Which regulatory changes at EU level are doing – or will do – the most to push companies towards renewable power?

In the last article in this series, we took a deep-dive into the telecommunications industry, a sector which, according to industry estimates, accounts for 1-2% of all energy consumed globally – and which is amongst the fastest-growing for renewable energy power purchase agreements (PPAs).

In that piece, we identified three of the most important factors driving the interest from telecoms companies in PPAs – to summarise:

1. Telecoms operators use a lot of electricity, and decisions over renewable power cannot wait if the sector is to meet its sustainability commitments
2. Renewable energy buying is being driven by the search for cost savings
3. European regulations are driving change

This time, we are going to consider this final point in more detail, but in a broader context: which regulations, directives and other EU initiatives are – or will be – the most important in encouraging European companies across all industry sectors to switch to buying more clean power?

A complex landscape

When it comes to the decarbonisation agenda, the regulatory context has been moving rapidly since the European Green Deal was first presented in December 2019 – and particularly since the ‘Fit for 55’ package was proposed by the European Commission in 2021.

Our aim here is not to summarise all of the various pieces of legislation that are designed to accelerate the energy transition and reduce emissions. Instead, we will narrow the focus down – we will:

1. concentrate on those regulations, directives and other EU initiatives which are specifically designed to encourage European companies to procure more clean power.
2. consider legislative proposals which have not yet been approved, and legislation which has been approved but is not yet fully in force – so where some of the obligations on companies are still pending (i.e. we will not focus on directives and regulations which have already been implemented in full and where the obligations on companies are already in force).

If you apply those two ‘filters’, there are six pieces of legislation which will be the most important in encouraging companies to switch to renewable energy:

1. The Corporate Sustainability Reporting Directive & the European Sustainability Reporting Standards

Sustainability reporting sits at the heart of the EU’s green strategy, and the Corporate Sustainability Reporting Directive (CSRD), which entered into force in January 2023, provides the regulatory framework for it. Companies subject to the CSRD will have to report according to European Sustainability Reporting Standards (ESRS), which the European Commission is adopting by means of delegated acts. The first set of ESRS were published in December 2023.

Here is a more detailed overview of the CSRD and ESRS:

2. The Corporate Sustainability Due Diligence Directive

The Corporate Sustainability Due Diligence Directive (CSDDD) sets obligations for large companies regarding actual and potential adverse impacts on human rights and the environment, with respect to their own operations, those of their subsidiaries, and those carried out by their business partners:

3. Reforming the design of the EU’s electricity market

In March 2023, the European Commission proposed a reform of the EU electricity market, with the aim of reducing price volatility for consumers and creating favourable conditions for investors in renewable energy. The reform includes two legislative proposals – one on electricity market design and the other on protection against wholesale energy market manipulation. One of the objectives is to support the use of more long-term instruments such as PPAs and contracts for difference (CfDs):

4. EU-wide scheme for rating the sustainability of data centres

We referenced this in the previous article in this series, but on 14 March 2024, the European Commission adopted a new delegated regulation on the first phase for establishing an EU-wide scheme to rate the sustainability of EU data centres. With data centres estimated to account for close to 3% of EU electricity demand – a figure which is likely to significantly increase in the coming years – the scheme is intended to increase efficiency developments and to promote the use of renewable energy:

5. The revised Directive on the Energy Performance of Buildings

The revised Directive on the Energy Performance of Buildings entered into force on 28 May 2024. It is relevant for companies’ use of renewable energy because it introduces a specific requirement for all new buildings to be “solar ready”, and will ensure a much wider roll-out of solar installations on buildings and renewable energy capacity on-site:

6. Proposal for a Directive on Green Claims

The proposal for a Directive on Green Claims is designed to address greenwashing. It is relevant to renewable energy because it tackles claims which rely on offsetting, emphasising the need for companies to focus on reducing emissions in their own organisation and value chain:

The regulatory landscape is making the transition to renewable energy a more and more urgent priority for companies across the EU

Since the European Parliament elections last month, there has been much talk about the ‘shift to the right’, with populist parties gaining seats across the EU – and what it might mean for the future of the Green Deal.

However, as will be clear from the overview above, much of the regulatory environment which is designed to encourage European companies to procure renewable energy is already in place – and it will not be unpicked by the new Parliament. The obligations on companies operating in the EU are coming, and as the deadlines approach, so the need to switch to clean power will only become more urgent.

What’s coming up next time?

Next time, we will be taking another sector deep-dive, this time into the industry which is leading the way when it comes to the amount of capacity that has been contracted through green PPAs: information & communications technology (ICT)…