In 2023, the European power market underwent significant changes, marking the greatest decarbonization effort recorded in a single year. This transformation was driven by a unique blend of factors: a decrease in overall power demand, a resurgence in hydro and wind power contributing an additional 100 Terawatt-hours (TWh), near-record installations of solar PV reaching nearly 60 Gigawatts-DC (GWdc), and a modest recovery in nuclear power. This shift enabled a substantial reduction in fossil fuel reliance, with gas generation dropping by over 20% and coal by 25%. Despite these advancements, the European power sector continues to operate under the shadow of relatively high power prices, primarily influenced by the role of liquefied natural gas (LNG) as the marginal price setter for gas and, by extension, for power.

Looking ahead to 2024, the central question is whether this trend of decarbonization and reduced fossil fuel dependency will persist.

Rystad Energy’s latest research suggests a potential break in the pattern observed over the last two years, projecting a slight increase in demand by approximately 1-3%.

Looking ahead to 2024, the central question is whether this trend of decarbonization and reduced fossil fuel dependency will persist. A critical factor in this equation is the impact of sustained high power prices and elevated interest rates, which could potentially dampen demand. Rystad Energy’s latest research suggests a potential break in the pattern observed over the last two years, projecting a slight increase in demand by approximately 1-3%. However, the standout development for 2024 is the growth of solar PV. Solar PV will have the largest additions in the power sector for the first time, thus becoming the major source for decarbonizing the European power sector in 2024, with an anticipated addition of 50 TWh. 

The continued decarbonization of the European power sector is hinging on the future growth of renewable energy and potential imports from other regions. In the search for clean energy and decarbonization, a key trend emerging is that Europe is looking towards North Africa, where extensive solar and wind farms are expanding, and ambitious plans involve subsea cables to transmit electricity to as far as the UK. North Africa, which boasts countries with the highest electrification rates on the continent, is set to continue experiencing rapid growth in intermittent renewable capacity in the coming years. The interconnectors are touted to supply Europe with clean power, significantly reducing the region’s fossil-based power generation and potentially stabilizing the power system.

In this evolving energy landscape, Battery Energy Storage Systems (BESS) are emerging as a crucial component. In 2023, BESS played a key role in balancing the grid and mitigating the intermittency of renewable energy sources. However, generating stable revenue from power trading proved challenging for BESS operators, impacting investor confidence and the adoption of these storage solutions. An analysis of the 2023 day-ahead power prices across Europe indicated that conditions for BESS power trading vary significantly by region. Eastern European countries, such as Bulgaria, Estonia, and Lithuania, emerged as the most profitable markets for energy arbitrage. This highlights the potential for BESS to optimize grid operations and contribute to the economic landscape of the energy sector, especially in regions with favorable market conditions.