE region in terms of energy intensity of the economy and energy poverty. Despite an improvement over the past several years, if we compare key risk metrics such as energy intensity and energy expenditures per GDP, Bulgaria still stands out as an underperformer relative to Greece and Romania. In 2019, estimated energy expenditures in Bulgaria for every EUR 1000 of GDP stood at over EUR 65, 37% higher than in Romania and 45% higher than in Greece.
Greece has not seen any major improvement in its energy affordability position since 2015. Greece has suffered some of the worst energy poverty crises after the 2009 economic crisis, during which period one in two Greeks was considered energy poor. The fall in oil and gas prices after 2014 did not resolve the structural problem with high levels of energy poverty in the country but have somewhat alleviated the pressure on household budgets. The 2021 energy crisis is likely to lead to a severe worsening of energy poverty indicators despite the decision of the government to cut energy taxes and increase energy subsidies to the most vulnerable segments of the society.
Romania’s highest energy security risks are related to its energy expenditure volatility, energy expenditure intensity, and energy intensity of the economy – particularly in the transport sector. Romania, like the other two EU member states in the SEE, are pondering how to complete the phase out of coal-fired power generation as quickly as possible without compromising the security of supply and at the same time preventing skyrocketing power prices. Energy poverty is probably the single biggest energy security risk faced by the country as close to 14% of Romanians faced difficulties paying their utility bills in 2020 and around a third of households fall below the poverty line after they have covered their energy needs.
Affordability Risk
The Affordability pillar assesses the impact of energy prices and energy imports on macroeconomic stability, as well as energy poverty at the household level. Some of the indicators directly show the effect of energy prices, in particular crude oil, natural gas and electricity prices for household and business consumers. Furthermore, the Affordability sub-index takes into account national expenditures on oil and gas imports and their weight relative to national GDP. Overall energy expenditures are considered as a major risk factor.
Read more
After a period of relatively low energy expenditures, affordability risk levels for Germany have skyrocketed in 2021, driven by the surge in fossil fuel prices and the country’s above-average CO2 costs, retail electricity prices, and energy expenditures per capita. The high CO2 costs reveal that despite the success in its energy transition, Germany remains a highly carbon intensive economy.
Read more
The spike in oil and gas prices has contributed strongly to the increase of affordability risks in Italy. Together with the impact of higher CO2 costs, the country’s industrial competitiveness has been deeply eroded in recent years. Italy’s slower progress, compared to other Western European countries, towards the EU’s key decarbonisation goals such as decreasing the share of fossil fuels in the transportation and electricity sectors have maintained the country’s exposure to the volatility of fossil fuel prices.
Read more
Bulgaria is among the worst performers in the SEE region in terms of energy intensity of the economy and energy poverty. Despite an improvement over the past several years, if we compare key risk metrics such as energy intensity and energy expenditures per GDP, Bulgaria still stands out as an underperformer relative to Greece and Romania. In 2019, estimated energy expenditures in Bulgaria for every EUR 1000 of GDP stood at over EUR 65, 37% higher than in Romania and 45% higher than in Greece.
Greece has not seen any major improvement in its energy affordability position since 2015. Greece has suffered some of the worst energy poverty crises after the 2009 economic crisis, during which period one in two Greeks was considered energy poor. The fall in oil and gas prices after 2014 did not resolve the structural problem with high levels of energy poverty in the country but have somewhat alleviated the pressure on household budgets. The 2021 energy crisis is likely to lead to a severe worsening of energy poverty indicators despite the decision of the government to cut energy taxes and increase energy subsidies to the most vulnerable segments of the society.
Romania’s highest energy security risks are related to its energy expenditure volatility, energy expenditure intensity, and energy intensity of the economy – particularly in the transport sector. Romania, like the other two EU member states in the SEE, are pondering how to complete the phase out of coal-fired power generation as quickly as possible without compromising the security of supply and at the same time preventing skyrocketing power prices. Energy poverty is probably the single biggest energy security risk faced by the country as close to 14% of Romanians faced difficulties paying their utility bills in 2020 and around a third of households fall below the poverty line after they have covered their energy needs.
Reliability Risk
The Reliability pillar reflects the exposure of the national economy and different economic sectors to potential energy supply disruptions. This includes a wide variety of factors, such as national petroleum/gas stocks, the spare capacity of the global oil refining industry, the resilience of the national electricity system, the energy intensity of the national industrial, commercial, and household sectors, as well as the role of the transport sector in the national economy. The risks for the electricity and natural gas system are of particular importance amid growing electrification and the mounting challenges linked to the excessive dependence on Russian supply.
The risks to Germany’s reliability of supply have been steadily declining over the last five years and are below the EU average levels although there has been a slight uptick in 2021. According to the results of the Index, the main drivers of Germany’s reliability risk profile are its high energy intensity, empty gas storages, the still heavily oil-dependent transport sector and the low capacity diversity of the electricity sector, which is below the EU average.
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The main reliability risk indicator in Italy is the low electricity capacity diversity. Italy has failed to diversify its power mix since 2008 and its capacity diversity stays at 70% below the EU average. The excessive dependence on natural gas in the power sector is the main factor determining the limited capacity diversity.
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The relatively low energy efficiency of the Bulgarian economy makes it particularly vulnerable to energy supply disruptions. It also has the lowest number of days of normal oil consumption covered by storage, as compared to Romania and Greece. The reliability of electricity supply benefits from a diverse power generation mix, although the excessive spike in peak electricity demand in winter is a key vulnerability. Modelling assessments clearly show that the power system remains adequate even with a full coal phase out, revealing that the decarbonisation of electricity generation is also feasible from an energy security point of view even if it means that Bulgaria becomes a net importer of electricity by 2030.
The relatively high share of natural gas in Greece’s electricity mix supports healthy capacity margins and helps balance the huge influx of intermittent renewables. While this contributes to lower reliability risk, it exposes the country to the high volatility of oil and gas prices and contributes higher affordability risks. The country remains a net importer of electricity, a trend that may be reversed with the increase in renewable energy and storage penetration. A key point is that for the reliability of supply to be guaranteed at the regional level, it would be crucial to complete all interconnection projects and improve the coordination of trans border capacity allocation among the three transmission system operators.
Romania’s reliability risk position has somewhat worsened since 2015 due to high transportation sector energy use and overall energy use per capita. That said, Romania is the least vulnerable country to oil and gas supply disruptions as it is a major producer of hydrocarbons. In addition, Romania is well interconnected to other gas and power markets, positioning it to potentially act as a major energy exporter over the next decade. Its diversified electricity generation portfolio means that a coal phase out is unlikely to undermine the adequacy of the power system even as massive amounts of variable solar and wind power capacity is added to the system.
Reliability Risk
The Reliability pillar reflects the exposure of the national economy and different economic sectors to potential energy supply disruptions. This includes a wide variety of factors, such as national petroleum/gas stocks, the spare capacity of the global oil refining industry, the resilience of the national electricity system, the energy intensity of the national industrial, commercial, and household sectors, as well as the role of the transport sector in the national economy. The risks for the electricity and natural gas system are of particular importance amid growing electrification and the mounting challenges linked to the excessive dependence on Russian supply.
The risks to Germany’s reliability of supply have been steadily declining over the last five years and are below the EU average levels although there has been a slight uptick in 2021. According to the results of the Index, the main drivers of Germany’s reliability risk profile are its high energy intensity, empty gas storages, the still heavily oil-dependent transport sector and the low capacity diversity of the electricity sector, which is below the EU average.
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The main reliability risk indicator in Italy is the low electricity capacity diversity. Italy has failed to diversify its power mix since 2008 and its capacity diversity stays at 70% below the EU average. The excessive dependence on natural gas in the power sector is the main factor determining the limited capacity diversity.
Read more
The relatively low energy efficiency of the Bulgarian economy makes it particularly vulnerable to energy supply disruptions. It also has the lowest number of days of normal oil consumption covered by storage, as compared to Romania and Greece. The reliability of electricity supply benefits from a diverse power generation mix, although the excessive spike in peak electricity demand in winter is a key vulnerability. Modelling assessments clearly show that the power system remains adequate even with a full coal phase out, revealing that the decarbonisation of electricity generation is also feasible from an energy security point of view even if it means that Bulgaria becomes a net importer of electricity by 2030.
The relatively high share of natural gas in Greece’s electricity mix supports healthy capacity margins and helps balance the huge influx of intermittent renewables. While this contributes to lower reliability risk, it exposes the country to the high volatility of oil and gas prices and contributes higher affordability risks. The country remains a net importer of electricity, a trend that may be reversed with the increase in renewable energy and storage penetration. A key point is that for the reliability of supply to be guaranteed at the regional level, it would be crucial to complete all interconnection projects and improve the coordination of trans border capacity allocation among the three transmission system operators.
Romania’s reliability risk position has somewhat worsened since 2015 due to high transportation sector energy use and overall energy use per capita. That said, Romania is the least vulnerable country to oil and gas supply disruptions as it is a major producer of hydrocarbons. In addition, Romania is well interconnected to other gas and power markets, positioning it to potentially act as a major energy exporter over the next decade. Its diversified electricity generation portfolio means that a coal phase out is unlikely to undermine the adequacy of the power system even as massive amounts of variable solar and wind power capacity is added to the system.
Sustainability Risk
The Sustainability pillar includes the climate and environmental factors that affect the sustainability of the national economy and the extent of alignment with key EU decarbonisation objectives. Primary risk factors include the emission intensity of the energy sector and the share of fossil fuels in key sectors such as electricity generation and transport, as well as in the overall structure of the national economy. The sustainability factors also include risk metrics that evaluate the level of development of the circular economy and the sustainability of land use.
A return to higher coal and gas power generation has reversed some of the reductions in the level of Germany’s sustainability risks, contributing to a rebound of energy-related emissions. Germany risks a long-term lock-in in stranded fossil fuel assets without a significant acceleration of the uptake of renewable energy sources as a key measure to counter the energy crisis.
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Despite the general European decarbonisation trend over the past decade, Italy has seen a slower reduction of its sustainability risks compared to the EU average. There has been a minor improvement in the level of energy-related emissions per capita since 2014 (-1,4%) compared to the EU-27 (-5,2%). Italy is lacking behind also in the share of non-CO2 electricity generation capacity, with a 22% share compared to the 45% of the EU.
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High fossil energy intensity, contributes to a high climate risk for Bulgaria despite an improvement over the past several years. Reaching carbon neutrality by 2050 is possible but requires an overhaul of the country’s energy and climate strategy. A clear coal phase-out timeline is a must, as without it the current pledge to reduce CO2 emissions by 40% until 2026 is pure fancy and could lead to even greater subsidies for the outdated coal fleet. Meanwhile, Bulgaria is experiencing a boom in private investment in renewable energy sources, which are, however, bottlenecked by an unclear regulatory framework, lack of transparency of administrative procedures, the risk of corruption and state capture and low public acceptability.
The energy and fossil fuel intensity of the Greek economy have barely decreased despite the acceleration of RES-based investment. However, the sustainability risk trends are bound to change significantly in the 2020s as the Greek NECP calls for the decommissioning of all lignite plants by 2028 and goes further by calling for the decommissioning of 1700MW out of the 3904MW currently in operation by 2022. The aggressive coal phase out strategy is coupled with an even more ambitious strategy for RES uptake in power generation. A total of 19 GW of renewables are expected to be operational by 2030 leading to potentially stranded fossil-fuel assets in natural gas and the need for greater imports of electricity from Italy and the Balkans.
Romania has seen its sustainability risks fall by 15% since 2015 on the back of a strong decline in energy intensity, an increase in the share of renewables in power generation and the gradual reduction of coal-fired power supply. RES expansion is likely to accelerate throughout the 2020s, in combination with a rapid coal phase out as the operation of the country’s lignite fleet is no longer economically feasible at the current CO2 prices and the lack of available subsidies for coal. A full decarbonisation of the energy system and a transformation of the economy would require a much greater focus on the industrial and transportation sectors where there is a need for a consistent long-term policy for electrification via RES-based sources.
Sustainability Risk
The Sustainability pillar includes the climate and environmental factors that affect the sustainability of the national economy and the extent of alignment with key EU decarbonisation objectives. Primary risk factors include the emission intensity of the energy sector and the share of fossil fuels in key sectors such as electricity generation and transport, as well as in the overall structure of the national economy. The sustainability factors also include risk metrics that evaluate the level of development of the circular economy and the sustainability of land use.
A return to higher coal and gas power generation has reversed some of the reductions in the level of Germany’s sustainability risks, contributing to a rebound of energy-related emissions. Germany risks a long-term lock-in in stranded fossil fuel assets without a significant acceleration of the uptake of renewable energy sources as a key measure to counter the energy crisis.
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Despite the general European decarbonisation trend over the past decade, Italy has seen a slower reduction of its sustainability risks compared to the EU average. There has been a minor improvement in the level of energy-related emissions per capita since 2014 (-1,4%) compared to the EU-27 (-5,2%). Italy is lacking behind also in the share of non-CO2 electricity generation capacity, with a 22% share compared to the 45% of the EU.
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High fossil energy intensity, contributes to a high climate risk for Bulgaria despite an improvement over the past several years. Reaching carbon neutrality by 2050 is possible but requires an overhaul of the country’s energy and climate strategy. A clear coal phase-out timeline is a must, as without it the current pledge to reduce CO2 emissions by 40% until 2026 is pure fancy and could lead to even greater subsidies for the outdated coal fleet. Meanwhile, Bulgaria is experiencing a boom in private investment in renewable energy sources, which are, however, bottlenecked by an unclear regulatory framework, lack of transparency of administrative procedures, the risk of corruption and state capture and low public acceptability.
The energy and fossil fuel intensity of the Greek economy have barely decreased despite the acceleration of RES-based investment. However, the sustainability risk trends are bound to change significantly in the 2020s as the Greek NECP calls for the decommissioning of all lignite plants by 2028 and goes further by calling for the decommissioning of 1700MW out of the 3904MW currently in operation by 2022. The aggressive coal phase out strategy is coupled with an even more ambitious strategy for RES uptake in power generation. A total of 19 GW of renewables are expected to be operational by 2030 leading to potentially stranded fossil-fuel assets in natural gas and the need for greater imports of electricity from Italy and the Balkans.
Romania has seen its sustainability risks fall by 15% since 2015 on the back of a strong decline in energy intensity, an increase in the share of renewables in power generation and the gradual reduction of coal-fired power supply. RES expansion is likely to accelerate throughout the 2020s, in combination with a rapid coal phase out as the operation of the country’s lignite fleet is no longer economically feasible at the current CO2 prices and the lack of available subsidies for coal. A full decarbonisation of the energy system and a transformation of the economy would require a much greater focus on the industrial and transportation sectors where there is a need for a consistent long-term policy for electrification via RES-based sources.
The Future of Natural Gas in Southeast Europe
Southeast Europe has a huge untapped potential for cutting natural gas consumption. The low energy efficiency performance of the industry and buildings sectors presents some low-hanging fruit options for decreasing the gas use. Additionally, a smart transformation of the electricity sector could help avoid a gas lock-in and tap into the region’s enormous renewable energy potential to accelerate electrification. The demand reduction potential varies greatly for the three countries due to the widely different role of natural gas in their respective energy mix.
Natural Gas Demand by Sector in 2021
More than 6 bcm of gas demand can be phased out across Bulgaria, Romania and Greece by. Overall, gas consumption could fall by approximately a third by 2030 in comparison to 2021 levels. The buildings sector has the highest potential for reducing Southeast Europe’s natural gas demand by 2030, accounting for half of the total estimated gas savings in the Accelerated gas phaseout scenario. To realize this potential while achieving deep decarbonization of the sector, a comprehensive policy strategy is required based on electrification, energy efficiency, and an extensive focus on reducing energy poverty risks. The deep decarbonization of the industry sector is a truly herculean challenges and requires a structural shift in all industrial production processes and a reorientation of the economy towards lighter industries with higher added value. Phasing out natural gas in the industry sector requires a complex approach adapted to the different use cases with a particular focus on the different temperatures required for the various industrial processes. A gradual phaseout of gas-fired capacity across Europe picks up speed after 2030 as the gas power plants decrease as they are mostly used for seasonal balancing.
Natural Gas Demand by Sector in 2030 in the Accelerated Gas Phaseout Scenario
With more than a century of natural gas extraction and infrastructure development, Romania remains the largest gas producer in the region. Gas supply diversification pathways for Romania are limited by the insufficient will of national policy-makers to work on securiing alternative sources of gas imports. However, Romania is the only country in Southeast Europe where the risk can be fully mitigated without new gas production investments as gas demand cuts would turn Romania in a net gas exporter by 2030. This underscores the need for a strong policy focus on accelerating the gas phaseout from the country’s energy mix.
Natural Gas Import Diversification Pathways for Romania
Bulgaria is facing one of the most difficult natural gas supply security positions in Europe. Until the end of April, 2022, it depended on Gazprom for 94% of its gas consumption. The country secured most of the supply through TurkStream under a long-term contract ending on 31 December, 2022. The Russian company unilaterally suspended deliveries on 27 April 2022 after the state-owned dominant wholesale market supplier Bulgargaz refused to accept a ruble-based payment scheme. Bulgaria’s full diversification of natural gas supply is problematic as the country cannot access the global LNG market directly and continues to indirectly import Russian gas via intermediaries. The final step towards diversification is still missing as most gas imports, except for a long-term deal with Azerbaijan, currently are spot-based and subject to significant market uncertainty. Bulgaria cannot eliminate its Russian gas dependence without taking additional steps to securing at least another 0.7 bcm of alternative supply until 2030.
Natural Gas Import Diversification Pathways for Bulgaria
Greece’s natural gas supply security and efforts to reduce gas demand through hydrogen and decarbonization are two of the most strategic objectives of the country’s long-term energy policy. Greece has the most diverse import mix in the region, with a diversification score nearly three times higher than that of Bulgaria and Romania, which have similar scores and rely on Russian gas for 80% of their total imports. Nonetheless, Greece still heavily depends on Russian gas, accounting for 41% of total imports, a similar amount to that of Bulgaria at around 2.7 bcm. Given the extremely tight global LNG market, Greece’s heavy reliance on Russian gas can be fully eliminated by 2030 only with deep demand reduction measures. In this scenario, Greece will not need to compete in the global LNG market for additional volumes from other supply sources such as Qatar.
Natural Gas Import Diversification for Greece