Europe looks for stability as wind and solar take center stage

GDP in the euro area is down 0.1% for the second quarter on the trot,[1] marking the first six-month decline after the COVID-19 pandemic. Industrial production is also trending down, having shrunk 1.4% YoY this March.[2]

The price of carbon permits in Europe plunged to €78.7 per tonne of СO2-eq in early June (see Fig. 1), the lowest level since mid-January 2023, beset by waning demand for electricity amid weaker industrial output. This nosedive was also prompted by cheaper gas, which reduced coal-powered generation and the need for carbon quotas.

The fall in carbon prices has been driven by a significant uptake in renewables, with good weather being an important contributing factor. According to Ember, wind and solar energy have shown a steady rise in Europe’s power mix this year, having reached an all-time high of 30.7% combined in May (see Fig. 2). In the same month, solar generation surpassed coal generation for the first time, both in relative and absolute terms: 14.1% (27.2 TWh) vs. 10.3% (19.8 ТWh). One European country is well on track to generate more than half of its power from renewable sources this year.[3] Specifically, Spain is set to accomplish this feat, beating France, Germany, Italy and the UK to this record.

Yet renewables have a downside that needs to be addressed. For the time being, energy storage systems cannot deal with the growing grid load, with producers being forced to sell energy at lower prices to encourage demand during power generation peaks. While France, with its nuclear power plants, has a good alternative to secure sustainable energy supply, other European countries have to rely on fossil fuels. And there’s no easy fix so far.