There is no doubt that the European power market has been through a period of transition over the past decade. Changes in environmental policies, new technologies, and rapidly rising fossil fuel prices have altered the energy scene around the globe. These changes have likely been more dramatic in Europe than in any other major power market. For years, energy companies have been able to predict where the market was going with some certainty. However, as the European power industry undergoes a period of rapid change, the energy sector is now facing challenges.
As the industry sees shifts in patterns, companies need to keep their eyes peeled for certain long-term trends to avoid volatility. Some changes are visible at a glance, while others may take years to become apparent. It’s critical to make plans and execute strategies with your eyes on the big picture. The time to refocus is now, so make sure you don’t neglect your planning by looking at these 5 long-term trends in the European power market.
The Renewable Energy Sector is Expanding Rapidly
The most significant trend in the power market is how, slowly but surely, it’s going green. The Paris Agreement and the European Green Deal have pushed the industry to move towards a carbon-free future. Europe, with its varied landscape, has the potential to become a renewable energy superpower. As coal production is shutting down, the power plants are working to fill in the production gap through renewable sources of energy.
Good news: the transition to clean energy is rapid and dynamic. In contrast to 2019, the European region’s share of renewables rose by a significant 9.4% in 2020. Iceland and Norway are both taking the lead, respectfully, using 83.7% and 77.4% of renewables within their power markets. Sweden, an EU member state, comes in at a close third with an impressive 60 %. Ultimately, the sustainability trend is here to stay, with tight deadlines posed by the region’s decision-makers—as well as continued investment in the sector— renewables are going to remain a growing segment of the European power market.
Traditional energy prices are at an all-time high
Another trend that is hard to ignore: the cost of energy is going up. Europe had been struggling with the rising price of natural gas for years. This threatened the post-pandemic economic recovery while also leaving European citizens with higher gas and electricity bills each quarter. The latest quarterly report on the European power market suggests that “In the first quarter of 2021, monthly average wholesale baseload electricity prices in Central Western Europe (CWE) reached a peak in January (51 €/MWh), following the rally in prices that started in Q4 2020, amid increasing power demand due to cold spells, expensive gas and high CO2 prices”. With Eastern Europe’s instability on the rise, experts predict that the prices will continue to go up. Although this long-term trend is disconcerting, it might provide additional incentive for the European energy sector to transition to renewables.
The power demand is growing steadily
The power industry will continue to expand with the demand for electricity increasing by 2% each year through 2035. The most significant increase in demand will be related to the production of green hydrogen (38.7%), which requires renewable energy sources. Green hydrogen is a key element for the mining and metals sector, allowing companies to transition to a more sustainable energy source and cut CO2 emissions. Similarly, further increases in transport sector energy consumption are expected, with an estimated spike of around 14%. Renewable energy sources will continue to grow, and Europe is expected to transition to electric vehicles, stimulating demand. On the other hand, as efficiency measures continue to offset the electrification of industrial processes and residential equipment, demand in these sectors will grow only modestly.
The energy systems of the future will be dominated by intermittent production
As Europe transitions to renewables, intermittent renewable energy sources (IRES) will continue to dominate the market. Intermittent electricity is energy that cannot be continuously available, as it heavily depends on external factors. For example, solar, wind, tidal, and wave energies are considered intermittent because they emerge only when environmental conditions permit. IRES are generally considered non-dispatchable because their unpredictability prevents steady output. Non-dispatchable intermittent resources, such as wind, solar and geothermal are unable to meet the diverse electricity needs societies might have due to their fluctuating nature.
Scientists predict that in 2035, IRES will constitute an astounding 60% of European energy. Renewable energy sources, including wind and solar power, generated 35% of total installed capacity in Europe last year. Still, the pace of IRES implementation is in question: many projects have been delayed. The delay may cause the projects to fall behind schedule, resulting in a 7-year gap between the anticipated and actual completion date. Also, the rising concerns about biodiversity and noise pollution have limited the development of wind power plants, slowing the transition significantly. Hence, despite high demand, the rollout of IRES has not been as efficient as expected.
Europe is eager to switch from burning coal, but renewables have been replacing natural gas instead
Between 2011 and 2019, Europe shifted toward using renewable energy sources to cut down on coal. Renewables replaced 80% of the energy generated by it. The decision to cease using coal as a primary energy source was due to the environmental hazards associated with it. Hence, substituting coal-based energy was always Europe’s priority. However, the past three years have witnessed a significant shift in the use of renewables. This type of energy is now replacing gas power more than coal.
Only a few European nations have significantly progressed in their efforts to replace coal. Belgium, Austria, and Sweden have reduced the use of coal-powered energy plants over the past decade. Spain and Greece have also retired some of their coal power stations, which has led to a drastic decline in coal production. On the other hand, Poland had experienced a 7% increase in coal-based energy production. The use of renewables to replace gas consumption is becoming more widespread due to the recent spike in prices, which is expected to continue. Although this pattern indicates a long-term trend, renewable sources of energy will eventually replace coal. However, companies should consider that the ongoing gas crisis may interrupt the EU’s planned coal exit.
Keeping up with energy trends is essential for survival in the industry
The future of power systems is vast and complex. Understanding the upcoming major changes on an institutional level requires a broader perspective and beyond-the-box thinking. As Europe’s capital markets continue to grow and adapt, different trends affect energy companies on every level. It is clear that the renewable energy sector is on the rise and will continue to grow – as Europe is striving to reach its climate targets by the year 2030. The continuous rise of traditional energy prices, especially oil and gas, also stimulates the shift towards renewables. While fossil fuel prices will continue to go up, the power demand will also keep on growing.
Green hydrogen production and transportation sectors are the primary industries influencing the boost in energy demand. It is also worth noting the importance of intermittent production, specifically solar and wind power. And of course, when it comes to the EU’s planned coal exit, companies should keep in mind that the ongoing gas crisis may interrupt it. In order to drive the success of your business, it’s important to stay one step ahead of the latest trends. In the energy industry today, things are changing faster than ever before. So, it’s crucial to keep up with the latest trends to stay ahead of competitors.