Your Royal Highness, Mr. President, Madam Governor, Madam Minister, dear Mrs. [unclear name], I will switch to English, rest assured.

So, ladies and gentlemen, it is a great pleasure to be back at Norges Bank. I was here almost 10 years ago for the 200th anniversary, and I'm delighted to be back, particularly for the first conference organized by Norges Bank and not just an investment fund.

So, when I last visited the central bank back in the summer of 2016, the world and Europe were in a slightly different place.

Backtrack a little bit. Remember, about 10 years ago, the Paris Agreement, the international treaty to reduce greenhouse gas emissions, was hardly one year old, and it enjoyed strong support from all major powers around the world.

A benign geopolitical environment also blurred the risks of Europe's growing energy dependencies. Nord Stream 2, a new gas pipeline project, had recently been announced, promising to deliver plenty of cheap Russian gas to the continent.

Fast forward to today and see how many differences we are facing and how the world has dramatically changed in dramatic ways.

We are witnessing a backlash against green initiatives.

The war in Ukraine has further exposed Europe's energy dependencies as strategic vulnerabilities, driving up gas prices after the cutoff of the Russian pipeline supply. And who knows what's happening under the water level?

And as a result, energy prices have risen sharply since gas sets the marginal price in the EU energy market for most of the time.

In this new environment, many countries face an increasingly difficult tradeoff between three energy goals that I will call my energy trilmna.

My team argues that I should not really use trilmna because in a trilmna you can't really escape, and I'm going to try to show you that we can escape the trilmna. So what are the three angles of the trilmna?

We need energy that is secure because the geopolitical reality has changed dramatically. We need energy that is sustainable because the climate reality has not changed, or some would argue that it has changed for the worse. And we need energy that is affordable because households and corporates need it.

Ultimately, only clean energy has the potential to deliver on all three goals of my trilmna, as Norway actually demonstrates.

The share of renewables in energy consumption here in this country ranks amongst the highest in the world. While household energy prices, I know, highly debated on the subject of controversy during the political campaign, but remember, they are still around 23% of the EU average.

Norway can inspire the European Union and demonstrate that it is possible, if we remain ambitious, to move towards that green transition that would address the three angles of the trilmna.

Because a successful transition to a renewable-based system comes with many benefits. It also requires a massive investment push.

The faster policymakers can create an environment in which such investment can flourish, the easier and less costly the transition will be.

Now I'm going to ask for your indulgence because I will quote Olav H. Hauge, who wrote, "Yeah, forgive me, I'll try." Ah, thank you. One person understood what I said. Thank you, Madam Minister. So, for those of you who have not qualified yet in Norwegian, what it means is badly pronounced by me, "This is your road, and it is impossible to turn back."

So today, what I will do with you is explore, from a central banker's point of view, how Europe's road to renewables can deliver powerful benefits if we unlock the right conditions.

So I will look in turn at the landscape as we have it at the moment, what the promises and the challenges are, and what the financing needs are and how they can be addressed.

I'll try to gallop through my remarks because I know that time is pressing, and my friend, colleague, much admired Vice President Al Gore needs to take the floor for longer than me.

So, before Russia's invasion of Ukraine, Europe de facto prioritized two elements of the trilmna: sustainability and affordability.

We didn't really think very much about security, not in the terms that we're thinking about it now. So, as part of its Fit for 55 targets, the EU aimed to raise the share of renewables in its energy consumption to as much as 45% in 2030.

At the same time, almost half of the gas imports came from Russia. The combination kept energy costs contained, facilitating, as a result, Europe's competitiveness.

Energy remained relatively cheap for energy-intensive industries, and those periods of intermittency, you know, when renewable output was low and gas served as a backup, did not lead to significant price volatility.

But we ultimately paid the price for neglecting the third goal, which is energy security. When the geopolitical context changed, the consequences for our economy were severe—consequences that we as central bankers had to face and combat.

First, we saw a surge of inflation. Energy inflation in the Euro area surged to 37% in 2022, pushing headline inflation to a record of 8.4% that year.

So, in response, what all central banks had to do was to significantly respond by implementing the fastest monetary tightening in the history of the ECB in order to bring inflation back under control.

And I'm pleased to say that we have managed to do that, and it is now under control at our medium-term target, and it will stay there.

Now, surging energy prices led to a second consequence: they have reduced Europe's competitiveness.

Although the acute phase of the energy shock has passed, the new geopolitical reality has left a lasting imprint on Europe's energy costs, weakening its position relative to other regions of the world.

Electricity prices in the EU remain about two and a half times higher than in the United States, and gas prices almost four times higher than in the United States. This gap is shaping how firms invest, how firms innovate, and even where they choose to locate their operations.

Our research at the ECB shows that European firms significantly reduce their capital and research and development expenditure in response to energy shocks, unlike their US counterparts.

There are growing concerns that higher energy prices may also be contributing to the disindustrialization as European firms struggle against foreign competition.

And higher energy prices make it harder for Europe to fully embrace the new technologies that will drive future productivity, and by that, I mean artificial intelligence.

So it is essential to bring energy costs down if we are to safeguard Europe's industrial competitiveness, its high level of research and development, and leverage artificial intelligence.

And I'm confident that we can, but we cannot do so by trading off other goals. We must ensure that our energy sources are secure, that our energy is sustainable, and that it is affordable—the trilmna that I told you about.

The only viable path for Europe to achieve these objectives is to rely more on locally clean energy. This path could help meet the three goals of the trilmna.

First, renewables, alongside other clean technologies for producing electricity, are central to any credible plan to reduce the impact of climate change.

Second, renewables offer a level of energy independence that, given our lack of natural resources, Europe would never reach with imported fossil fuels.

And third, as the marginal cost of renewable electricity is close to zero, a system based largely on renewables should ultimately bring down energy prices.

But we all know that there is some skepticism about all that, and skepticism as to whether such price reductions are really possible in Europe over the short to medium term.

And the key issue is that building and operating a renewables-based system involves significant additional expenses that are known as the system costs, which are passed onto the energy bills. So what are these costs?

Those system costs, they come from different sources. Some of those costs are unavoidable, but others can be minimized if we are truly ambitious with the transition.

The unavoidable costs include massive investment in new generation capacity and modernized grid. The European Commission estimates that these will require an annual investment of nearly 150 billion euros.

And that number may even rise if restrictions on critical raw materials increase input costs or delay projects.

But that's not the only cost. And there are other costs that can be minimized. For instance, the cost related to the inherent intermittency of renewables.

Intermittency leads to higher price volatility, which ultimately feeds into higher average bills, which contributes to inflation, which is a cause for concern for a central banker.

We saw this in November last year when low wind output across much of Europe, especially in Germany, prompted a surge in gas-fired generation to meet demand.

Electricity prices jumped in several countries, and the effects were felt across Europe, including in some parts of Norway.

There are also costs associated with curtailment when renewable output is deliberately reduced to keep the system balanced, which often results in payment to providers.

The European Commission estimates that by 2040, we could lose up to 10 times more renewable energy generation than we lose today owing to grid constraints.

But these costs should not hold us back from staying the course. And there are three reasons why I'm optimistic that Europe can overcome these challenges.

First, while we cannot eliminate the cost associated with intermittency—we cannot control the weather—we can substantially reduce them if we push through with the investment in generation capacity, grids, and storage.

I was at the IMF last week, annual meetings. I asked the head of European department, if you had to make one change, the first one that you would make, what is it? Invest in grids. Instant response.

One of our studies estimates that if European countries meet their solar and wind targets, electricity prices could fall by more than a quarter by 2030 and become less volatile owing to a weaker link between electricity and gas prices.

Curtailment costs that I have just mentioned would also fall, as research finds that each euro invested in upgrading the electricity grid translates into over €2 saved in systems costs.

Second, infrastructure investment could be particularly effective in Europe owing to what? To our geographic diversity.

Southern Europe performs strongly in solar power while northern and Atlantic coastal regions excel in wind energy. You have the second largest coastal treasure in Norway, and wind energy seems particularly propitious to that. I know it's controversial as well. It's controversial in my country too.

But deeper energy market integration, for example, through more cross-border interconnectors, would let countries share surplus electricity, smooth fluctuations from intermittent sources, and use generation and grid capacity more efficiently.

Research underlines the benefits. Deeper cross-border integration is found to cut overall systems costs by around 9%, which is the equivalent of 26 billion annually, and it reduces electricity prices more than isolated national approaches.

So a collective approach and the interconnection into a grid system that is more efficient is part of the answer.

Third element, the technology is moving in our favor. Not only are renewable solutions becoming much cheaper, but the ability to store renewable energy through periods of intermittency is also improving fast.

The International Energy Agency finds that the cost of clean technologies has fallen more than half over the past decade and that battery pack costs are now roughly a tenth of what they were 15 years ago.

So while there are costs that we have to reckon with, Europe is also well positioned to overcome some of them. And if we manage to quickly unlock the investment needed to build a world-class renewable infrastructures, Europe can keep those other costs while maximizing the benefits of renewables.

So what is missing? As usual? Money. How can we unlock the investment?

It's not that liquidity are short. It's not that investment are not directed to projects. But I think that we policymakers—and I'm talking here about both fiscal authorities and monetary authorities—we must provide two things.

First, the right environment for financing. If we factor in decarbonization, industry, transport, and energy supply, the financing needs for the green transition are massive.

The private sector will have to account for at least two-thirds of this investment.

Nearly four in 10 European firms see the lack of investor willingness to finance green investment as a very significant obstacle.

So the missing link in our view is a proper functioning capital market.

Debt, and more importantly, equity financing, currently rank lowest among the funding sources that firms expect to use for green investment.

Deepening and integrating EU capital markets is critical to support the large-scale investments that we need.

The good news from where I sit and what I can observe is that there is political momentum behind the capital market union, and it has never been greater.

Now the skeptics will say, "Hi, you've been talking about it for 10 years." Well, I can tell you, for having witnessed this for 10 years, it has never been so high. It has never been so decisive in terms of we need to do it now.

Those of you who follow Chancellor Mertz will have seen his comment from last week.

One single market for capital union. He said one single stock market even and one single super supervision authority.

Second, policymakers need to create a predictable environment for investment.

Investment will not step forward if the green transition is clouded by uncertainty, especially if there are also growing pushbacks against green initiatives in other parts of the world.

So we must reduce uncertainty where it is possible. So creating the right environment begins with, well, three elements again: credibility, speed, and confidence.

Following through on existing green targets and maintaining a stable carbon price is very important for credibility.

Wavering on those commitments would risk chilling investment just when we need it the most.

Credibility must be matched by speed. Across Europe, investors face slow and fragmented permitting procedures that delay progress.

In some member states in Europe, completing the permitting process can take up to 5 years for utility-scale solar photovoltaic projects and up to nine years for onshore wind.

We must shorten these timelines if the EU is to meet its green goals.

Finally, policymakers must build confidence in future electricity demand. For instance, in Europe, electricity still faces higher taxes than gas, discouraging electrification.

And while this gap will narrow as carbon pricing is extended to heating fuels, governments can already act by lowering electricity taxes and moving it to other energy sources.

Central banks can also contribute to this confidence because obviously for investors in green technology, in green projects, in transition measures, the predictability of price stability is vital.

Much more so in that sector of investment than in others, to deliver on those policymakers have to be courageous.

And I hope this will not be in short supply because we need a lot of it. So let me conclude.

Europe's recent energy crisis has revealed a hard truth. Our dependence on imported fossil fuels is no longer sustainable. An accelerating climate crisis makes this lesson even clearer.

But we're not a prisoner of the dilemma of the trilmna. We have the agency to shape our future here. Renewables offer the clearest path to minimize the trade-off between energy policy goals of security, sustainability, and affordability.

And pushing ahead with renewables is also strongly supported by citizens.

Listen to that number. Nearly nine in 10 Europeans want the EU to expand renewable energy.

Some of the costs associated with the transition, such as the required investment, will be unavoidable. But if we create the ideal conditions in which that investment can flourish, we can ensure that the transition remains cost-effective.

Our regretted anthropologist Jane Goodall, who sadly passed away this month, reminded us, she said, "What you do makes a difference, and you have to decide what difference you want to make."

So Europe must now decide either we remain with that unsustainable and expensive status quo or we create an environment that can unlock the investment needed for sustainable, secure, and affordable energy.

I hope we have that courage and that determination. Thank you.