As part of the event A New European Energy Landscape Budapest Energy and Security Talks 2024, organized by the Equilibrium Institute, key challenges and opportunities in Central Europe’s energy transition were discussed.

The region faces a decisive moment in its effort to move away from fossil fuel dependency and adopt a more sustainable energy future.

The diversification of energy sources, the development of renewable energies, and the implementation of new technologies are fundamental pillars of this process, which also presents significant economic, political, and social challenges.

Experts in the field shared their perspectives. Speakers included Paul Domjan, founder and Chief Policy and Global Affairs Officer of Enoda in London; Frank Umbach, head of research at EUCERS/CASSIS, University of Bonn; and Georg Zachmann, senior researcher on energy and climate policies at the Bruegel Institute in Brussels.

Energy Transition Barriers

One of the main challenges discussed was Central Europe’s historical dependence on Russian fossil fuels. For decades, countries in the region have relied on Russia for their gas and oil supply.

Russia’s invasion of Ukraine exacerbated the vulnerabilities associated with this dependency, creating an urgent need to diversify energy sources.

However, severing these energy ties will be a prolonged and complex process that requires a long-term strategy to ensure energy stability.

Furthermore, outdated energy infrastructure in Central Europe presents a significant obstacle to integrating renewable energy sources. Current power grids are not equipped to handle large volumes of intermittent energy like solar and wind, creating an urgent need to modernize infrastructure.

Frank Umbach remarked, “Germany should have started the modernization, expansion, and digitalization of its electricity grids 10 years ago to transform them into smart grids. This process is estimated to require an investment of between 200,000 and 300,000 million euros.”

“On a European level, the European Commission estimates that the networks will need an investment of nearly 700,000 million euros. Every year we celebrate the increase in renewable energy capacity in Germany, which is positive, but the real problem is that much of this new energy cannot be transported to consumers,” he explained.

While the executive specifically addresses the situation in Germany, this issue is also recurring across many countries on the continent.

Another highlighted challenge mentioned by the participants was the complexity of the energy transition, which goes beyond just technological issues. This process involves major political, economic, and social challenges.

From his perspective, Paul Domjan clarified that this is because “the shift towards renewable energy is truly driven by political momentum.”

He referred to how “throughout history, major technological transitions, like we are seeing today with AI, began with innovators developing something new, and then politics and business tried to catch up, figuring out how to leverage that technology. However, in the energy transition, it happened the other way around: it started with strong political momentum, and innovation had to catch up.”

This unusual dynamic, where political pressure has preceded technological development, can result in hasty measures that do not align with the capacities of the innovative sector, creating mismatches that may slow down progress toward sustainability.

Additionally, the investment required to develop new infrastructures, as well as the cost of implementing new technologies, raises concerns about the impact on the industrial competitiveness of Central Europe.

Moreover, the transition could increase pressure on consumers, especially with the carbon pricing system, which, while effective for driving decarbonization, could also increase energy costs for citizens and businesses.

Georg Zachmann joined the debate to express his concern: “It is estimated that if no measures are taken, the cost could reach 200 euros per ton, which would cause an energy price shock similar to what we experienced in the past few years.”

“This scenario would be unacceptable to policymakers, who would be forced to intervene at the national level with regulations and heating plans in Germany, as well as expanding urban heating systems. All member states are adopting measures in this regard,” he added.

Finally, the dependence on critical materials, such as lithium and rare earths, essential for producing renewable technologies and mostly sourced from China, was mentioned by experts as another crucial barrier.

This raises new geopolitical challenges, as securing the supply chain becomes a strategic priority to ensure access to these materials in the future.

Umbach explained, “The relationship with China is particularly concerning, not just in the extraction phase but even more so in refining and processing. As we rapidly move toward a green energy transition driven by climate policies, the demand for these materials is increasing significantly.”

Opportunities in the Energy Transition

Despite the challenges, there are numerous opportunities for Central Europe. The region has vast potential for renewable energy development, particularly in sources like solar, wind, and biomass. These energies can not only contribute to energy security but also play a key role in reducing greenhouse gas emissions.

Additionally, technological innovation in areas such as green hydrogen, small modular reactors, and smart grids offers viable solutions to overcome the technical obstacles of the energy transition.

Creating a green economy also emerges as a key opportunity for the region. The energy transition can generate new jobs in sectors like clean energy and energy efficiency, fostering economic growth through innovation.

Although the energy transition requires considerable investment, in the long term, it can improve Central Europe’s competitiveness by reducing dependence on fossil fuel imports and fostering technological innovation.

In this context, energy diversification is essential. Increasing LNG imports from reliable suppliers, developing domestic renewable energy sources, and exploring alternatives for critical materials are fundamental steps to ensure the region’s energy security.

At the same time, integrating new technologies will require ongoing research and development efforts to reduce costs and improve the efficiency of solutions like energy storage and smart grid management.