When managers in the European power sector are asked about power prices, the reaction is often one of resignation—a heavy sigh or a deep breath before they pivot to the narrative of impending demand growth. It’s a tale as old as time, but the numbers tell a different story. Last year’s paltry 1.3 percent growth in EU power demand, especially when set against the backdrop of ambitious electrification efforts and a burgeoning data center industry, is hardly a cause for celebration. This stagnation isn’t just a fleeting moment; it’s becoming a persistent reality that developers can no longer brush aside as a temporary blip.
The five-year mark since the onset of the COVID-19 pandemic serves as a grim reminder of how long it’s been since the European power markets operated with any semblance of normalcy. We saw a brief resurgence in 2021, when demand jumped five percent from the pandemic-impacted 2020. But that growth was more a flicker than a flame, stunted by ongoing industrial disruptions and the gas supply crunch that preceded the Russian invasion of Ukraine. Fast forward to 2024, and the EU finds itself in a perplexing situation: using less electricity than it did in the lockdown year of 2020.
This decline is not solely due to a lack of ambition or effort; improvements in energy efficiency play a role, but the industrial slowdown is a heavy anchor. Germany, a powerhouse in the EU, saw its industrial power consumption drop by 13 percent compared to 2021, and production fell by four percent year-on-year in 2024, according to Eurelectric. On the emissions front, the news is slightly more encouraging. The European power sector managed to cut emissions by 59 percent compared to 1990 levels and saw a 13 percent drop from 2023, largely thanks to an influx of renewable energy sources.
However, this low demand presents a paradox. If the goal is to expand renewable energy generation, a sluggish market isn’t doing any favors. Lower demand typically translates to lower power prices, and indeed, the average EU day-ahead wholesale electricity price plummeted by 16 percent in 2024. The record-setting 1,480 instances of negative pricing across EU pricing zones paint a stark picture: without a surge in energy demand, the capacity being built will only exacerbate the economic challenges of adding more green energy to the grid.
This stagnation isn’t just an economic headache; it has ramifications for Europe’s broader decarbonization goals. The fight against this lack of growth is not just an economic issue; it’s a matter of political stability and environmental sustainability.
In the offshore wind sector, there are glimmers of hope, with CPP Investments’ Maple Power and France’s Banque des Territoires winning contracts for 250MW of floating wind projects. Yet, the cancellation of the Vineyard Wind 2 project after being passed over for a contract in Connecticut serves as a sobering reminder of the volatility in this space.
Politically, the winds are shifting too. Sweden’s energy minister, Ebba Busch, didn’t hold back in criticizing Germany’s nuclear phase-out, linking it directly to soaring electricity prices. Meanwhile, Norwegian politicians are contemplating cutting interconnectors to Denmark, signaling a potential shift in energy politics that could reverberate across the continent.
As the landscape continues to evolve, one thing is clear: the European power sector stands at a crossroads, grappling with the dual challenges of low demand and the urgent need for sustainable energy solutions. The path forward will require innovative thinking and a willingness to confront the uncomfortable truths that lie ahead.
