According to International Energy Agency (IEA) website publication on Renewables 2022 Analysis and forecast to 2027 report:
Europe’s renewable capacity expansion doubles as energy security concerns accelerate actions towards climate goals
Cumulative renewable electricity capacity in Europe is expected to increase nearly 60% (+425 GW) between 2022 and 2027, more than twice as much as in the previous five-year period (2016-2021). Solar PV leads growth, followed by onshore wind, offshore wind, bioenergy and hydropower. Three-quarters of European expansion is concentrated in seven countries – Germany, Spain, the United Kingdom, Türkiye, France, the Netherlands and Poland. Europe’s main drivers for growth are long-term renewable energy targets and competitive auctions for utility-scale projects.
For distributed solar PV, feed-in tariffs or self-consumption with remuneration for excess generation promote uptake. The increasing attractiveness of projects developed outside of government-led auction schemes, through business models that employ corporate PPAs, revenues from the spot market, or a mixture of both, also spur growth.
This year’s main-case forecast has been revised upwards 30% to reflect policy changes made by governments over the last year to accelerate clean energy transitions and reduce reliance on Russian fossil fuels.
Policy momentum and market conditions were already signalling faster renewable energy growth before the energy crisis
Even before the energy crisis began, policy actions in 2021 were pointing towards a more optimistic renewable energy forecast for Europe, prompted by policy reforms to accelerate renewable energy growth to reach more ambitious climate goals. Last year, the European Commission released its Fit for 55 policy package and proposed raising the targeted EU renewable energy share from 32% to at least 40% by 2030 to put the European Union on a net zero GHG emissions trajectory for climate neutrality by 2050. The final target is still under negotiation, but once it has been set, member states will have to update their National Energy and Climate Plans (NECPs) during 2023-2024 to reflect new national targets and identify support policies.
By the end of 2021, some member states had already begun to raise their ambitions in anticipation of a higher EU target and had introduced policy and regulatory changes to accelerate the use of renewable energy sources. For instance, Ireland’s National Development Plan increased the targeted share of renewables in electricity consumption to 80% by 2030 (up from its current NECP’s 70%), and Italy’s Ministry of Ecological Transition proposed increasing the share of renewable electricity to 72% (up from 55% in the country’s current NECP).
Meanwhile, other countries continued to boost existing support. For example, France raised the size limit for commercial PV eligibility for feed-in tariffs and the Netherlands extended net metering. Outside of policy action, countries also began to tackle permitting barriers by simplifying procedures: for instance, Greece unveiled a digital one-stop-shop application.
At the same time, favourable market conditions in 2021 were also positioning Europe for faster growth. In many European markets, wholesale electricity prices more than doubled between the first and fourth quarters of 2021, improving the attractiveness of merchant projects. In addition, pipelines of corporate PPA projects expanded in several markets as energy-intensive end users sought to lock in lower tariffs to hedge against possible hikes in retail prices. Higher retail prices also improved the business case for self-consumption.
Reducing reliance on fossil fuel imports expedites action on Europe’s renewable energy plans
Following the February 2022 invasion of Ukraine, energy security emerged as an additional motivation to accelerate renewable energy development. Governments responded by making their targets more ambitious and by fast-tracking policies to facilitate quicker growth. At the EU level, the European Commission’s REPowerEU strategy released in May 2022 proposes increasing the share of renewables in final energy consumption to 45% by 2030, exceeding the 40% currently under negotiation. Reaching this target will require almost 600 GW of solar PV(3) and 510 GW of wind capacity by 2030. (4)
The Commission also proposes amending the Renewable Energy Directive with requirements for member states to streamline and shorten permitting processes. While legislation supporting this strategy has not yet passed at the EU level, member states and other European countries have already begun to announce plans, draft legislation, and swiftly implement a raft of reforms to quickly end dependency on Russian gas and mitigate the rising cost of energy to consumers.
These policy actions can be classified into three categories, and the main case considers them on a case-by-case basis depending on the status of the legislative process and country-specific challenges:
- Raising renewable energy ambitions. In March 2022, Germany raised its 2030 renewable electricity target from 65% to 80% and accelerated the pace of solar PV and wind expansion, aiming for 350 GW installed by 2030 compared to the previous 191 GW. The United Kingdom proposed a 2030 PV target for the first time in its energy strategy, and Portugal announced plans to meet its 2030 target by 2026. The forecast is more optimistic in these markets, based on the expectation of draft legislation coming into force within the next five years.
- Increasing policy support. Government actions include raising remuneration levels and introducing new financial support. For example, Germany increased feed-in tariffs for distributed PV, the Netherlands eliminated the VAT for residential PV systems, and the United Kingdom unveiled plans to hold annual auctions for the first time. Other countries modified existing schemes (e.g. France adjusted its auction rules so that developers could increase capacity after the auction) or extended current ones (e.g. Cyprus(5),(6) allocated additional funding for net metering until 2023). As the main case assumes that these changes, among others, will increase the attractiveness of renewable energy projects, the forecast was adjusted upwards.
- Addressing non-financial challenges. Governments have passed regulatory reforms to streamline permitting, make grid connection easier and improve network congestion – three barriers that have lengthened project development times. For instance, Germany overhauled onshore wind siting requirements and streamlined compliance with environmental laws while Spain introduced a simplified permitting procedure and made grid capacity available for renewable energy projects. Portugal eliminated environmental impact assessments for renewable energy projects, while Italy raised the size limit to qualify for licensing exemptions. These changes are expected to raise auction subscription levels and accelerate movement in project pipelines, resulting in stronger growth
While this year’s main-case forecast is more optimistic than last year’s, non-policyrelated barriers threaten the pace of growth. The impact of supply chain disruptions and rising raw material prices on future investment costs continue to impose forecast uncertainty, and a lack of skilled workers to install higher volumes of distributed solar PV is another challenge.
Permitting delays are a key barrier to faster growth for both solar PV and wind in Europe. For onshore wind, wind turbine orders fell 36% in Q3 2022 compared with Q3 2021. In 2021, onshore wind auctions held in Germany, France, Italy and the United Kingdom were undersubscribed because projects could not obtain permits due to authorisation complexity, siting restrictions or social opposition. As a result, the onshore wind forecast for these markets has been revised downwards. Grid congestion, coupled with a lack of investment and long lead times for network upgrades, also constrain renewable energy growth.
In addition, current and proposed market interventions in Europe (such as wholesale market caps and windfall-profit taxes) could create uncertainty for renewable energy investments in the upcoming months if they are not well designed. Moreover, the ongoing energy crisis has also sparked new discussions within the European Union concerning future electricity market design. While reforms could, in principle, boost market-driven renewable energy deployment, ensure energy security and encourage investment in flexibility resources, it is important that any reform proposal be carefully and transparently prepared, involving all relevant stakeholders. Failure in this regard could increase investor uncertainty and slow renewable expansion.
Europe’s renewable capacity expansion during 2022-2027 could be 30% higher if accelerated-case conditions are met. Simplified permitting regulations and shorter licensing times would accelerate onshore wind development. This could be achieved if the temporary emergency regulations to address permitting bottlenecks proposed by the European Commission were formally passed and implemented at the country level. In November 2022 the European Commission(7) proposed the designation of renewables as a matter of public interest to benefit from simplified procedures for new permits, and it introduced caps on permitting response times under certain conditions.
Accelerated-case growth is also possible with more grid capacity and faster network improvements to integrate new projects; simplified permitting regulations and shorter licensing times to accelerate onshore wind development; training programmes to increase the number of skilled workers; and greater land availability for new projects to shrink bottlenecks and allow development. Furthermore, an increase in auction volumes would accelerate utility-scale project development while lower investment costs and elevated electricity prices could offer further stimulus for unsubsidised projects.
(3) Refers to alternating current (AC) as outlined in the EU Solar Energy Strategy. (4) The Staff Working Document on investment needs to implement the REPowerEU Action Plan states that 510 GW of cumulative wind capacity and 592 GW of solar are required to reach the target of 45% renewables in final energy consumption by 2030. (5) Footnote by Türkiye: The information in this document with reference to “Cyprus” relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Türkiye recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Türkiye shall preserve its position concerning the “Cyprus issue”. (6) Footnote by all the European Union member states of the OECD and the European Union: The Republic of Cyprus is recognised by all members of the United Nations with the exception of Türkiye. The information in this document relates to the area under the effective control of the government of the Republic of Cyprus
