Europe’s new record for energy demand, energy consumption per capita and energy emissions in 2023 is one of the key findings from the 2024 Energy Institute Statistical Review of World Energy. At 77.95 EJ, the total energy demand for Europe (including the UK) declined by 2% below COVID-19 levels which was the previous lowest record.

This drop in demand led Europe’s energy per capita to fall below China’s for the first time in history. Furthermore, despite a global increase in emissions, the European region stands out with a decline of 5% recorded in total emissions including gas flaring, methane and process emissions. These remarkable feats and year of records point to a shift towards a low-carbon economy. It is worth looking into the actions that have underlain these changes over the years as well as assessing the risks and challenges that may lie ahead in the race to net zero.

The focus for this article is the electricity sector, whose energy mix is rapidly evolving as electrification is recognised as a highly efficient means to mitigate emissions and decarbonise energy supply chains. The power generation mix of Europe (including the UK) has shifted significantly from early 2000s. Fossil fuels’ share dropped from 45% to 26% from 2013 to 2023, while renewables’ share has increased from 13% to 30% within the same period, leading to the cleanest electricity mix to date.

The phase-out of coal use for power generation has largely been enforced, albeit its transient surge during the energy crisis in 2022. Top consumers like Germany and Poland recorded their lowest ever coal consumption in 2023, 1.83 EJ and 1.51 EJ respectively. The eradication of coal has taken a faster turn in the UK as the last coal power plant was shut down in September 2024. There, coal power generation peaked at 211 TWh in 1991 and has steadily declined to less than 4 TWh in 2023.

Natural gas remains a key fossil fuel source for power generation in Europe, although its demand in producing electricity has dropped further by 15%, after a fall of 6% in 2022. Higher average temperatures, higher prices and the impact of rebalancing supply due to the Russia-Ukraine war drove demand reduction.

In 2023, solar and wind electricity generation recorded a year-on-year increase of 8%, raising renewable generation to record levels of 294.9 TWh and 614.1 TWh, respectively. The rebound of 74.6 TWh in hydroelectricity from 2022 to 638.7 TWh bolstered renewable energy. Nuclear generation was the only renewable source with a slight decline of 1%.

How has policy influenced the EU energy transition?  
Policies are pivotal to large-scale deployments of renewable energy sources, as they influence market conditions and can drive investors’ confidence when backed by government funding/incentives. Ambitious European climate and renewable energy targets are leading the world.

The Renewable Energy Directive (RED) is one such policy. It was first adopted in 2009 by the European Union (EU). Following three revisions, the latest target aims for at least 42.5% renewable energy share by 2030. This implies a two-fold increase from the current share of renewables over the next five years.

The REPowerEU plan was enacted as a response to the Russian-Ukraine war to diversify energy supplies and reduce demand, thereby reducing dependence on Russian gas. The production of more electricity from wind and solar than gas for the first time ever in 2023 is attributed as one of the successes of REPowerEU.

The Green Industrial Plan is a more recent development focused on scaling the EU’s manufacturing capacity in net zero technologies as stated in the Net Zero Industry Act and building resilient supply chains through the Critical Minerals Act. The third pillar of the plan is the reform of electricity market design.

Meanwhile, the Contracts for Difference (CfD) scheme has taken a positive trajectory in the UK, yielding over 131 solar, tidal stream, onshore and offshore wind projects cumulatively in its sixth auction round after a review of its strike prices to reflect current market rates and a record investment of £1.5bn. CfDs ensure revenues are stabilised for renewable energy producers over a long period of time.

How has the UK been moving toward an energy transition?  
As the UK pushes forward its goal to achieve a clean power system by 2030, electricity obtained from renewables will continue to rise, eventually outweighing gas power generation. The current power market model is still driven by gas prices in the marginal pricing system. A long-term electricity market structure is being designed through the Review of Electricity Markets Arrangement (REMA) programme. A series of consultations with stakeholders on pricing mechanisms, CfD adjustments and capacity markets will help to ensure consumer benefits from the lower cost of renewables are maximised.

The National Energy System Operator’s (NESO) advisory report on achieving clean power for Great Britain by 2030 also emphasises the key role of flexibility both on the demand and supply sides as variable sources increase. On the supply side, smarter and resilient grids are required as the backbone for distribution and transmission to accommodate increasing renewable power. Intermittent power supply must be supported by balancing mechanisms to ensure frequency and voltage stability along with flexible energy storage systems. With only 3.6 GW of grid scale battery storage in UK as of 2023, more investments in storage systems and grid infrastructure are needed to sustain the growth momentum of renewables.

On the demand side, time-of-use tariffs can be well-designed to influence consumers’ electricity demand. Onsite generation and co-location with storage assets also presents opportunities for businesses to take control of their electricity supply, reduce costs and their carbon footprint.

The UK government subsequently published its Clean Power Action Plan, taking onboard advice from the NESO report. For details, read this week’s news story in New Energy World.  

Does decarbonised electricity cost more?  
Great ambitions come with risks and complexities in delivery. Electricity prices have been a significant challenge within the energy transition in UK and Europe. According to the World Population Review, the average retail prices of electricity in March 2024 were $184/MWh in the US, $78/MWh in China, $384/MWh in Denmark, $368/MWh in the UK, $365/MWh in Germany and as high as $481/MWh in Italy. Comparatively, electricity costs in Europe are twice that of the US and almost five times greater than China’s cost. The International Energy Agency’s Real-Time Electricity Tracker shows a similar pattern across wholesale power prices over the past six months; the highest costs are in European countries.

Energy and electricity prices directly influence the cost of industrial and business activities. Therefore, significantly higher prices in Europe have led to importing of manufactured goods and offshoring emissions. The need to onshore supply chains, in addition to intensifying geopolitical tensions calls for measures to promote energy security. To steer cleaner industrial production and encourage local manufacturing, the EU’s Carbon Border Adjustment Mechanism (CBAM) has been set up to put a carbon price on carbon-intensive products such as steel and cement. Further measures taken includes raising import tariffs on electric vehicles (from 17.4% to 37.6%) to curb China’s cheap and innovative technologies.

Overall, Europe’s decarbonisation efforts have made a real difference, as clean electricity takes the centre stage of its energy future. Policies are characterised by an iterative design approach with time-bound goals, stakeholder engagements and investments. However, net zero ambitions have also contributed to a surge in power prices with significant consequences for its industrial growth and global competitiveness. Implementation strategies can be further refined with a holistic approach to balance trade-offs between energy security, sustainability and affordability.

• 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. 
• Europe’s power sector is going through an evolution unlike ever before. With the opportunities and challenges that come from such evolution, however, the current picture is mixed, writes Cillian O’Donoghue, Policy Director at Eurelectric.