Energy Crisis in the EU: Impacts on Renewable Energy Deployment in 2023-2024

“Energy, like the biblical grain of the mustard-seed, will remove mountains.” – Hosea Ballo

The ongoing energy crisis caused by Russia’s invasion of Ukraine has catalyzed an urgent push for renewable energy deployment in the European Union (EU). This swift and necessary action aims to reduce the bloc’s dependence on Russian natural gas imports. Consequently, we have revised our forecast for renewable capacity additions for 2023 and 2024 upwards by 38% compared to previous predictions by the IEA in December 2021.

Distributed Solar PV: A Ray of Hope

The main driver for the increased forecast is the rapid growth in distributed solar PV. Residential and commercial solar PV systems in the EU account for 74% of this increase, with the majority (82%) emanating from six primary markets: Germany, Spain, the Netherlands, France, Italy, and Sweden.

Two main factors are driving this change. The first is the increasingly attractive business case for self-consumption since January 2021. With gas and coal prices skyrocketing due to the economic rebound from the Covid-19 pandemic, retail electricity prices in the EU climbed approximately 60% between January 2021 and January 2022, making self-consumption of solar PV energy an appealing option.

The second driver stems from new market conditions triggered by Russia’s invasion of Ukraine and subsequent policy responses by various countries to incentivize distributed solar PV deployment. As the invasion resulted in gas supply restrictions, European electricity prices saw a further increase of 40% from February to October 2022. Policymakers acted promptly to accelerate distributed PV deployment to alleviate the burden of rising energy costs for consumers.

Policy Changes: A Renewed Commitment to Renewables

In light of the energy crisis, Germany has offered more direct financial support, raised remuneration levels, and introduced further incentives (premiums) to encourage selling all generation to the grid. Italy and the Netherlands prolonged their respective tax rebates and net metering policies, which were due to expire before the war, thereby encouraging faster distributed solar PV uptake. Spain’s regulatory reforms expedited the environmental permitting process and freed up grid capacity for self-consumption, while France modified its auctions to retroactively increase awarded capacity by 40% for large commercial installations.

These policy actions, coupled with high retail prices, form the basis for our upward forecast revisions. However, even without concrete policy change, consumers’ proactive measures to reduce electricity bills have been a key driver for accelerated residential solar PV growth in Sweden, France, and Spain, where retail prices remain above pre-war levels.

Despite the start of a decrease in electricity prices since January 2023 in most European markets, prices still remain approximately 80% higher than in January 2021. This continued high price level and other challenges such as permitting obstacles and limited participation in competitive auctions could hamper the faster growth of utility-scale wind and solar PV.

In summary, the ongoing energy crisis in the EU has triggered an imperative response to accelerate the deployment of renewable energy, especially distributed solar PV, thus putting the EU on an even more rapid path towards energy self-sustainability and climate resilience.