Executive summary

• Electrification is the key to decarbonization in the EU… The utilities sector is a key focus area if climate neutrality is to be reached by 2050: electricity demand is increasing and will reach record highs, driven by transportation and industries where the electrification rate is projected to rise from 30% to 60% by 2030. If established technologies are implemented, the electrification rate could reach as high as 76% by 2050. As a consequence, growth for wind and solar photovoltaics must triple.
• …But renewable energy isn’t ramping up fast enough to meet rising electricity demand. While 2020 was a landmark year, with renewables overtaking fossil fuels to become the main source of electricity in the EU (38% of electricity generation), hydropower and bioenergy have stalled and 2020 also saw the largest decrease in nuclear generation since 1990, a trend that is expected to continue as countries set national phase-out targets. This highlights the need for a solar and wind ramp-up, especially as the EU’s recent Fit for 55 proposal has set a target for the share of renewable electricity of at least 60% by 2030 and 85% by 2050. But even leaders in solar and wind development (Denmark, Ireland, Germany, Spain) still have a long way to go as phasing out coal by 2030 remains a key challenge: an additional 100GW of wind and solar PV, as well as 15GW of “hydrogen ready” gas power plants, are needed for its replacement. As a result, we find that the Ff55 proposal faces a five-year implementation gap.
• To stay in line with the 1.5°C warming pathway, a front-loading of investments of EUR40.8bn per year is needed until 2030 for the power grid and EUR44.7bn per year for power plants. In addition, the coal phase-out will require an additional EUR131bn across the EU, which should be broken down to EUR83bn (63%) going towards wind, EUR30bn (23%) towards solar and EUR19bn (14%) towards new gas plants. Of this total investment, EUR96bn will need to go to the Coal-6 countries — Germany, Poland, Romania, Czech Republic, Bulgaria and Slovenia — which have set coal phase out dates past the 2030 deadline. In addition, by 2030, a carbon price of EUR152 per ton is needed to induce a market-based transition.
• Carbon capture and storage (CCS) technologies can help sectors decarbonize quicker, but deployment must be sooner and accelerated. In order for the Ff55 pathway to be compliant with a 1.5°C scenario, either 1) CCS technology must be deployed across industry and utilities at a large scale in the next 10 years or 2) the utility sector must decarbonize even faster than proposed to allow for more emissions certificates to be used for industry, buying time for CCS to pick up.