Starting with some good news, electricity is decarbonising at record pace. Eurelectric’s latest Power Barometer report shows the power sector’s carbon emissions are down by 50% when compared to 2008 levels. In the first half of the year, the EU recorded the cleanest power generation mix ever, with renewables making up 50% of all power production and nuclear providing a stable 24%. This is reflective of the record amount of new renewable capacity coming online. Some 70 GW of new wind and solar was added to the electricity grid last year – a quantity roughly equivalent to Netherlands’ annual power demand.

By 2030, renewables are expected to constitute 70% of the total power generation mix, provided there is a sound business model and, of course, increased power demand. The latter, however, is currently declining in Europe.

Is European energy demand rising or falling? 
While on the supply side one can paint a pretty picture, the same cannot be done for demand. Between 2022 and 2023, power demand in Europe dropped by 7.5%, mostly due to what we call demand destruction. As electricity prices went through the roof, several energy intensive businesses shut down or relocated abroad.

We must recover that demand and boost the electrification of Europe’s economy in order to keep clean power investments attractive. This is especially vital in light of the headwinds ahead for renewables: low capture rates and record negative prices.

Between January and August 2024, Europe experienced unprecedented occurrences of negative electricity prices, totalling over 1,030 hours. Such a phenomenon is challenging for clean energy investments and highlights the critical need for more storage capacity and flexibility to absorb renewables’ volatile supply.

In 2023 and as of October 2024, negative prices mostly took place during peaks in solar generation. Growing flexible demand for renewable power, however, can absorb that supply surplus. A part of the solution can be found with large industrial energy consumers, which can electrify their processes – specifically processes that remain heavily reliant on fossil fuels.

Between 2022 and 2023, power demand in Europe dropped by 7.5%, mostly due to what we call demand destruction – as electricity prices went through the roof, several energy intensives shut down or relocated abroad.

Currently, only a third of Europe’s industrial final energy demand is powered by electricity. Such a picture can lead one to draw the wrong conclusion that electrification cannot work for most industrial processes. However, a joint study by the Fraunhofer Institute and Agora discovered that given existing technologies, nearly 90% of Europe’s industry can be electrified.

A notable example is the electric cracker project by BASF, Sabic and Linde, which is the first of its kind and represents a significant milestone in industrial electrification. These steam crackers, used to produce ethylene and other chemicals, can achieve energy efficiencies of up to 95% compared to the 40% efficiency of traditional fuel-based crackers.

What needs to happen for greater electrification of European industry? 
Europe’s electrification rate has been stagnating at 23% for the past 10 years. It’s time to revert this trend to make the decarbonised success of electricity a broader societal success. This can be achieved by incentivising electrification through a comprehensive strategy centred around four key pillars:

• Industry electrification incentives. Policymakers ought to create incentives for energy intensive industries to make the electric switch. Currently, taxes on electricity bills are 1.4 times higher than those on gas. The low-hanging fruit to lower prices would be revising the EU’s energy taxation policy in order to create a level playing field between electricity and gas. Additional measures could include establishing a dedicated electrification bank, a competitiveness fund and counter guarantees to lower investment risks.
• Implementation. Ensuring effective implementation of existing EU legislation is crucial. This includes expanding access to long-term contracts such as power purchase agreements (PPAs) and contracts for difference (CfDs) for clean energy procurement that can provide price stability and predictability – as provided for in the electricity market design reform.  
  The CO₂ emission standard regulation for cars and vans is another prime example in need of coherent implementation. The regulation will set a 15% CO₂ emission reduction target for newly registered cars and vans as of next year. Yet certain car manufacturers have called for an early revision of this target. Heeding such a call would be problematic, as it will reduce investment certainty within Europe’s e-mobility ecosystem, weaken the incentive for smaller and more affordable European electric vehicle (EV) models and fail to correct any ill-perceived downward trends in the EV market trends.  
• Investment certainty. There need to be clear and consistent policy frameworks in order to reduce financial risks and enhance the attractiveness of investing in clean energy. This means avoiding short-term fixes that harm competitiveness and delay climate action.
• Infrastructure development. The rapid growth of renewables necessitates modern and resilient grid infrastructure. Investments in distribution grids, smart grid technologies and cross-border interconnections will support the speed and scale of electrification needed.

Policymakers and industry will need to collaborate to implement these strategies, drive the electrification agenda and creating a resilient, competitive and decarbonised Europe. We are ready to play our part.

The views and opinions expressed in this article are strictly those of the author only and are not necessarily given or endorsed by or on behalf of the Energy Institute.

• Further reading: ‘The future of European competitiveness and the energy transition’. Former Italian Prime Minister and European Central Bank Chief Mario Draghi has unveiled the much-anticipated report on the future of European Union competitiveness.
• Unexpectedly high growth in solar power generation is putting solar PV front and centre of European efforts to expand its renewables sector. With investment in the electricity grids needed to transmit power to consumers, solar energy could go even further.