No coal comeback: Europe’s renewable energy transition is in hyperdrive

Europe’s coal- and gas-buying frenzy has abated as renewable energy output hit a record high last year with new policies in place
The EU’s fossil fuel power could plummet by 20 per cent this year, double the previous record fall in 2020

Dave Jones

Published: 10:00pm, 31 Jan 2023

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When Russia invaded Ukraine last February, President Vladimir Putin stepped up his strategy of weaponising energy exports to Europe. Europe responded by going on a buying frenzy for coal, gas and oil, competing against buyers in Asia, which caused global fossil fuel prices to spike.

Further challenges in the European Union’s electricity sector exacerbated the situation. A one-in-500-year drought affected Italy, France and Spain, amid extensive nuclear-powered electricity outages in France caused by corrosion, on top of Germany’s nuclear power station closures. That led to the lowest hydro and nuclear power output in the EU since at least 2000.

But these electricity crises are predominantly over. The story in 2023 will be very different. Russia’s war pushed Europe’s transition to clean electricity into hyperdrive, which means we are likely to see a record fall in both gas- and coal-generated power in the EU.

For Asia, that means Europe’s gas- and coal-buying frenzy, which had eased towards the end of last year, should continue to fall this year.

2022 was a tough year for Europe’s electricity system. Prices were already sky-high because of spiking gas and coal prices. Then the nuclear and hydropower crises cut electricity generation by 185 terawatt-hours (TWh) year on year, leaving a 7 per cent deficit and fuelling concerns of a coal comeback.

Five-sixths of this deficit was made up from growth in wind and solar energy, as well as falling electricity demand. Just one-sixth (28 TWh) was made up with coal power, adding 0.3 per cent to global coal-generated power. Gas-generated power was almost unchanged.

Wind turbines and high-voltage electricity transmission towers near Wusterhusen, Germany, on January 14. Chancellor Olaf Scholz said Germany needs to quicken its expansion of renewable power to become climate-neutral by 2045, even as Europe’s largest economy withstands the impact of Russia’s energy squeeze. Photo: Bloomberg

The record rise in renewable energy prevented much bigger rises in coal and gas power generation. Wind and solar power provided 22 per cent of the EU’s electricity, surpassing gas power (20 per cent) for the first time, with coal’s share at 16 per cent.

Coal power fell in the last four months of 2022. So far this winter, there has been no gas emergency, but there has also been a large fall in electricity demand.

To prepare for winter, the EU imported 51 per cent more thermal coal last year, at 65 million tonnes, up from 43 million tonnes in 2021. Russian coal imports were banned last August, resulting in an even larger pickup in coal imports from other countries such as Indonesia and Australia, which rose from a small base to 6 million tonnes each. The panic buying turned out to be unnecessary. Two-thirds of the extra coal imported by the EU remained unused.

During winter, 26 coal units across seven countries (most of which were in Germany) were reactivated to provide a safety cushion, which in the end was not needed. These units added less than 1 per cent to the EU’s coal power generation.

Europe got lucky with such mild weather. But it also took big and painful steps to reduce demand – gas and electricity consumption in the last quarter of 2022 fell by an unprecedented 21 per cent and 8 per cent respectively. Much of that was households cutting electricity and gas use, in response to the cost-of-living crisis and also in solidarity to minimise the Russia-induced energy crisis.

Renewable transition could be Europe’s silver lining amid energy crisis

With falling coal power – and with additional coal on stock – Europe is likely to import less coal this year. Indonesia, which is looking to step up coal exports, may be disappointed; coal buyers, like India, should be relieved.

For all the talk of Europe going back on the global UN climate commitment to “phase down coal”, it’s clear the resolve is stronger than ever. Coal is not making a comeback.

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The latest industry indications suggest that this year, Europe’s transition to wind and solar will accelerate in response to the energy crisis, with power generation rising by a further 19 per cent. This is largely due to Europe’s surge in solar installations, and China’s ramping up of solar manufacturing capacity coincided well with this increased demand.

What’s more, hydropower stocks have mostly recovered after the drought, many French nuclear units have returned to production, and electricity demand is likely to continue to fall.

As a result, our latest report at Ember estimates that the EU’s fossil fuel power generation could plummet by 20 per cent this year, double the previous record in 2020. Coal-generated power will fall, but gas-generated power will drop further as it remains more expensive. Already, in the first 24 days of 2023, coal-generated power is down 14 per cent year on year, and gas-generated power down 37 per cent.

Last year, EU gas demand fell by 12 per cent, even as gas-generated power remained unchanged. This year, gas-generated power will fall rapidly, ensuring that EU gas demand continues its fall. Gas storage is already fuller than it’s been at this time of the year since at least 2017.

A view of the “Hoegh Esperanza” floating storage and regasification unit (FSRU) during the opening ceremony of Germany’s first liquefied natural gas (LNG) terminal in Wilhelmshaven, Germany, on December 17. Photo: EPA-EFE

Since Russia’s invasion of Ukraine, there has been a heightened sense of urgency to cut imported fossil fuel dependence and achieve energy security through the accelerated deployment of renewables. Europe has had to rapidly learn from past energy policy mistakes. That means Europe is not content with just phasing out coal, it is also striving to phase out gas.

And while that may bring short-term relief to countries across Asia looking to increase gas use, it is also a warning bell on how quickly politics can swing against imported fossil fuels.

Dave Jones is head of data insights at energy think tank Ember

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