Electrification and Europe’s Path to Net Zero
The article below is from our BRIEFINGS newsletter of 03 February 2022
The European Union is aiming to slash greenhouse gas emissions by 55% by the end of this decade compared to 1990 levels, a goal that GS Research says requires a major – and urgent – push to electrify industries from transport to manufacturing. We sat down with Alberto Gandolfi, head of European Utilities Research, to discuss the steps European economies need to take now on their path to net zero.
Alberto, the Fit for 55 plan, part of the European Green Deal, outlines emissions goals that you argue will lead to an increase in power demand. Can you tell us more about how you expect power consumption in the region to change?
Alberto Gandolfi: Europe is on the cusp of an electrification push that could lead to a roughly 50% increase in power demand through 2030. As an example, when a typical household acquires an electric vehicle and installs a heat pump, its electricity consumption rises three-fold. We estimate that the EU’s target to reduce emissions from road transport by roughly 50% this decade will require about 40% of drivers to switch to an EV – the equivalent to 100mn electric cars on European roads. The growing need to electrify sources including passenger cars, heat pumps, electrolyzers and industrial motors means electricity could account for roughly half of primary energy consumption by 2030, versus about 20% today.
How will the sources of power change in light of this rising demand?
Alberto Gandolfi: : At the moment, about 40% of European power production comes from renewable sources like hydro, wind, solar and biomass. That share could reach 70% by the end of the decade. To comply with the Fit for 55 targets and the resulting increase in power demand, Europe could see its wind and solar installed base quadruple. It’s worth noting, however, that the process of scaling up investment in renewables will unfold gradually and continue to accelerate through the end of the decade. Consider the time needed to develop and staff larger pipelines, then convert them into actual assets – it implies a lag between when new policies are announced and peak capacity growth is realized.
Green capex is quickly becoming one of the dominant drivers of infrastructure investment on a global scale. How is this unfolding in Europe and what level of investment in green energy infrastructure is needed to meet the region’s de-carbonization goals?
Alberto Gandolfi: We estimate that the electrification push needed to meet the EU’s goals will require Europe to free up €3.7tn of capital over the coming nine years. Over half of this could be privately funded (roughly €2.2tn), an amount we think will be invested mostly by clean energy companies, with the remainder split between energy efficiency spending and grants. The investments will be used to develop renewable energy sources, upgrade power grids, refurbish buildings and support the switch to electricity for the mobility, real estate and manufacturing industries.