Wind and solar power production is increasing over the European Union (EU) as the development of new capacity accelerates. Simultaneously, the energy crisis caused by the war in Ukraine and warmer-than-average weather conditions put downwards pressure on power consumption, resulting in decreasing fossil generation. This situation led to variable renewable energy sources overtaking fossil fuels in the second quarter of 2023, becoming the leading source of power production in the European Union.
Following the publication by Ember of an article highlighting the increase of renewables in the EU, this post is an in-depth analysis of the energy policies in selected European countries and their impact on electricity consumption and carbon intensity of the different grids.
The aim of this post is to give an overview of the current situation in the European Union which made this switch possible. It explores two countries where renewable energy development has accelerated in 2023:
Whether it be at the European level, in Spain or in Germany, renewables overtaking fossil fuels was enabled by a combination of the rapid development of the solar and wind industries and favorable weather conditions. In the context of the energy crisis, power demand has been lower than average and pushed demand for fossil generation down. In the long run, it seems that renewables could only become the leading source of generation with better demand-side management, storage strategies and overall lower demand.
Following the invasion of Ukraine, the European Commission adopted the REPowerEU plan to reduce the EU’s dependency on Russian fossil fuels and to boost the development of renewable power production. The REPowerEU plan includes the EU Solar Strategy which aims at providing the right framework to fast-track the development of solar power at the European level and increases the target for installed capacity by 43% to reach 600 GW by the end of the decade. In 2022, more than 40 GW of new solar capacity were connected to the EU grid increasing the total installed solar capacity by almost 50%. This large increase in capacity can be attributed partly to the stabilisation of supply chains which were greatly disrupted by the Covid-19 pandemic.
Wind capacity additions amounted to 16 GW, increasing by 4% in 2022 compared to 2021. Almost 90% of new installations were onshore wind farms. Despite the challenging economic situation, high inflation of material costs and supply chain difficulties, 2022 was a record year for installations in Europe. However, according to WindEurope these new installations are not enough for the EU to meet its 2030 Climate and Energy targets. WindEurope expects the EU to install 20 GW of capacity a year in the next five years when the annual additions should exceed 30 GW in order to reach the 2030 goals. Permitting bottlenecks are the main blocker to the rapid development of wind energy. An assessment done in 2020 by WindEurope showed that the permitting procedures could take up to 10 years when the construction phase is of about 2 years. In April 2023, 80 GW of projects were awaiting permits across Europe. The European Commission’s REPowerEU plan was also designed to lift these barriers and shorten the permitting period.
In spite of these different constraints, solar and wind power production are on track to break historical records in 2023 in the European Union. The outlooks published by SolarPower Europe and WindEurope show that the share of solar and wind in total production will continue to increase. In the first half of 2023, the average solar power output was 25 GW in the EU, higher than the average observed over 2022. Wind production increased slightly in the first half of 2023 compared to the same period in 2022, to reach 53 GW, amounting to almost 20% of total production.
In addition to higher renewable production, power consumption in the EU was lower than average in the first half of 2023. This decrease was mainly caused by emergency measures taken in the context of the energy crisis. In September 2022, EU ministers agreed on a mandatory target to reduce electricity consumption by 5% during peak hours, in an effort to decrease price volatility. These measures were implemented between December 2022 and the end of March 2023. Demand destruction was observed in many energy-intensive industries such as steel or chemicals, because of soaring power prices.
Power consumption was also lower partly due to warmer than average temperatures caused by global climate change. On the one hand, winter 2022/2023 was the second warmest ever recorded in Europe, decreasing demand for heating. As a result, power demand dropped by 9% in the fourth quarter of 2022 and continued to be lower than average in the first half of 2023. In May 2023, total demand plummeted to 247 GW.
This drop in average consumption coupled with an increase in renewable power output significantly reduced demand for fossil fuels. Coal power production dropped by 32% and gas production fell by 22% in the first half of 2023 compared to the same period in 2022. In May 2023, the average coal power output fell below 30 GW and was even lower than coal generation during the first lockdown of the Covid-19 pandemic. Gas production was also the lowest ever recorded in May 2023 at 33 GW.
As a result of this impressive drop in fossil power production, the average carbon intensity in the EU also decreased significantly in the first half of 2023 compared to historical averages. In the second quarter of 2023, the average carbon intensity was 244 gCO2eq/kWh, down by 19% compared to the second quarter of 2022.
The combination of conditions that has enabled variable renewables to overtake fossil generation for two months is exceptional. Due to climate change, the frequency of extreme weather events will increase in the future and this could favour wind or solar power depending on the season. The demand destruction caused by the energy crisis is unexpected and it is not clear if this reduction will be sustained in the future.
As with the Covid-19 pandemic, we may observe a rebound effect towards the end of 2023 as power prices return to lower levels. Total consumption in the EU is likely to increase which will make demand for fossil fuels peak and generate higher carbon emissions. The IEA pointed out in a commentary that behavioural changes in the residential and services sectors and voluntary energy savings induced by government-led public campaigns contributed to the demand decline in 2023. These initiatives are good long-term solutions and can enable a sustainable demand reduction in the future which will drive the fossil-fuel phase out.
In 2021, Spain adopted the integrated National Energy and Climate Plan for 2021-2030 (NECP) This plan was mandated by the EU for each member state to reach their emissions reduction targets by 2030. The long-term goal is that 74% of total generation should be covered by renewable sources in 2030 and 100% by 2050. This plan also includes coal and oil generation phase-out by 2030. The Covid-19 pandemic and high renewable capacity development accelerated the coal phase-out plan and the last coal plants should be retired by the mid-2020s.
According to the NECP, 60 GW of renewable capacity will be connected by the end of the decade. Renewable development is supported by price-based mechanisms where power producers receive a minimum guaranteed price for the electricity generated or by quantity-based mechanisms. In the latter, regulatory authorities set the new capacity volumes through competitive auctions. This mechanism has been the main tool to develop renewable capacity in the country since 2016. By the end of 2022, total installed wind capacity was 30 GW. Spain recorded the highest solar capacity additions in 2022 in the EU. Solar capacity has been multiplied by 4 in the last five years, reaching 20 GW in 2022.
Following the invasion of Ukraine, Spain was in a rather advantageous position and was less energetically dependent on Russia for gas than most other EU member states. Nevertheless, the rise of gas prices at the European level still put pressure on the Spanish power markets. In March 2022, a decree was adopted to enable fast-tracking solar PV projects to mitigate the impacts of the energy crisis. In June 2022, the Spanish government implemented a gas price cap in an effort to reduce the volatility of electricity spot prices and to protect the consumer. It has been extended until the end of 2024.
Since the beginning of the year, weather conditions have favored high renewable penetration. During the winter, Spain saw multiple windstorms and little precipitation resulting in combined high wind production and record-breaking solar production.
During the second quarter of 2023, a record heatwave hit the country. The residential and commercial heating season ended earlier than expected and in the context of the energy crisis and demand destruction measures, power demand was lower in the beginning of the quarter. In the first half of 2023, variable renewable production reached maximas and renewable sources covered 53% of total consumption in Spain. Fossil fuels on the other hand were responsible for 24% of total consumption.
Higher renewable power output is good news as it seems like Spain is on track to meet its ambitious emission reduction targets. In reality, challenges remain. Investments in the transmission grid have not been on par with investment in capacity development. In some areas, transmission capacity is missing to deliver power to the final consumer. The transmission capacity between Spain and France is only 2.8 GW and the last interconnector was set up in 2015. As the transfer capacity is limited, wind and solar production often need to be curtailed to balance the power system. Wind and solar curtailment has increased ten-fold in 2022 compared to 2021. In the first half of 2023, it is estimated that more 50 GWh of wind power and 10 GWh of solar power could not be injected to the grid as total generation exceeded the transmission capacity.
Grid constraints are a major obstacle for the decarbonation of the Spanish power system. Renewable producers do not profit from curtailments. This could potentially slow down the development of new wind and solar capacity in the country. A solution to this is to increase the capacity of the interconnector with France, which should increase to 5 GW in 2028. Another solution is to invest in energy storage. This would require massive investments in order to efficiently balance the system and seems to be a short-term solution. A 5-year plan to invest 7 M€ in the transmission grid was approved in March 2022 to ensure the continuous supply of renewables and prevent curtailment. Measures like these will guarantee the stable increase of renewables in the Spanish power mix, as long as they are implemented quickly enough to keep up with renewable capacity additions.
The German economy was deeply impacted by the energy crisis since the country was very dependent on Russian gas. Before the start of the war, more than half of the gas consumed in Germany was imported from Russia. In order to ensure the security of electricity supply, the German government delayed the closure of its three last nuclear reactors and started some mothballed coal power plants. This grid reserve does not usually generate any electricity and is only operated to stabilise the power supply in case of a severe shortage.
In April 2022, the German government adopted the Easter Package. This reform was proposed in an effort to increase the country’s energy security and to recognise that renewable energy is an overriding public interest. This proposal is the largest policy revision in decades with amendments to 5 major plans, including the Renewable Energy Sources Act, the Offshore Wind Energy Act and the Grid Expansion Acceleration Act, among others.
The package raises renewable energy targets and by 2030, at least 80% of gross electricity consumption will be covered by renewables. The revision aims at accelerating renewable development by lifting permitting and planning barriers. It also includes an update on transmission systems to ensure stable supply across the country. By the end of the year, the European Commission approved the amendments to the Renewable Energy Sources Act and the Offshore Wind Energy Act and they will be applicable starting in January 2023.
The government also published a campaign urging citizens to reduce their energy consumption. The rise in power prices put pressure on the country’s industry and industrial production significantly declined. These different factors drove power consumption down. From the second half of 2022, total consumption has been significantly lower than the average observed previously. In 2023, power demand remained low.
In 2022, 2.7 GW of new wind capacity was connected to the grid while solar capacity increased by 7.4 GW. This new capacity enabled the growth of renewable power production in 2023. Since the beginning of 2023, renewable energy has covered on average 57% of total power consumption. Consequently, as total consumption is lower, the share of fossil consumption has fallen. In May 2023, the share of fossil consumption was 30% which was the lowest recorded since the Covid-19 pandemic.
In the current situation, lower demand and favorable weather conditions are pushing renewable production up. In the first half of 2023, solar production broke records all over Europe due to low precipitation and low cloud cover. On the other hand, when a cold snap hit Europe at the end of 2022 and wind speeds dropped, German fossil generation more than doubled to ensure continuous supply. This highlights the significant variability of wind and solar power sources in the long run.
Germany also faces bottlenecks with its transmission grid as most of the wind capacity is installed in the north of the country and consumption is mainly located in the industry-heavy south. Investments in the transmission grids are necessary so that they can absorb high amounts of power and transport it to the consumption sites. This also implies higher cross-border capacity so that all the electricity produced is distributed and curtailment can be avoided. This works both ways, in periods with low renewable availability, Germany needs to be able to increase imports to match the demand levels.
The Easter Package should accelerate the development of renewable energy and the update of the transmission grid. The REPowerEU plan also sets the framework to enable this transition at the EU level. On paper, it seems like the target of 80% renewable electricity consumption is possible but it will be made easier if the country’s consumption remains lower. This has the highest impact on the dependency on fossil fuels. The German government is considering a plan to boost the international competitiveness of its prized heavy industry by subsidizing electricity. If this plan is voted, we could observe a rebound in total consumption and see fossil generation surge in the coming months.
As capacity increases in Europe, renewable power production will continue increasing in the power mix. Renewables will overtake fossil generation on a more consistent basis, in periods where weather conditions are favorable and as countries adopt fossil phase-out plans. However, high renewable penetration remains uncertain and dependent on weather conditions. As seen in the second half of June 2023, the trend switched again as wind speeds in Northern Europe were abnormally low. Temperatures were also on the hotter side of normal, increasing demand for cooling. Lower renewable availability meant that fossil fuel generation was necessary to cover the additional demand.
Renewable energy variability can be mitigated by upgrading grid transmission capacities, both regional and international, as demonstrated in the examples above. These strategies need to be supported by efficient policies at European and national levels. On the demand side, a key lever to ensure the durability of this trend is the sustained decrease of power consumption. This can be achieved by enabling energy efficiency strategies and load shifting for households and businesses. By empowering the final consumers to adjust their consumption patterns based on renewable penetration, electricity prices and the carbon intensity of the mix, fossil generation sources will be pushed out of the power mix for longer periods of time.