Renewable energy plants will make up 60% of total European power supply by 2040, as demand skyrockets driven by the electrification of heating and transport across the continent, according to a report from Aurora Energy Research (AER).
AER’s latest forecast, released today at its annual ‘Spring Forum', calculates some 400GW of new capacity being added over the next 20 years as decarbonisation of the EU's energy system ramps up, representing a €400bn ($453bn) capital spend expected to come largely from 'merchant' investment and corporate power purchase agreements (PPAs).
“The European power system is set to change dramatically in the coming decades as a result of the drive to reduce our carbon emissions, as well as the electrification of transportation and possibly heating,” said AER’s research director Richard Howard.
“Much of [the 400GW build-out] will be delivered without government subsidies, as the falling cost of renewables brings them to grid parity. Making this a reality will require significant investment in grid infrastructure and flexible capacity, as well as ongoing policy and regulatory reforms to ensure that this is delivered at the lowest cost to consumers.”
Major corporate energy users are seen “playing a crucial role ” through the PPA market in the immediate-term, he added, by helping cover some of the exposure linked to €80-150bn in power generation assets in Europe that could be “put at risk in the period to 2030” as the energy transition gathers pace.
“For renewables developers and utilities, understanding industry off-takers and building products and relationships fit for their needs will be a key competitive advantage in the next five years,” said Howard.
Despite the market-transforming shift underway, AER cautioned that complete decarbonisation of the power system would need “as-yet-unavailable technologies to provide inter-seasonal storage or flexibility” as well as “significant reforms to policy and regulation across Europe – to enable subsidy-free deployment of renewables and other technologies, whilst ensuring that all technologies bear their share of system costs”.
Howard highlighted the phase-out of gas backup-generation in favour of next-generation energy storage, including hydrogen, ammonia or thermal technologies, as key to the European move toward a zero-carbon system, along with the laying of some 90GW of new transmission infrastructure across the EU by 2040.
AER foresees EU power demand mushrooming by 85% by mid-century, hitched to the “near full electrification of personal and light commercial transportation” by 2050 – which will drive up consumption across Europe by some 20-25% compared to current levels – along with the electricifation of heating that will place “even more significant demands [on the grid] both in terms of the amount of electricity required, and due to the fact that heating demand is concentrated on colder days during the winter months”.
A study last year from AER pointed to subsidy-free renewables capacity swelling to be a 60GW, €64bn investment opportunity across northwest Europe by 2030.
AER’s spring forum event, held annually in Oxford, will bring together some 350 senior energy industry executives from utilities and developers including SSE, Equinor, E.ON and EDP Renewables.
Read Recharge online for further news from the event.