While Europe has taken significant steps and made evident progress toward reaching its energy and climate goals for 2020, numerous challenges still remain, the International Energy Agency said in a report released today.

At a press conference accompanying the release of the agency’s In-Depth Review of European Union Energy Policies 2014, IEA Executive Director Maria van der Hoeven (pictured) highlighted the changes in the European and global energy landscapes that have given rise to some of these challenges, and made strong recommendations for future action. In order to meet its targets “Europe needs to re-balance its energy goals,” she said.

In good news, she pointed to Europe’s progress on “continuous energy market liberalization” and its “ambitious” targets and policy action for 2020 and beyond to 2030. “But it’s not all good news,” she warned. While she noted that Europe is currently “on track” to meet its targeted 20 per cent greenhouse gas reduction by 2020, she said further progress toward the target depends on the implementation of energy efficiency policies by EU Member States, as well as on demand-side energy management by consumers. Achieving the target by 2020 “may be challenging,” she added.

Among the “problematic areas” the incoming European administration will need to solve, she said, is a projected shortfall of around 105 TWh or 9 per cent of renewable energy in relation to the 2020 target. Some Member States will be unable to meet their targets unless Europe-wide policy initiatives can stimulate these markets and some crucial technologies, she warned.

And while European Commission president Jean-Claude Juncker and others aim to make Europe a global leader in renewable energy, “this seems to be a bit unrealistic,” she said, since renewables are deployed more rapidly in emerging and developing economies and, as a share of Europe’s energy mix, the sector has actually shrunk between 2005 and 2013 and is expected to fall further to 27 per cent in 2020, despite continuing European capacity growth. The EU is “on a learning curve” in relation to renewables deployment, van der Hoeven said, and in some Member States capacity growth has been faster than grid development, which is “nowhere on track”.

In addition, she said, governments will need to manage the costs of implementing growing amounts of renewable energy, as so far the main burden has fallen on consumers. In 2013 renewables subsidies reached €52bn and are expected to grow to €64bn in 2025. The design of support schemes has been “far from optimal and the learning curve there is slow,” she said. Subsidies must be designed to be more cost-effective and to distort the energy market as little as possible.

And a focus on renewables could harm the EU, van der Hoeven warned. “Let’s be clear,” she said: “The decline of coal is unavoidable from a climate change perspective.” Given this, coupled with “almost no” recent European investment in clean coal and new nuclear power plants, the EU’s energy system is “converging” towards a renewables-and-gas mix – but “Europe should maintain diversity at baseload,” she warned. Given that the prospects for its own shale gas development are “gloomy” and its oil production has declined by more than half, Europe is “set to remain dependent on Russian gas for some time, and that’s a reality”. Obstacles to diversifying Europe’s gas supply including lack of interconnections and growing competition for liquefied natural gas (LNG) in international commodity markets. Developing gas storage is key, van der Hoeven emphasized.

The EU will have a “long and costly transition [to the 2030 energy and climate goals] ahead if no new measures are put in place,” she said. Key recommendations include a strong and integrated internal energy market, which would pool Member States’ resources to enhance energy security and industrial competitiveness. “Effective” climate policies are also needed, as is a focus on decarbonizing the power sector with the modernization of coal power, greater use of combined heat and power, and a willingness to consider nuclear. And finance for technology innovation should be “better managed” at the EU level, with new technologies such as carbon capture and storage (CCS) better funded and bodies such as the European Investment Bank (EIB) taking on more risk. At the moment, van der Hoeven said, the EIB “works more like a private bank and does not take on any risks. The EIB should finance the projects that are the most difficult.”