Solar panels used to produce renewable energy are pictured during the launch event of a photovoltaic park near Kozani, Greece, April 6, 2022. Picture taken with a drone. REUTERS/Alexandros Avramidis/File Photo
LONDON, July 31 (Reuters) - Europe has been battered by a succession of energy shocks this decade that left it with some of the world’s highest power costs. The bloc is now hoping to rebuild its competitive edge with a multi-trillion-dollar wager on home-grown electricity and renewables that could determine its industrial future.
Europe has gone through a succession of energy transitions over the past century. After running predominantly on coal until the 1960s, the region’s economy expanded to oil before shifting in the 1980s to nuclear and natural gas, which remain central in its energy mix today, even as the continent has sought to transition to renewables since the early 2010s.
Europe now finds itself at a crossroads once again. The region’s energy prices surged following Russia’s full-scale invasion of Ukraine in 2022, leaving the region with power prices that are around 50% above those in China and double those in the United States, according to the International Energy Agency.
At the same time, European industry — which used to have a competitive edge thanks to its highly efficient manufacturing processes — has largely been eclipsed by China, which has made rapid advancements in high-value manufacturing in recent years.
Reducing its energy cost base is therefore crucial for Europe’s industrial survival. Whether it can achieve this quickly enough remains uncertain, yet the continent's history shows that its deepest energy crises can become catalysts for profound economic transformation.
50-YEAR PLAN
"France has no oil, but it does have ideas," was a famous slogan created as part of a campaign to encourage fuel savings following the 1973 energy shock triggered by the Arab oil embargo.
France responded to this crisis with the Messmer Plan, a massive program to build a fleet of nuclear plants that transformed the country's energy system. By the late 1980s, the country’s reliance on coal imports plummeted and energy costs had fallen to 1960s levels.
Forty years later, France's reactors still underpin Europe's electricity market and stand as one of the continent's most consequential industrial policy successes.
The 1973 oil shock also coincided with the emergence of the North Sea as a major source of hydrocarbons for the region. Advances in offshore drilling unlocked vast reserves that supplied Europe with oil and gas for decades, reducing reliance on imported energy and underpinning a new era of regional prosperity.
However, after North Sea oil production peaked in the late 1990s, the energy model that underpinned European growth increasingly rested on imports of abundant, affordable fossil fuels from Russia.
Moscow's invasion of Ukraine led to that model's abrupt collapse, forcing Europe into a costly scramble for alternative supplies. The region’s gas prices surged 10-fold to a record high of over €260 per megawatt hour in August 2022.
The continent ultimately replaced long-term pipeline oil and gas contracts with more expensive liquefied natural gas imports from global markets. The primary source was the United States, which had become the world’s largest exporter of LNG in recent years.
The economic consequences were profound. Europe’s energy-intensive sectors, including chemicals, fertilisers, aluminium, steel, cement and paper, suffered a sharp loss of competitiveness. This contributed to a prolonged industrial slowdown that has caused European economic growth to lag much of the world since 2023.
Then came the Iran war. The abrupt loss of roughly 20% of global oil and gas supplies following the closure of the Strait of Hormuz after U.S.-Israeli strikes on February 28 was yet another reminder of the vulnerability that comes with dependence on imported fuels.
Looking back on the past half century, Europeans have learned one lesson repeatedly: energy security cannot be outsourced.
SECURITY NOT JUST CLIMATE
This realisation has fundamentally changed the rationale behind Europe's energy transition.
When the EU first embraced renewables at scale — first through binding targets in 2009 and later in the 2019 “Green Deal” — climate change was the overriding objective. Policymakers assumed that steadily expanding wind and solar power, combined with the gradual reduction of fossil fuel consumption, would be sufficient to decarbonise the economy.
Many also assumed Russian gas would remain plentiful and dependable throughout the transition. That assumption proved disastrously wrong.
Today, renewables are no longer merely a climate policy. They are at the heart of national security and industrial policy.
The scale of Europe's ambition is extraordinary. The bloc aims to raise the share of renewables in energy consumption from around 26% today to at least 42.5% by 2030. Last month, the European Commission unveiled plans to turn Europe into what it calls the world's first "electro-continent", doubling electricity's share of final energy consumption to 46% by 2040.
These plans are aggressive but not unreasonable. The Institute for Energy Economics and Financial Analysis estimates that if the EU achieves its heat pump, solar and wind installation targets, these three technologies alone could cut gas demand by around a quarter by 2030.
The investment required is daunting, however. Brussels estimates the transition will require more than €660 billion annually through 2040. Yet the cost looks different when viewed against the alternative.
First, the European Commission estimates its electrification plan could save €260 billion per year by 2040 on its fossil fuel import bill. The European Union has spent roughly €450 billion a year on fossil fuel imports since the 2022 crisis.
Additionally, the shift to renewables could save hundreds of billions of euros in avoided costs from the environmental impact of climate change such as wildfires and floods, advocates .
What’s more, while fossil fuel imports shift cash overseas, renewable infrastructure creates a domestic ecosystem. Assets such as solar farms, power grids, electric vehicles, heat pumps, battery plants and transmission networks generate local labour and local supply chains, representing a transformational opportunity.
GOAL: CHEAP POWER
The quest for cheap and abundant power has become doubly important due to the energy-hungry artificial intelligence revolution. Maintaining industrial competitiveness moving forward is expected to require robust AI infrastructure.
Europe is currently far behind the United States and China on this front. The U.S. accounts for over half of global data centre capacity compared with 30% for China and only 12% for Europe, according to IEA data.
Trying to bridge that gap will be virtually impossible if Europe’s energy prices remain so uncompetitive.
But the region’s energy prices could fall sharply if its renewable capacity growth outpaces demand growth through 2030, as expected. Eurasia Group forecasts that, under that scenario, wholesale power prices in Germany, the continent's industrial powerhouse, could fall to around €60 per megawatt hour by the end of the decade, compared with an average of €90 in 2025. That would put European industry in a much more competitive position globally.
Whether those forecasts prove correct remains uncertain. Europe could still miss many of its targets due to permitting delays, political resistance, fiscal constraints or fierce global competition.
RISKS AHEAD
Europe’s wager comes with risks, of course. Supply chains for many clean-energy technologies — from solar panels to battery cells — remain heavily concentrated in China. Europe could therefore be creating a new dependence on an economic rival even as it seeks to escape its old dependence on imported fuels.
This paradox has not been lost on European policymakers. Brussels has recently introduced initiatives and incentives to mobilize public funds, accelerate permitting and scale up manufacturing of clean technologies in the EU, aiming to cover at least 40% of annual deployment needs by 2030.
But the region is also competing against the clock. The relentless expansion of China’s export-oriented manufacturing of high-end goods from electric vehicles to chemicals risks drastically shrinking Europe’s potential market share in various industries before the positive impact of the energy reforms kicks in.
Critics also argue the transition is moving too slowly. They have a point. Fossil fuels still account for roughly three-fifths of Europe's energy consumption, and electricity's share of final energy demand has remained stubbornly flat for more than a decade.
But what is becoming increasingly difficult to dispute is that the region’s old model has run its course — and major change is needed.
Europe's energy transition is often portrayed as a costly sacrifice. But for a continent seeking to rearm, digitise and reindustrialise, abundant, secure and affordable power is non-negotiable.
If Europe succeeds in turning a period of profound energy insecurity into a new source of economic strength, the shocks of the 2020s may ultimately be remembered not as the start of the region’s decline, but as the catalyst for its renewal.
(The opinions expressed here are those of Ron Bousso, a columnist for Reuters.)
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By Ron Bousso; Editing by Nia Williams
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