• The energy crisis in Europe and tightening regulatory standards have boosted efforts to diversify energy-supply sources. This will also allow Europe to make progress towards achieving net-zero emissions by moving away from fossil fuels. In the coming decade, there will be a strong emphasis on increasing renewable-generation capacity in order to achieve this.

• There are wide regional disparities in the adoption of renewable-energy sources. Large investments are being made in solar power in Spain, and in wind in the North Sea, while France’s historical investments in nuclear energy will limit the take-up of renewable energy. Eastern Europe will find it difficult to reduce its dependence on coal, and we do not expect Germany to meet its 2030 coal phase-out target owing to a delayed decommissioning schedule. 

• These disparities are a source of contention for the EU’s Fit for 55 renewable-energy targets, which pledge to reduce EU emissions by 55% by 2030. Similarly, the REPowerEU investment scheme, which targets 45% renewable-energy generation by 2030, has stalled owing to pushback from east European member states and France. A 42.5% target is now more likely. Nevertheless, about €300bn in EU loans and grants will be directed towards net-zero climate objectives, accelerating the green transition. 

• We expect the 42.5% target to be reached by 2030 on average across the EU, but fossil fuels will remain a significant source of energy for some countries. The per-unit cost of renewable electricity is now cheaper than coal or gas in Europe, but the biggest obstacle remains the European power grid. The electricity grid will need to cope with much higher levels of electricity transmission as electric vehicles, heating systems and industrial processes are increasingly adopted. Ample electricity storage capacity will need to be built to account for power generation intermittency, and vast distances between renewable-power generation and consumption will require new network investment.

• Geopolitical factors also present a risk for the energy transition. China—which dominates the global supply chain for renewable-energy technology (particularly solar panels and raw materials)—is increasingly being seen as a strategic rival for the EU. Reorienting energy supply chains away from China will be part of the EU’s longer-term “derisking” policy, and is part of the EU’s new proposed Critical Raw Materials Act. However, this will increase input costs and, in turn, risk a slower take-up of green technologies and a more prolonged phase-out of hydrocarbons.

The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the economic, political and policy outlook for nearly 200 countries, helping organisations identify opportunities and potential risks.