Europe’s electricity demand growth may fall short of projections: Study

This article was published by The Energy Mix on Nov. 8, 2024.

By Christopher Bonasia

New analysis suggests that Europe’s electricity demand may not grow as expected, with significant implications for the region’s energy transition and industrial future.

While governments and system operators predicted up to a 7 per cent annual rise in demand by 2030, a new report from McKinsey & Company finds growth will likely be closer to 2 per cent, with the possibility that up to 40 per cent of the projected increase won’t materialize at all.

This slower demand growth could drive up energy costs and speed industrial decline in Europe, the consulting firm says.

The new research addresses expectations for increasing electricity demand linked to rising populations and GDP growth, combined with the ongoing energy transition and the shift off fossil fuels. The expansion of data centres and energy needs linked to AI are also expected to increase demand. With climate commitments hinging on widespread adoption of technologies like heat pumps and electric vehicles, projections have anticipated rapid growth in consumption by buildings and transport, raising concerns about grid capacity being overwhelmed by rising electricity demand.

But despite significant renewables deployment, which helped the European Union reduce emissions to 37 per cent below 1990 levels, the adoption of technologies expected to drive electricity demand has been slower than anticipated in recent years. This slowdown is evident in the number of auto and battery manufacturers abandoning plans to expand EV production and supply chain development.

Though the technologies are still on the rise, the growth is not as high as had been expected. For instance, battery EV and plug-in hybrid sales continued to grow by 21 per cent in 2023, but that is down from 42 per cent growth in 2021.

As McKinsey reported this past summer, many announced deals to deploy decarbonization technologies have yet to be finalized, creating a “reality gap” between the perceived uptake of new technology and the actual capital invested.

Other factors moderating the expected electricity demand growth include elevated power prices and structural changes in the economy linked to deindustrialization, says McKinsey. Its research also anticipates that “considerable” gains in energy efficiency will reduce future demand.

“Lower-than-expected electricity demand growth in Europe could significantly impact overall system costs—and, ultimately, the path of the energy transition and Europe’s broader economic conditions,” McKinsey writes, advising that stakeholders across the energy value chain should monitor trends and adjust their strategies.