Two years after the 2022 gas crisis, how is European electricity performing?
A new report from Ember highlights that electricity generation in the EU is cleaner than ever. Fossil fuels provided less than 30% of electricity in 2024, falling to their lowest levels in forty years.
Despite a decade of decline due to premature shutdowns, nuclear power remains Europe’s largest power source, providing 23% of power in 2024. Half of this was concentrated in one country, France, but seven other member-states obtained more than 30% of their electricity from nuclear reactors. Poland and Sweden are progressing plans to construct new large-scale reactors, while much of Europe is planning to avail of small modular reactors if they become commercially available. If successful, these will not be seen before the late 2030s.
Despite a decade of decline due to premature shutdowns, nuclear power remains Europe’s largest power source, providing 23% of power in 2024.
Wind energy has faced significant inflationary and supply chain pressures since 2020 but remains resilient. In 2024, it ranked second, supplying 17.4% of electricity demand. Since 2019, annual wind generation growth has been roughly equivalent to Ireland’s total annual electricity consumption. Offshore wind is expected to play an increasing role in future capacity, though challenges persist - most notably, Denmark’s latest offshore wind auction failed to attract any bids.
Hydropower contributed 13.2% of electricity. This is relatively consistent from year-to-year, as Europe is not actively expanding hydro-capacity. Output instead depends on annual rainfall and temperatures. In the future, hydropower plants may be used more dynamically, stepping in to support the grid during low wind and solar periods rather than maintaining a steady output.
Europe may not be the sunniest region, yet photovoltaics accounted for 11.1% of electricity. Back in 2019, solar met a measly 4% of demand in Hungary. Just 5 years later, this was 25%. During that same period, it jumped from 6% to 21% in Spain, and 3% to 19% in Lithuania. Even gloomy Denmark now derives about 10% of power from solar. This meteoric rise is driven by the modular, Lego-like nature of solar. Panels are mass-produced in Chinese factories, benefiting from economies of scale, and deployable at any size, from rooftops to sprawling solar farms.
The war in Ukraine saw gas prices soar in 2022, but the collective European effort to reduce import dependence has been largely successful. Only 15% of gas was imported from Russia in 2023, compared to 45% in 2021. Norway is now the largest supplier of European gas. Gas consumption decreased for the fifth consecutive year in the electricity sector, providing just 16.9% of power in 2024.
Coal power fell below solar for the first time ever, at 9.8%. Producing one unit of energy with coal emits roughly twice as much carbon as gas. Coal consumption is particularly concentrated between Germany and Poland, each accounting for over one third coal usage. As a result, the carbon intensity of German electricity is still more than five times higher than that of France or Sweden. While Germany is one of Europe’s worst offenders, it is no worse than the average across the US states. The EU is a climate leader, and this should be celebrated.
Low-carbon, but high cost?
European electricity may be relatively clean, but not cheap. European prices are on average more than double those in China or the USA, rendering many power hungry industries uncompetitive. Cheap electricity is also an economic imperative for decarbonisation. Citizens are unlikely to swap their gas boiler for an electric heat pump if exorbitant power prices leave them worse-off financially.
Electricity markets use a marginal pricing system, where the most expensive generator needed to meet demand sets the price for all electricity sold. In a given hour, even if wind and solar supply 90% of electricity at extremely low cost, the reliance on costly natural gas for the remaining 10% results in all generators being paid at the gas price. The Draghi Report on 'The Future of European Competitiveness' noted that natural gas was the price-setter in 63% of trading periods in 2022, despite only providing 20% of electricity. EU electricity market reform is intended to decouple electricity prices from the gas price, creating a fairer system for all. Contracts-for-difference will guarantee renewable energy operators a stable price for their power while also capping payments when market prices rise too high, protecting consumers
Conversely, ultra-low and negative electricity prices are increasingly common. Some older power plants struggle to ramp up and down in response to short-term market price fluctuations. Meanwhile, much of Europe’s wind and solar farms benefit from financing schemes that pay a fixed price per unit of energy produced, so they are happy to continue running, no matter the market price. This means that on a sunny afternoon in July, power prices might temporarily dip below zero.
Battery installations are almost doubling year-on-year, with the potential to smooth out daily peaks and troughs by shifting cheap solar power to the evening and night.
Technology also has a role to play in mitigating price volatility. Battery installations are almost doubling year-on-year, with the potential to smooth out daily peaks and troughs by shifting cheap solar power to the evening and night. Interconnectors make profit on electricity arbitrage, narrowing price gaps between member states. However, what benefits the system as a whole doesn’t always benefit individual countries — Norway’s governing coalition has just collapsed due to growing frustration with the price volatility caused by interconnection with Germany.
Much progress has been made, but every political faction in Europe has, to some extent, hindered the energy transition. Green-left parties have heightened dependence on natural gas imports by pushing for politically driven nuclear closures. Spain is set to repeat Germany’s mistakes, despite more than 7,000 people protesting in January to save the largest operational reactor. The center failed to anticipate the energy crisis, while the right has often weaponised high energy bills for political gain, blaming renewables. As Europe faces the challenge of more than doubling electricity demand by 2050, its success may depend on how closely it follows the advice of Sweden’s deputy prime minister: “A little less politics, a little more physics.”