#PowerBarometer22

This is the Power Barometer 2022!

High energy prices. Russia’s invasion of Ukraine. Inflation. Global markets in distress.

Daily news headlines make it clear that this is a crucial time for Europe’s energy and climate policy, as we come to terms with the stark reality that our economy remains too dependent on imported fossil fuels. The consequences of such dependence are serious: security of supply is uncertain, consumers face high bills and government intervention provokes market disruptions, destabilising investor confidence…

Yet, another future is possible, one where energy independence and climate action go hand in hand. A future where price volatility and supply risks are reduced. That future is electrification.

The Power Barometer 2022 presents, based on the latest available data, what it takes to escape this crisis and what future prospects are possible for our sector and society.

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TODAY’s HARSH REALITY

High energy prices drive EU inflation to 9.8%

Inflation started rising as Europe recovered from the Covid crisis and economic growth came roaring back, with energy prices steadily going up from July 2021. This was then exacerbated by Russia’s war in Ukraine and a tightening grip on Russian oil and gas. The cost of natural gas has surged, crippling industrial output, driving up household bills and further propelling inflation.

In July 2022, the energy component of inflation registered a 38.3% annual increase compared to July 2021, substantially contributing to the total inflation experienced in the EU-27 which has reached 9.8%. 

Council of the EU based on Eurostat for the energy prices; Eurostat for inflation, The Economist

As the global market in fossil fuel experienced a serious uptick, electricity prices in European wholesale markets began to show a marked increase between June and September 2021. This has continued through 2022 with average EU day-ahead prices reaching €405/MWh in August 2022 – 532% higher than in January 2021. 

Wholesale prices up by +532% since January 2021

Eurelectric based on day-ahead electricity price data from ENTSO-E transparency platform

Retail prices up by +84% since 2021

Households across Europe have faced higher bills as retail prices shared the upward trend of wholesale market but fixed-term contracts limited the average retail price rise to 8.2% in 2021. However, the latest data for new contracts offered in the capitals of various European countries shows prices 84% higher in June 2022 than in January 2021.

As the crisis continues the best policy solution remains the adoption of targeted customer support measures – such as energy vouchers and a VAT reduction – coupled with energy efficiency incentives to mitigate the price surge’s impact on households.

0

Pre-war for medium households (2020-2021)

0

New contracts in capital cities (Jan 2021-June 2022)

Eurostat (nrg_pc_204) for 2020-2021 data, Household Energy Price Index for 2022 data of capital cities 

High electricity prices mainly fuelled by gas

European countries heavily dependent on electricity generation from fossil fuels, with gas as the price setter, experienced the highest rise in power prices. Furthermore, the impact of gas on electricity prices is now seven times that of CO2 costs, which by contrast have not grown significantly.

Eurelectric’s calculation based on day-ahead electricity prices from ENTSO-E transparency platform, Ember-Climate for CO2 price

Oil and gas still making up 57% of final energy use

Eurelectric based on Eurostat

Natural gas and oil still account 57% of the EU’s final energy consumption and Member States rely on imports to meet over 90% of this demand, with Russia as the leading supplier of both. Electricity currently only accounts for 23% of final energy consumption, a rate that will need to rapidly expand to guarantee security of supply.

97% oil & petroleum imported

23% from Russia

90%
natural gas
imported

46% from Russia

Moderation measures key for gas stocks

EU gas storage level in case of full Russian gas cut off by 1st November

Estimated based on Bruegel’s data on gas imports in 2022 first semester, Eurostat’s data of natural gas demand, Historic minimum data from ENTSO-G

The EU should hopefully have enough natural gas storage to withstand the coming winter. Member States have progressed well with the filling up of their storage, reaching 80% by end-August. The EU is therefore well on track to meet its 80% November storage target. However, energy-saving measures remain fundamental to prevent European gas stocks from going empty after the winter, in case of a complete halt in Russia’s gas supply. 

The European Commission’s plans to cut gas demand by 15% was a necessity. Assuming that weather conditions are standard and Russia would stop all supplies of gas by November, 18% storage capacity should remain available by March 2023. In the absence of such demand reductions however, reservoirs would run dry by March 2023.   

Electricity generation under pressure

Eurostat

This summer, Europe went through one of the worst drought ever. This has drastically reduced hydro reservoir levels and caused concerns over water supplies to cool down nuclear reactors. At the same time, several nuclear reactors across Europe had to be shut down for maintenance reasons and remain unavailable to date. 

As a result, electricity generation is experiencing a turmoil: hydro and nuclear plants, traditionally very reliable in terms of generation, have produced respectively by 37TWh and 33TWh less than in 2021. By contrast, coal-based power generation registered an increase of 18TWh compared to 2021.

The conjunction of this drought, technical unavailabilities, and gas supply difficulties has caused extra stress on the electricity system and has exacerbated the price surge.

ANOTHER FUTURE IS POSSIBLE...

Where electricity is fully decarbonised...

EU power fully decarbonised well before 2050

The power sector continues its steep decarbonisation process and, if all enablers are in place we could be on track for net-zero emissions by 2035-40. This fast-tracked decarbonisation offers a tremendous opportunity to act against climate change while gaining our energy independence and protecting customers, like households and business consumers, from massive price fluctuations.

This prospect however requires determined action on key points including faster permitting, facilitated investment avoiding distortive market intervention, and decisive policies on electrification uptake. These factors are critical to success.

2000

0

gCO2/kWh

2021

0

gCO2/kWh

2030

0

gCO2/kWh

2035-40

0

gCO2/kWh

EEA (2000). Ember Climate(2021), ALLBNK scenario of EC’s 2030 Climate Target Plan Impact Assessment (2030), Eurelectric's estimate for 2035-40

Enabler #1: all technologies needed for capacity growth

Eurostat, ENTSO-E, Wind Europe & Solar Power Europe for historic, EC’s 2030 Climate Impact Assessment projections , Staff working document of RePowerEU & Eurelectric for 2030

+62% electricity capacity needed by 2030

EU’s ambitious 2030 decarbonisation agenda requires a 62% increase in generation capacity from 2021 levels. This will mostly come from new solar and wind generation but all technologies will be needed to power a clean energy system.

REPowerEU is raising the bar

REPowerEU – Staff Working Document

The new REPowerEU objectives, intended to end the EU’s energy dependence on Russia, have added an additional 41 GW of wind power and 62 GW of solar PV to the Fit For 55 targets. Europe now needs to add 753 GW of renewables capacity by 2030. We need transformations across EU energy and climate policy to unleash this war time effort.

+ 753 GW

of RES capacity

Enabler #2: accelerate permitting 

80% of wind capacity waiting for approval 

A rapid expansion in renewable energy sources is the best structural solution to prevent future energy crisis,  but the EU has four times more wind projects under permitting processes than under construction. With the first stage taking up to eight years when only two are needed for construction, faster permitting is essential to enable higher RES deployment and attract further investment.

Enabler #3: 23% more investment in distribution grids needed this decade

Distribution grid infrastructure is the backbone of the EU’s decarbonisation. Annual investment in grids has grown from €28bn in 2020 to €31bn in 2021 but more will be needed between 2030 and 2050 to ensure we have the modern systems to support the energy transition. Beyond ensuring a reliable electricity network that withstands extreme weather events or cyber threats, a bold vision will empower the smart management of a decentralised and decarbonised energy system that offers new services to households and business.

Smart investment will support the power system of the future, enabling demand-side flexibility and bolstering the deployment of heat pumps, electrolysers, smart charging infrastructure and storage solutions. These tools will empower customers to play an active role in the energy transition, and move beyond oil and gas, through greater differentiation in price signals, cost-reflective network tariffs and an efficient use of grids. 

'Historic figures Estimated based on IEA's WEO 2022 data and data collected by email correspondence, 2021-30 data is from Eurelectric's connecting the dots study, 2031-50 data from EC's 2030 climate target plan impac assessment

Enabler #4: invest €84 bn/year in generation capacity

In 2021, Eurelectric estimates that around €64bn was invested in power generation. Given the scale of deployment necessary to meet Europe’s decarbonisation goals, future annual investment will have to reach €98bn between 2030-2050. This is a scale that is only intensifying as government energy and climate policy, such as REPowerEU, calls for even higher investment rates.

For this reason, it is essential to support investor confidence via a reliable, business-friendly investment framework. National governments must stop and think before pursuing market interventions that undermine investor confidence, the internal electricity market, or long term investment signals.

During this energy crisis, now more than ever, we must safeguard, and even deepen, Europe’s competitive, integrated electricity markets, as a cornerstone of our security of supply.

Historic figures Estimated based on IEA's WEO 2022 data and data collected by email correspondence, 2021-45 data based on EC's 2030 climate target plan impact assessment

Enabler #5: ease access to critical raw materials

Global average cost increase (Jan 2021 -March 2022) 

+ 16%

Solar PV module

+ 9%

Wind Turbine

+ 20%

Battery pack

Since 2020, the price rise of minerals and metals along with global supply chain bottlenecks have caused an increase in clean energy technology costs. Countries across the world must address these issues before they slow down project deployment. In Europe such efforts must be further supported by economic cost reduction efforts and an expansion in sustainable domestic production.

IEA ,Costs shown are global average

… and electrification takes off

Electrification rate must jump by 11 points by 2030

Electrification rates are still too low to reach 2030 targets. Going faster is fundamental to Europe’s decarbonisation, and more so, is actually possible. The European economy could be as much as 34% electrified by the end of this decade. REPowerEU is going in the right direction with calls for an additional 1.6 million heat pumps and production of 4.4 million tonnes of additional hydrogen.

European governments should help prioritise electrification of end-uses as a key pillar of their crisis response.

Eurostat (2010-2020), Eurelectric’s decarbonisation scenarios & EC’s 2030 Climate Target Plan Impact Assessment (2030 REG &MIX)

Total heat pumps need to triple by 2030

Electricity can play a major role in decarbonising heating and cooling through heat pumps. In 2021 heat pump sales grew by 25% to reach 2 million units. Yet, cumulative heat pump stock should reach 50 million by 2030, to meet Europe’s decarbonisation goals and benefit from significant efficiency gains compared to oil or gas heating alternatives.

Beyond providing households with reliable, clean heating, electrification can also lower Europe’s reliance on Russian fuels and boost its energy security. Today, 57% of the gas consumed by buildings and industries for hot-water, space and process heating systems can be replaced with heat pumps and electric arc furnaces. Effective climate policy should incentivise building renovation and district heating system modernisation, while phasing out subsidies for gas boilers.

EHPA for historic data, RePowerEU and EHPA for 2026 projection, Eurelectric estimate for 2030 based on annual deployment target in the RePowerEU

*The data is from 21 European countries. The marker share is insignificant in the other EU states

x3

The e-mobility revolution underway 

European Alternative Fuels Observatory for historic figures,  T&E for 2030

2 in 11 car sales are electric

In 2021 two in eleven cars sold were EVs. Annual sales grew by 349 % between 2019-2021, helping countries reduce their fossil fuel dependence. While EVs represent only 1.61 % of the passenger car fleet, these numbers are set to quickly change and EVs will count for 60% of new sales by 2030. The e-mobility revolution is truly underway.

Again electrification offers Europe a route out of the energy crisis. 63% of imported oil goes to the transport sector, 48% to the road transport alone, and e-mobility has a huge potential to displace this oil. This can be reached if government policy empowers the spread of charging infrastructure via ambitious deployment targets. This will foster the ramp-up of electric vehicles and infrastructure across the EU, improve people’s access to e-mobility and ensure a just transition where no region is left behind.

Public charging infrastructure: 11-fold increase needed

European Alternative Fuels Observatory for historic figures,  T&E for 2030

The number of charging stations has grown by 57% from 2020 to 2021 but more are needed to help the e-mobility revolution. An eleven-fold increase by 2030 is required to keep up with the EV growth rate.

Public chargers: a more even deployment needed

Most charging stations are concentrated in a few EU countries, particularly in the Netherlands, Germany, France, and Italy. Infrastructure should be deployed across Europe to make sure no region is left behind.

European Alternative Fuels Observatory

How do we get there?

Decarbonise faster

1

Decarbonise faster

- Adopt an electrification strategy
- Address permitting barriers
- Tackle critical materials supply chain issues
- Anticipate workers’ skill gaps

Electrify
now

2

Electrify now

- Electrify buildings, transport & industry to reduce dependence on fossil fuels
- Deploy heat pumps, electrolysers, smart chargers, and storage solutions to unlock demand-side flexibility

Strengthen
grids

3

Strengthen grids

- Boost investments
- Modernise tariffs
- Ensure access to EU funds
- Reinforce grid infrastructure to integrate decentralised energy sources

Secure investment

4

Secure investment

- Deepen the EU competitive electricity market
- Ensure long-term investment signals
- Tackle gas prices and avoid distortive market interventions

Protect customers

5

Protect customers

- Adopt energy vouchers, VAT reductions and energy efficiency incentives to mitigate the price surge’s impact
- Ensure sufficient gas storage and diversify supply