Press Release from 2024-04-11 / Group, KfW Research

KfW Research: Electricity supply in Europe: the path to decarbonisation by 2040

  • Renewables deliver 44% of electricity in the EU, overtaking fossil fuels for the first time in 2023
  • In 2022, 83% of added generating capacity worldwide came from renewables
  • 14 of the 27 EU members states generate electricity exclusively from renewables – including Germany
  • European electricity trade and grid expansion reduce electricity costs and accelerate decarbonisation

Europe plans to be the first climate-neutral continent by 2050. According to its recently published interim targets, the European Union plans to almost fully decarbonise the electricity sector by the year 2040. A recent study by KfW Research examined how the decarbonisation of Europe’s electricity supply is coming along. KfW presented the study in Frankfurt on Thursday.

The carbon footprint of a kilowatt-hour of electricity generated has halved in the past 30 years. Whereas 500g of carbon was still being emitted per kilowatt hour in the year 1990, it was just 251g in 2022. The European carbon emissions trading system that was introduced in 2005 played a role in this decline. It provides economic incentives for reducing the use of fossil fuels and covers some 9,000 facilities of the energy sector and energy-intensive industry across Europe. With that, it covers around 40% of Europe's greenhouse gas emissions.

Around the world, 83% of the electricity generating capacity added in 2022 came from renewable energy (295 gigawatts). Europe accounted for no less than 20% of this (58 gigawatts). This is substantially more than North America (29 gigawatts) and is surpassed only by the massive expansion in China (141 gigawatts). In 2023, around 44% of electricity generated in the EU came from renewables, a new record high. The share of fossil fuels dropped to 34%, while electricity from nuclear energy came in at 23%.

Although this already points in the right direction, the pace of emission reductions in the electricity sector is much too slow.

“If we are to reach the target, we must expand green generating capacity significantly above today’s level. Having said that, there are considerable differences in the electricity mix of European member states”,

said Dr Fritzi Köhler-Geib, Chief Economist of KfW.

Fourteen of the 27 EU member states generate electricity primarily from renewables, including Germany. For historical reasons, the main energy sources used differ significantly. Austria, for example, generates 56% of its electricity from hydropower and Denmark 59% from wind energy. Five EU countries generate electricity primarily from nuclear energy, and eight obtain their electricity primarily from fossil fuels, especially coal and gas.

Natural gas is the only energy source which all European countries use to generate electricity. The share of natural gas-based electricity generation in Germany is 15%, lower than the European average. Natural gas is regarded as a bridge technology on the path to climate neutrality, but new gas power plants must be hydrogen-capable.

European countries pursue very different nuclear energy strategies. The last nuclear reactor was taken off the grid in Germany last year, and some countries, such as Italy or Portugal, do not use nuclear power at all. Other countries such as France are currently committed to nuclear energy. Some of them recently founded the European nuclear alliance and announced the objective of expanding installed nuclear generating capacity by 50 gigawatts to 150 gigawatts by 2050.

“There are significant differences between European countries in the current state of expansion of renewables”,

said Dr Fritzi Köhler-Geib, Chief Economist of KfW.

“In 2023, only three EU member states generated more than 75% of electricity from renewables. Another ten countries are between 50% and 75%, among them Germany. It is one of the countries pushing ahead with ambitious expansion targets. Wind energy tops the list in Germany. The potential of photovoltaic electricity has not been exhausted in any European country either”,

emphasised Köhler-Geib.

There was an import surplus in Germany's electricity trade balance again in 2023 for the first time since 2002, by a total of 11.7 terawatt hours. The import increase was partly due to the decommissioning of the last three nuclear power plants in Germany and the higher availability of nuclear energy in France compared with the previous year. At the same time, however, the expansion of renewables is also progressing in other European countries, and there they delivered a higher supply of cost-effective green energy, with sunny months and phases of high wind activity. Around three fourths of imported electricity was generated with no carbon emissions. In Germany, this primarily substituted fossil fuel-based electricity from coal.

“In addition to generating capacity, the integration of national electricity markets and the physical capacities of electricity transmission are crucial for a cost-efficient decarbonisation. The action plan for strengthening the European electricity grids presented by the EU Commission at the end of 2023 is therefore a welcome step. If the interconnected grid is further strengthened and the electricity market design is also expanded by adding capacity markets that take into account storage solutions and a flexibilisation of demand, with a European focus, further efficiency gains are possible”,

said Köhler-Geib.

The current study can be downloaded from www.kfw.de/Fokus