In the shade
Europe's solar power does not get the credit it deserves
This is the last Carbon Risk article for 2022. I will be back in the first week in January. Thanks again for your support and I wish you all a merry Christmas and a happy New Year.
Europe’s energy crisis would have been much worse were it not for solar power.
Solar PV installations generated 153 TWh of electricity across the EU in the seven months after the Russian invasion of Ukraine, up 31 TWh from the same period in 2021 (Chart 1).
The increase in solar powered generation helped offset lower electricity output due to maintenance issues across France’s nuclear fleet and low reservoir levels hitting hydropower output. All the while, solar helped reduce the amount of natural gas and thermal coal that needed to be burnt.
Chart 1: Change in EU-27 electricity generation for March–September 2022 compared to 2021, TWh
The EU27 installed and connected 41.4 GW of new solar PV capacity in 2022, according to estimates from SolarPower Europe (Chart 2). Total EU27 solar PV capacity is estimated to be 208.9 GW, an increase of one-quarter on 2021 levels. Annual additions to capacity increased by 47% versus 2021 with Germany, Spain, Poland, the Netherlands and France accounting for two-thirds of the extra capacity.
The disparate latitudes of the growth markets shows that solar capacity growth isn’t simply a function of the strength of the sun’s rays. Policy support and economics matter too. For example, Poland’s boom was initially driven by an increase in rooftop installations supported by subsidy. More recently, high gas and coal prices and concerns over energy security have led to an increase in utility scale installations.
Chart 2: EU27 annual solar PV installed capacity 2000-2022
Solar may have to put in another strong performance in 2023.
French nuclear giant EDF continues to put back the expected restart date for when many of its reactors will return to service. Some may not return until June 2023 (see France's nuclear winter of discontent).
Rainfall has helped to refill reservoirs in central and northern Europe, and a warmer winter may see further reservoir fill over the next few months. But the risk of another long drought in the summer of 2023 will remain a concern, especially as climate science points to there being an increased risk of a severe drought lasting several years. (see Long-term drought puts Europe's hydroelectric generation at risk).
The good news is that solar PV capacity is likely to see another bumper year of growth in 2023. SolarPower’s central outlook is for EU27 solar PV capacity to hit 53.6 GW in 2023. That assumes a continuation of current policy support and other factors. In the event that policymakers row back on their commitments and halt support for solar and other adverse issues arise, capacity should still increase by 42.8 GW. Their most optimistic case, one in which policy support, financial conditions and other factors are enhanced should see solar PV capacity rising by 67.8 GW (Chart 3).
Chart 3: EU27 annual solar PV market scenarios 2023-2026
Other forecasters also agree that capacity will grow. However, the IEA’s baseline expectation for 2023 is much more conservative than SolarPower Europe’s. The IEA project EU solar PV capacity will rise by ~35-40 GW in 2023 (Chart 4). However, the global energy watchdog believes that only by accelerating the deployment of rooftop solar PV systems could annual capacity additions reach the levels (~55-60 GW) outlined by SolarPower Europe.1
A number of EU Member States have either proposed or implemented a higher threshold for rooftop PV system requiring permitting. For example, Italy raised the threshold for shorter permitting processes from 50 kW to 200 kW. Meanwhile, Poland is proposing to increase the capacity limit for PV projects not requiring building permits from 50 kW to 150 kW.
If it is achieved, a 60 GW expansion in solar PV capacity would add ~95 TWh of electricity generation. Assuming solar power displaces natural gas from the generation mix it could cut carbon emissions by up to 42 Mt CO2, and up to 84 Mt CO2 if it is displacing unabated coal (i.e. thermal coal generation that does not include any carbon capture).2
Recall that the EU doesn’t simply need solar and other renewables to push out coal and natural gas. It needs them to help power the development of all the green hydrogen required to decarbonise industry (see Carbon's shifting anchor: The growth in electrolyser capacity is pivotal to Europe's decarbonisation ambitions).
Chart 4: IEA projection of EU wind and solar PV additions
The EU does not appear to be short of the solar PV panels necessary to buildout the capacity. EU27 imports of solar PV panels from China (the dominant supplier to the EU) had been accelerating since mid-2021, however the start of the war marked a step change in the pace of imports. Note that the price of PV panels gradually declined during 2022 but the volume growth more than compensated.
Next year could be even better than the forecasters most optimistic scenarios if permitting bottlenecks are broken.
Although rooftop solar PV capacity expansions tend to be limited by the amount of work that the installers can handle, utility scale PV capacity installation often gets bogged down by permitting issues.
Some 150 GW of utility scale solar PV projects under various stages of permitting in the EU, according to a recent report from the International Energy Agency (IEA). Although the IEA don’t put numbers to it, they suggest that “a significant share [of solar PV projects] is waiting final approval to begin construction.”
The 2018 Renewable Energy Directive (RED) states that the granting of permits should take no more than 24 months. Of the 12 countries shown in the chart (collectively they account for 91% of 2022 EU27 installed solar capacity), only three had permitting times less than the required 24 months (Chart 5).
Chart 5: Permitting times in selected countries (months)3
This week the EU agreed on a dynamic gas price cap. The cap comes into force on 15th February and will be triggered once two conditions are met. First, if the TTF front-month contract exceeds €180 per MWH for three days. Second, the TTF price must also be €35 per MWh higher than a reference price based on existing liquefied natural gas (LNG) price assessments for three days.
Lost amidst the understandable scepticism of introducing a price cap when there is an energy shortage is that Germany only agreed to the cap if other Member States agreed to regulatory changes which accelerated the renewable energy permitting process.
The emergency permitting measures come into force at the start of January and last for 18 months. For solar it means that three months is the new deadline for permitting procedures for solar on ‘artificial surfaces’, i.e. buildings, industrial sites, and transport infrastructure. Each EU Member States will offer their own definition of what an ‘artificial surfaces’ is. The emergency measures can be applied to projects already in the pipeline, as well as additional projects proposed before June 2024.
The move could help to unlock the GW’s of utility scale capacity currently locked in permitting, while also bringing forward new plans which had previously been put off by onerous planning delays. The new renewable permitting rules point towards an acceleration in solar PV capacity over the next two years, perhaps over an above the best case scenarios envisaged by SolarPower Europe or the IEA.
At the same meeting, EU ministers decided to support a 2030 renewables target of 40%. Recall that the original REpowerEU package included a proposal to increase the share of renewables to at least 45% by 2030, up from a 32.5% target in the 2018 renewable energy directive. The downgrade in the 2030 target by 5 percentage points means that European renewable generation would fail to grow in line with what is required to meet 1.5 degrees. That may not be the end of it though. There is still time for further negotiations early in 2023 to reinstate the 45% target.
Solar power provided a valuable buffer against the loss of electricity generation elsewhere in Europe during 2022. Without solar carbon emissions would have been significantly higher. Incentives and debottlenecking of the supply chain means solar will probably take another big step in 2023.
Rooftop solar installations accounted for 25 GW, or 60% of new capacity in 2022, and some two-thirds of overall solar capacity in the EU27.
Based on IEA estimate of 0.7 Mt CO2 per GW when displacing natural gas and 1.4 Mt CO2 per GW when displacing unabated coal https://www.iea.org/data-and-statistics/charts/annual-direct-co2-emissions-avoided-per-1-gw-of-installed-capacity-by-technology-and-displaced-fuel
The 12 countries account for 91% of 2022 EU27 installed solar capacity.