European policy makers and regulators are actively discussing solutions to ease the economic impact of high energy prices.
expected reductions in Russian gas imports, we expect that wholesale power prices may not reduce substantially (defined as returning to three times higher than precrisis levels) until at least 2027. 9 The future of Europe’s power market: Four key themes We expect four themes to shape the market’s evolution over the next five years. 1. More and more power Despite the recent boost in coal generation and new natural gas infrastructure, 10 Europe remains committed to its climate-based decarbonization goals. These efforts will stimulate electricity demand in Europe until at least 2030. Between 2021 and 2030, demand will rise by nearly 3 percent annually, up from the annual 2 percent demand increase from 2018 to 2021. Initially, much of this increase in demand will come from the electrification of transport, where demand will rise by a staggering 13 percent annually. After 2030, the use of green or potentially red hydrogen (hydrogen created with nuclear energy) for manufacturing will ramp up substantially. Demand from the manufacturing sector, which requires electricity for electrolysis, will amount to 200 terawatt-hours (TWh) by 2030. In total, absolute electricity use across Europe is expected to increase from 2,900 TWh in 2021 to 3,700 TWh in 2030. 11
scenario and replace the dispatchable generation lost from natural gas, nuclear, and hydro, many European utilities have increased coal production, which had been scheduled to drop drastically. A range of stakeholders are also investing in alternative, low-carbon dispatchable-energy sources, such as hydrogen, batteries, demand- side response, and biomass. Acutely aware of the implications of higher bills for energy consumers, European policy makers and regulators are actively discussing solutions to ease the economic impact of high energy prices and continue to bring down costs for businesses and consumers. Nearly all EU governments are pursuing either direct payments to households or temporary reductions in bills via lower taxes and other levies. 6 Additionally, the European Union recently adopted a temporary windfall tax on the surplus profits of fossil-fuel companies and on excess revenues made from surging electricity costs. 7 In December, EU energy ministers also agreed to a price cap on natural gas that is triggered when European front-month gas contracts surpass 180 euros per megawatt-hour for three days. 8 Although all of these efforts will undoubtedly have positive impacts, the challenges are not likely to end anytime soon. With the frequency of high-intensity heat waves expected to increase, additional outages of nuclear facilities planned in 2023, and further
6 Susanna Twidale, “Factbox: Europe’s efforts to shield households from soaring energy costs,” Reuters, October 11, 2022. 7 Beth Timmins, “EU agrees windfall tax on energy firms,” BBC News, September 30, 2022. 8 Jenni Reid, “The EU agreed to limit gas prices, but some analysts are skeptical,” CNBC, December 20, 2022. 9 Projections based on futures from Bloomberg, European Energy Exchange (EEX), Nasdaq, and PEGAS. 10 Baird Langenbrunner and Robert Rozansky, “Gas bubble 2022: U.S. edition,” Global Energy Monitor, October 2022. 11 Further Acceleration scenario from Global Energy Perspective 2022 , McKinsey, April 2022.
Accelerating the journey to net zero
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