EU electricity demand set to drop to lowest level in 20 years – IEA

Spiraling energy prices and economic slowdowns in European economies are mainly accountable for the decrease in demand.

A record two-year slump of 6% in EU electricity consumption was recorded during the first half of 2023, showing the heavy blow dealt to Europe’s consumers and industries by the energy crisis following Russia’s invasion of Ukraine. 

The industrial slowdown was responsible for two-thirds of the net reduction in EU electricity demand in 2022.

This puts industrial competitiveness in Europe under pressure, according to the IEA report, as industry outputs continue to lag despite prices coming down from last year’s record highs. The report says overseas subsidies such as the US Inflation Reduction Act (IRA) and Japan’s Green Transformation Act “are influencing production curtailment, plant closures, and the pausing and diverting of investment.”

Meanwhile, global electricity demand is set to rise, driven by the decarbonisation of energy systems, the increasing use of indoor cooling as world temperatures climb, and the growth in emerging and developing economies. Electricity demand is forecast to increase in China and India, with China expected to record an annual growth of 5.2% over the next two years.

These emerging countries continue to rely on fossil fuels, with China and India both increasing coal-fired electricity generation in the first half of 2023 due to drought-induced cuts in hydropower.

The IEA foresees a rebound in global electricity demand in 2024 as the economic outlook improves, and says 2024 could become the first year in which more electricity is generated worldwide from renewables than from coal. 

The new insights came as the European Parliament’s Industry Committee backed plans to reform the EU’s electricity market based on a deal struck by the main European political parties earlier this month.

The reform, first tabled by the European Commission in March, aims to shield consumers from soaring prices, boost the uptake of renewables and maintain European companies’ competitive edge on an increasingly competitive global stage.

The Parliament backed consumers’ right to more stable, long-term contracts, banning suppliers from being able to unilaterally change the terms of a contract and from cutting electricity supply to vulnerable customers.

It also supported so-called ‘Contracts for Difference’ (CFDs), where public authorities can compensate energy producers if market prices fall too steeply, but can collect payments from them if prices are too high.

“This reform aims to give the European electricity market a sense of stability, so that we never again have to experience the prices of this crisis,” the Parliament’s rapporteur on the file, Nicolás González Casares, said.

But the Parliament’s adopted position does not include a cap on energy companies’ windfall revenues in a future energy crisis, a measure originally supported by Casares. The EU introduced a temporary windfall tax on energy companies in 2022 to help cushion consumer bills during the energy crisis.

“Not all political groups saw it the same way,” Casares said.

The center-right EPP and industry groups had opposed the revenue cap as a deterrent to investments in new technologies.

The planned reform was backed by 55 MEPs, while 15 voted against and 2 abstained. The Committee also voted to open negotiations with the Council, a decision which will need approval in the next plenary session.

But EU ministers have so far failed to reach a common position due to difficulties in striking a deal that satisfies 27 countries with very different economies and energy mixes. Spain, which holds the EU’s rotating presidency, is expected to play a pivotal role in finding a compromise.