Is European power rising to the challenge of decarbonisation?

At our recent power briefings across Europe, our experts provided a post-crisis assessment of trends, influences and uncertainties across European power markets.  

Drawing on proprietary data, insights from research analysts, and deep industry links, we looked to understand the European power and renewables sector in greater detail and reveal its future. 

Fill in the form at the top of the page to download the full slide deck from our H1 European briefings, or read on for an introduction to the challenges and opportunities across the industry: 

Renewables integration in the spotlight 

Europe’s power markets have experienced both weak demand and continued growth in renewables, a combination of factors that is shining a spotlight on the integration challenges facing the industry. 

From January 2024, Europe has seven years to deliver its 2030 decarbonisation targets. Looking back over the previous seven years of historical development provides an idea of how much can be achieved in such a period, but also emphasises the ambition of current policy.  

Since 2007, wind generation across major European markets has almost doubled and solar output is up by nearly 140%. Nearly 60% of coal -fired production has been loss, and nuclear is down 25%. Gas’ fortunes have been mixed, but recently market conditions have begun to put more sustained pressure on the source. 

But, of these actual changes in market volumes, it is the shift in electricity demand (down 7% between 2017 and 2023) that looks most at odds with the desire of policymakers to place electricity at the centre of decarbonisation in the broader energy mix.       

Periods of oversupply lead to price weakness 

During hours when wind and solar supply are serving high shares of demand, power markets are experiencing widespread price weakness. 

Across Germany, Spain, and Italy in 2023, when wind and solar were seen to serve 80% of market demand or more, day-ahead market prices were close to zero – or below zero (down to -58 EUR/MWh) in Germany. 

In contrast, Denmark experienced quite different pricing conditions, despite considerably higher levels of renewable penetration. In the Danish system, wind and solar production amounted to a maximum of 150% of market demand with prices remaining around 50 EUR/MWh – highlighting Denmark’s ability to flow excess low-cost power to neighbouring Germany and, in so doing, avoid the worst effects of price cannibalisation.  

Accommodating the price volatility associated with an increasingly variable supply mix is critical to helping Europe stabilise its energy market and meet its decarbonisation targets. 

National Energy and Climate Plans (NECPs) are missing their mark 

Looking at the proposed contributions of individual countries to the European Union’s over-achieving renewable energy goals reveals that over-achieving markets are too small to offset the slower pace of their larger neighbours. 

For example, accordingly to Germany’s draft NECP its renewable energy supply will reach only 40% in 2030, short of the EU’s overall 42.5% goal. In contrast, Sweden, Finland and Denmark all exceed the EU target by clear margins but are too small to offset the underperformance of larger markets. 

It therefore stands to reason that NECP plans need further revision to achieve the EU’s 42.5% renewable energy target by 2030. 

The sustained focus on change by 2030 underpins a surge in investment 

Power markets will see record levels of capacity additions over the coming years, with solar and onshore wind capacity surging and the rate of offshore wind additions rising materially in the latter part of the decade.  In 2029, we expect to see near to 120 GW of wind, solar and battery storage capacity added – this can be compared to levels of activity below 50 GW as recently as 2021.  

Compared to our previous outlooks, we now reflect some slippage of capacity expansion, particularly from the late-2020s into the early 2030s. This trend illustrates how the rapid expansion of renewables has put pressure on supply chains, technology costs, commercial regimes, and connection processes. In the long-term, 2035 and beyond, rates of capacity addition fall back to levels more comparable to those seen in recently years – but here the emphasis of development has shifted, with new supply meeting new demand as electrification drives wider decarbonisation of Europe’s economy.  

An increase in emissions-free supply provides investment opportunities 

The carbon intensity of power is expected to plummet as emissions-free supply climbs from 67% in 2024, to 82% by 2030, with over two-thirds of power being generated by renewables. 

The regional supply mix is increasingly dominated by wind and solar, with coal all but removed by the mid-2030s and nuclear’s contribution in gradual decline. Gas’ role in power supply is under sustained pressure and to remain relevant to the evolving supply mix, the source undergoes its own decarbonisation, with CCS-equipped sources and decarbonised gas both playing parts. Despite this change, gas remains an important provider of dispatchable supply, representing a vital component of system flexibility. 

As Europe’s commitment to energy transition intensifies, the demand for renewables is surging, creating significant opportunities for investors in both new supply and the technologies essential to support the reliable and secure operation of decarbonised systems.  

Price volatility calls for investment in flexibility  

Price volatility will increase as supply from variable renewables grows. The increasing frequency and magnitude of low and high prices signals a need for investment in flexibility to ensure stability and resilience. 

In 2024, the day-ahead market average in Italy is 111.7 EUR/MWh. However, by 2050, this is expected to drop to 62.3 EUR/MWh. Likewise, in 2024, Great Britain’s average is 85.9 EUR/MWh, which is expected to decrease to 61 EUR/MWh by 2050. 

In terms of power price volatility, in 2024, Italy scores 0.1 on the volatility index, compared to a predicted 1.0 by 2050. In 2024, Great Britian has a volatility index of 0.2, which is expected to increase to 1.0 by 2050. This pattern is common to all countries despite storage additions and interconnections improvements. Flexibility is thus expected to be increasingly valued in spot markets. 

The crucial role of flexibility in facilitating energy transition has finally being acknowledged by Europen governments and transmission system operators (TSOs). Batteries and storage are beginning to be incorporated into national targets and national energy and climate plans (NECPs), the means by which the policies and measures to meet these targets will be identified. 

Download the full slide deck from the briefing 

To view the infographics from our briefing, and to learn more about the challenges and opportunities in Europe’s decarbonisation journey, fill out the form at the top of the page.