#PowerBarometer23

War back on the European continent. Geopolitical tensions and global industrial competition on the rise. All the while facing the hottest year on record. The urgency for decarbonisation is growing but electrification is stagnating. Some encouraging progress has been made in the power sector, yet the climate clock is ticking faster and the need to ensure Europe’s security of supply has never been stronger. We must speed and scale decarbonisation, but the right conditions must be put in place. 

 

In 2022, Russia’s full-scale invasion of Ukraine and its subsequent energy blackmail levied against Europe yielded a massive disruption to the European power sector. The price of electricity skyrocketed on the back of gas supply shutoffs. Energy security soared to the top of the political agenda. Governments took matters into their own hands to keep people’s lights and heat on throughout the winter. 

The good news is that we made it through, but the threat to our energy security is not over. To deliver a more secure future, Europe needs to electrify and ensure security of supply by reducing its addiction to fossil fuels imports, strengthening our power grids, and share the costs and benefits of the energy transition more equally across society. 

Power Barometer 2023 presents, based on the latest available data, what it takes to make this happen. 

After Russia invaded Ukraine on 24 February 2022, the European Union was steadfast in its united support for Ukraine. Yet, EU countries’ heavy reliance on Russian fossil fuel imports soon became a liability. With European energy security in the palm of his hand, Vladimir Putin leveraged his position as Europe’s gasman to blackmail the continent into backing down.  

When this failed, he turned off the taps. This led to an incredible spike in the price of natural gas as supply dwindled with immediate effects on electricity prices as gas became the price setter. 

Consumers bore the brunt of this inflation

EU-27 medium households’ bills 2021-2022
+ 0 %
Retail prices for new contracts in capital cities 2021-2022
+ 0 %
EU governments' funding to shield households & firms
0 bn

Source: Eurelectric based on Eurostat, HEPI, Bruegel

All consumers were heavily impacted by the crisis. The medium household energy bill increased by 14.5% from 2021 to 2022, while the price of new retail contracts in Europe’s capital cities increased by 76%.  

To shield them from the worst, governments shelled out €646 billion to both households at risk of energy poverty and firms potentially facing industrial curtailment caused by soaring energy costs.  

Energy-intensives saw their production decrease

Domestic production drop vs 2015

EU aluminium, zinc, and silicon taken offline, with risk of permanent smelter closures, in 2022.
35- 0 %

Source: Eurelectric based on Eurostat (2019-2023), Eurometaux

Still, governments could not stop all the bleeding. Energy-intensive industries like aluminium, zinc, and silicon manufacturers were taken offline at a rate of 35 to 45% as the cost of energy was prohibitively expensive, making operations uncompetitive.  

But not everyone suffered from the crisis.  

Oil & gas companies reaped huge profits...

Source: Eurelectric based on annual reports of the companies

Figures represent the average profits made by the 5 largest gas & oil companies and utilities in terms of market cap (EDF and Uniper excluded since their huge losses would skew the graph).

Oil and gas companies reaped record profits, up by 268% year on year, as gas was being sold well above the price of extraction and refining. Utilities too saw an increase of 25% but were harmed by high margin calls on existing contracts and political interventions in the markets 

“There is a blatant disconnect between the true winners of the energy crisis, oil and gas companies, and the regulatory focus."
Kristian Ruby
Secretary General of Eurelectric

Political interventions hindered markets

Activity on the Iberian forward market in 2022 vs. 2021
0 %
Practically no activity on Romanian forward market after emergency ordinance in August 2022
0
Utility PPA capacity signed in 2022 vs. 2021
0 %
Wind final investment decisions (FIDs) in 2022 vs 2021
0 %

Source: Eurelectric, EFET based on EEX and OPCOM, Pexapark for PPA figure

Indeed, as governments scrambled to treat the symptoms of the energy crisis, many did more harm than good. Whereas a well-functioning power market delivers signals for investment and hedging through forward-looking contracts, haphazard interventions undermined these signals, disincentivised investments and curtailed activity across the continent.  

The wind industry was especially affected by Investors’ uncertainty as the wind final investment decisions decreased by 59% in 2022 compared to the previous year.  

Yet gas savings surpassed expectations

Source: Eurelectric based on NRG_CB_GASM Eurostat

Nonetheless, the EU did succeed in a remarkable way on gas savings – a turning point in the crisis. While the European Commission called for a reduction in gas consumption of 15%, the EU average fell by 19%, allowing EU countries to come out of the winter with some of the highest natural gas reserve levels in history.  

Gas prices fall, electricity wholesale prices follow... 

Day-ahead electricity prices vs gas prices

Electricity prices followed market fundamentals. Although still higher than in 2019, prices falling since autumn 2022.

Source: Eurelectric, ENTSO-E TP for electricity prices, investing.com for the gas prices

Since the height of the crisis last year, the worst of it seems to be in retreat. Securing the procurement of the fuel from other sources – which translated into an increase in liquefied natural gas imports from the US, Norway and Algeria – has led to a decline in its price. In 2023, wholesale day-ahead electricity prices fell from the soaring average of 227 Euro per megawatt hour in 2022 to 100 Euro per megawatt hour.  

… and so do retail prices  

Household retail price index (new contracts in capital cities)

Average price in 2023 however still 58% higher than in 2021. 

Source: Eurelectric, HEPI

Retail prices have followed suit by dropping by 34% after peaking in October 2022.  

The power sector's emission intensity reaches the lowest level ever 

0

2000

0

2021

0

2022 Jan-Aug

0

2023 Jan-Aug

0

2030

0

Carbon-neutral around 2040

Source: Eurelectric’s Elda for 2022 and 2023, Eurostat (2000), ALLBNK scenario of EC’s 2030 Climate Target Plan Impact Assessment (2030)

2022 marked a slight blip in the industry’s carbon intensity as coal generation was leaned on to counter the soaring price of gas. At the same time, nuclear and hydropower generated less power as several nuclear reactors were shut down for maintenance and hydropower resources were diminished due to prolonged droughts, another alarming consequence of climate change.   

2023 has seen a return to the trend of power sector decarbonisation with coal phase downs back on track and is expected to reach carbon neutrality around 2040. 

Yet, while these percentages show some rays of sunshine, several dark clouds remain. Electricity prices remain twice as high as in 2019 – the last normal year. Meanwhile, electrification is nowhere near where it needs to be. The urgency is on to strengthen security of supply by accelerating and scaling homegrown low-carbon electrification.

Stagnant electrification rate must triple by 2050  

Overall electrification rate in EU-27

Source: Eurelectric Eurostat (2000-2021) & Eurelectric’s decarbonisation scenarios (2023)

Electrification needs to speed up. Unfortunately, we have observed a stagnating rate of electrification of around 20% for the past 15 years. Decarbonising Europe, getting out of Putin’s grip and ensuring our long-term fossil-fuel-free energy sovereignty requires a tripling in electrification by 2050. But looking at the hurdles ahead, that is not yet guaranteed if we don’t set the needed enablers in motion to start acting on the ground.  

The EVolution needs to accelerate

Electric Passenger Cars

Source: Eurelectric, European Alternative Fuels Observatory (2018-2022) & ACEA (2030)

E-buses still a small fraction of new fleet 

New registrations of electric buses & coaches over 3.5t

Source: Eurelectric, European Alternative Fuels Observatory (2018-2022) & ACEA (2030)

The decarbonisation of the transport sector is taking off with electric passenger cars sales growing by 21% from 2021 but should be reaching 58% in only 6.5 years to meet the 2030 decarbonisation targets. 

The same applies to electric buses. In 2022, 13.7% of new buses were electric. By 2030, that percentage needs to reach 40%. And while the electrification of transportation is picking up pace, the mountain is perhaps steepest when looking at the chargers these vehicles will require. 

Number of public chargers for EVs need to drastically increase​ 

Cumulative number of EV Public Chargers in the EU (in thousands)

Source: Eurelectric, European Alternative Fuels Observatory, 2030 projection based on EC’s AFIR impact assessment study

By 2030, public chargers need to go from the 480,000 units to a total of 3,500,000. Their development should also be more evenly distributed across Europe.  

Today, public charging stations per capita still show a large contrast between Member State with Netherlands leading the charge, followed by Luxembourg, Sweden, Belgium and Austria.  

Heat pump stock is growing steadily and reached the 20 million threshold in 2022 ​

Heat pump sales/year

Source: Eurelectric, EHPA for historic data & Eurelectric’s decarbonisation scenarios for 2030 (2023).

Spurred on by high energy costs, 2022 was actually a big year for electric heating. Heat pump sales increased by 36% to bring Europe to a total of 20 million heat pumps. But from today to 2030, the cumulative stock needs to reach around 55 million, 2.7 times more than what we have now. 

Capacity must almost double by 2030

Installed capacity all techs (GW)

Source: Eurelectric, Wind Europe, Solar Power Europe, Entso-E Transparency Platform

All of these electric solutions will need more electricity. Although the final total energy demand is expected to decrease as we electrify – thanks to higher energy efficiency, the absolute amount of electricity demanded will increase.  

With the Renewable Energy Directive revision having passed the legislative phase, we need to see around 605 GW of renewable capacity additions by 2030, which will mostly come from wind and solar. Raising further the ambition for electrification, Eurelectric projects in its Decarbonisation Speedways study a cumulative renewable capacity of 1631 GW by 2030.

EU domestic production lacking in certain stages of the supply chain 

Share of EU production in global production for different stages of the supply chain

Source: Eurelectric, CRMA Impact Assessment (March 2023), ITRE report on CRM (December 2022)

Delivering this capacity, though, still faces the uphill permitting battle which remains a key bottleneck to electrification. Exemplary is WindEurope’s figure showing that a total of 80 GW of wind projects were stuck in the permitting process in 2022.  

Long, complicated permitting procedures are also hampering the development of clean energy supply chains needed for electrification in Europe. Very low shares of the global supply chains for technologies like wind and batteries are based in the EU. Complex permitting can be partially  blamed for it. Limited availability of raw materials reserves and scarce refining and processing capacity across Europe are additional reasons hampering the development of domestic supply chains for clean energy technologies. The EU Green Deal Industrial Plan is a promising step to address such gap. 

Storage solutions need a massive push

Energy storage capacity in EU + UK (GW)

New storage installations per year in Europe

Source: Eurelectric Decarbonisation Speedways, International Hydropower Association, EASE (Energy Storage Targets 2030 and 2050; Activity Report 2022)

Another crucial link in the chain is storage technologies. Renewables are inherently variable resources meaning we need to store the excess energy they produce when demand is low so we can dispatch it when demand is higher than generation. 

Today, Europe relies on pumped hydro storage for 90% of its storage needs but the need for batteries is pressing, both at utility- and prosumer-scale. Altogether, storage technologies should reach in total 191 GW of capacity by 2030 and up to 488 GW by 2050. This is a huge increase from current levels which in 2023 amounted to 6 GW.   

Power generation is just part of the solution. We will get nowhere with all of these resources if our grids are not up to the task. The urgency is on. We need to drive the expansion and digitalisation of electricity grids.  

Power supply is increasingly reliable but... 

Source: Eurelectric’s National associations

While power supply has become increasingly reliable with fewer and fewer outages and shorter blackouts, our grids – the backbone of Europe’s energy transition – are nonetheless starting to feel the pressure of a modern system. 40% of Europe’s distribution grids are over 40 years old, and with age comes obsolescence.  

Over 40 years ago when those transmission and distribution grids were being planned, the nature of our energy system was fundamentally different. In the 1980s, renewable energy penetration was practically non-existent.  

What the system relied on was massive, centralised power plants that would deliver hundreds of megawatts of electricity to the system. This electricity would then be funnelled down the transmission, then the distribution system until it reached the end user. That was it. 

...Network extension does not match growing needs 

+ 19 %

New connected customers in 2022 compared to 2019

+ 1.5 % primary substations and + 1.2 % secondary substations between 2018 and 2021

+ 0.8 % in total length (km) between 2021 and 2022

+ 19 %

Connection requests between 2020 and 2021

+ 0.2 % in overhead lines (km) between 2021 and 2022

+ 1.7 % in underground cables (km) between 2021 and 2022

Source: Aggregated and anonymized data from a survey of DSOs in the EU, conducted by Eurelectric, and based on a sample of DSOs of all sizes.

Today, renewable generation scatters the countryside with a megawatt or so here and another few over there. Furthermore, people have solar panels on their houses, shopping centres have them on their roofs. People also now drive electric cars that not only consume energy but can send it back to the grid if they do not need the stored electricity in the car’s battery. Heating is increasingly electrified. Consumers also have smart meters that enable them to adjust their electricity usage when demand is lower and prices are more favourable. 

Most of this capacity will connect directly to the distribution grid, those copper cables that cross our cities and deliver electricity to our homes. Yet, their capacity to integrate new renewables and decentral assets is limited. Most outages experienced today come from the grid issues arising from this.   

To deliver the power system of the future – a so-called decentralised model – Europe’s transmission and distribution grids must be reinforced and digitalised to suck out all the capacity available today, while building out new infrastructure and expanding the number of kilometres to add to that capacity. As Europe is not currently keeping up with the demand, grids are becoming a challenge akin to permitting.The hold-up is the fact that we live in a 21st-century world with 20th-century infrastructure. 

Smart meter roll-out in the EU: progress, but disparities persist 

* 34% of Bulgarian meters have remote functionalities. These meters do not fully comply with the EU Smart metering requirements as there are no local requirements for smart metering adopted and no roll-out defined either.

Source: National associations (data from 2022, or 2021 if not available), Berg Insight, Eurelectric

EU penetration rate (2020)
0 %
EU penetration rate (2022)
0 %

Today, we are in an age where interactions with the grid are bi- or even multidirectional, and this complicates the traditional system – the so-called transmission-centric model. That is already beyond the fact that there are simply so many electric solutions connecting to the distribution grid.  

Smart meters, a key technology for grid management and digitalisation, have reached 56% of EU customers, but are making much less progress in Eastern and Central Europe. Providing reliable data for utilities to handle peaks in electricity demand as more electric solutions enter EU buildings will be critical for managing an accelerating electrification rate. 

Grids must urgently be boosted

Investments in distribution grid/year (in 2022 bn Euro)

Source: Eurelectric for future projections. Historic figures based on IEA’s world energy investments 2023.

Grids are the new permitting. Overcoming the bottleneck in their expansion and digitalisation is priority number one to reach the EU’s decarbonisation targets.

To achieve the needed expansion and digitalisation, investment is crucial. From 2021 to 2022, we saw an 8% increase in investment. However, we need to increase the annual investment by 84% from now until 2050. 

The rule of thumb is that we should be investing €0.67 in the grid for every €1 invested in generation capacity. Today, that figure is closer to €0.30.  

“We need more lines, more digitalisation and more climate resilience to get our grids fit for net-zero. This requires a change in the regulatory approach. Grid operators must be allowed to make anticipatory investments so we can start preparing for higher electrification.”

Colossal investment means incentives need to be right. With the emergency measures to deal with the energy crisis and the ongoing electricity market design reform, investors have had their confidence shaken, customers are wary of volatility, and governments lack a cohesive response to move forward with the energy transition. This calls for more fairness when it comes to distributing the costs and benefits of the energy transition.  

Foster a fair distribution of risks and benefits: 

If more investments are needed to secure our net zero future, it is only fair that its benefits and costs are fairly distributed among consumers, investors and the State.  

Fairness among energy suppliers  

Policy interventions should first and foremost target the real winners of the energy crisis – oil and gas companies – rather than treating the symptoms in the power sector with a haphazard patchwork of interventions on the electricity markets.  

Fairness for customers 

Electricity costs should be manageable for all customers’ segments. To this end, it is crucial for the electricity market design reform to create favourable investment conditions in order to enable clean and renewable energy to structurally lower prices and guarantee a fair transition for all. 
 

Fairness for Member States  

The same fairness should be applied among member states’ transition. Different Member States have different starting points. We should be able to designate EU funds to bridge asymmetries between EU countries that are carrying out the energy transition from these various starting points.  

Our Policy Recommendations for a power sector fit for net zero

In view of these challenges, Eurelectric’s new Presidency team has identified three policy priorities to guide the electricity industry’s expansion and enable the power sector to lead on the energy transition. 

Withing the strategic need for security of supply, future-proof distribution grids and a fair energy transition, we have detailed 13 policy recommendations to address the urgency with concrete action on the ground: 

Security of supply

  • Finalise & implement Europe’s Green Deal with a focus on electrification;

  • Facilitate permitting for electricity generation and infrastructure;

  • Ensure adequate investment signals for all needed assets and technologies;

  • Modernise and update the system adequacy methodology.

Distribution Grids

  • Launch an ambitious Power Infrastructure Deal

  • Formulate a modern mandate for Regulators

  • Modernise tariffs and incentivise anticipatory investments

  • Boost climate resilience investments

  • Ensure access to EU funds

  • Facilitate permitting for grid infrastructure

Fairness

  • Ensure proportionality in political interventions

  • Target support measures to vulnerable customers and reduce taxes and levies on electricity

  • Avoid counterproductive market interventions (e.g. banning disconnections)

  • Acknowledge EU countries’ different starting points & include just transition measures in the next Multiannual Financial Framework (MFF)