Is the European Union on track to meet its REPowerEU goals?

The REPowerEU plan’s aim is to rapidly reduce dependence on Russian fossil fuels by 2027, and the European Commission estimates that this will require significant expansion of renewable energy shares in the electricity, transport and heating sectors. Although the use of renewable energy does increase in all three of these sectors by 2027 in our main-case forecast, in none of them are levels consistent with the REPowerEU plan.

While the share of renewables in electricity expands to almost 55% by 2027 in our main case, this is well below the 69% share the European Commission estimates is needed to support the REPowerEU plan. To enable further increases, governments across the European Union will need to minimise policy uncertainty, simplify permitting procedures and accelerate transmission and distribution network upgrades. Ramping up renewables-based power generation is also essential to expand renewable energy uptake in the transport and heating sectors, as renewable electricity can power electric vehicles and heat pumps and be used to produce green hydrogen.

For transport, a renewable energy share of 16% by 2027 in our main case is less than half the estimated REPowerEU requirement. Member states will need to align their domestic policies, accelerate biofuel deployment and reinforce conservation and efficiency programmes to contain or reduce energy demand and enlarge the share of renewables in final energy consumption.

Meanwhile, renewable energy shares in heating and cooling expand 0.9 percentage points annually up to 2027 – one-third faster than during the last decade, but well below the 2.3‑percentage-point annual increases needed to match REPowerEU ambitions. To accelerate deployment, more aggressive policies will be needed to strengthen heat pump supply chains; increase labour availability for installations; integrate renewable energy sources in district heating networks; scale up biomethane production; streamline permitting regulations for large-scale renewable heat projects; and support alternative business models for heating.

Should government and industry overcome deployment challenges in the electricity, transport and heating and cooling sectors, REPowerEU goals appear to be within reach, at least in terms of renewable energy. 

In our main-case forecast, solar PV and wind capacity expansion are insufficient to reach the REPowerEU plan’s renewable electricity objectives for 2030. According to the latest European Commission Staff Working Document, capacities of 592 GW1 of solar PV and 510 GW of wind are required by 2030 to achieve the 69% share of renewable electricity modelled by the Commission. This would require average annual additions of 48 GW for solar PV and 36 GW for wind. In comparison, our main case foresees average annual net additions of only 39 GW for solar PV and 17 GW for wind during 2022-2027. This results in a 54% share of renewables-based generation in the electricity sector, 15 percentage points below the 69% desired three years later. Thus, to reach the installed capacity needed to generate 69% of electricity from renewables by 2030, average annual net additions need to be 22% higher for solar PV and more than two times greater for wind.

Refers to alternating current (AC) as outlined in the EU Solar Energy Strategy.

Europe’s renewable capacity expansion is limited by three main challenges: inadequate support schemes; lengthy and complex permitting procedures; and the slow pace of transmission and distribution network upgrades.

• Insufficient or limited policy support – For utility-scale projects, the uncertainty created by an absence of competitive auctions or limited visibility over future ones in some countries constrains the level of annual additions in the main case. Moreover, most current EU auction designs use bid price as the only selection criterion, which has led to very low or negative bids reducing profitability for both developers and manufacturers. For distributed PV, ambiguity regarding the extension of current support schemes challenges growth in some countries. Insufficient remuneration also prevents faster uptake for self-consumption in some segments.
• Permitting challenges – Permitting difficulties are the primary reason auctions have been undersubscribed in Europe for both solar PV and onshore wind. Developers often need a permit to enter an auction, but obtaining it is not always a guarantee. Furthermore, regulations forbid installing renewable energy systems on certain types of land (e.g. agricultural) or set distance limitations for siting turbines near buildings, and social opposition and litigation also lengthen permitting wait times. In addition to building permits, some jurisdictions require permits for transport and for building roads close to construction sites. In many markets, permitting is time-intensive because the complex process involves several steps and institutions (which sometimes lack digitalisation), the response deadline for the approving authority can be long or even unlimited, and understaffing at permitting offices creates backlogs. These challenges lengthen project lead times, drive up costs, and limit the pace of deployment in the main-case forecast.
• Grid congestion – Many transmission and distribution networks have insufficient capacity to connect new solar PV and wind plants. System operators therefore need to reinforce existing infrastructure and, in some cases, install new lines. However, permitting complexity, a lack of skilled labour, social opposition and high costs limit the pace of upgrades. Local populations often oppose the construction of overhead lines, and permitting new lines across multiple jurisdictions is a lengthy process. Because it can take years to complete grid improvement projects, developers face long wait times for grid connection approvals, which slows project development.

Addressing some of these challenges could increase the pace of solar and wind deployment in the European Union by 30% between 2022 and 2027. In fact, our accelerated case assumes that increased policy support, regulatory reforms and faster infrastructure development boost average annual solar PV additions to 52 GW, in line with what is needed to reach the REPowerEU target.

For utility-scale solar PV, reaching this level would require countries lacking auction schemes (i.e. Sweden and Belgium) to implement them. Countries already using competitive auctions would have to extend their current scheme (the Netherlands), provide schedules for planned auctions (Italy and Denmark), allocate higher volumes (Spain and Poland) and improve auction design to ensure full subscription (France). Furthermore, countries could consider modifying their auction rules to reflect higher investment costs and ongoing supply chain challenges, improving the business case for solar PV and wind developers. They could also include non-price criteria (e.g. the security benefits of renewable energy) in the selection process.

For distributed solar PV, if expiring support schemes are extended and remuneration levels raised to make the business case for self-consumption more attractive, annual growth could reach 35 GW by 2027, a pace that would be sufficient to meet the 2030 target. The accelerated case for solar PV also assumes local manufacturing and job-training programmes would ease the logistical and labour constraints currently preventing faster solar PV project development. Equipment delays and higher freight costs on solar cell and module imports have stifled competition in auctions, resulting in undersubscriptions and price hikes, while the shortage of skilled workers has slowed the installation pace for distributed PV systems.

For wind, however, average annual additions still fall below the REPowerEU modelling exercise’s 2030 installed capacity objectives despite stronger policy support, regulatory reforms and grid expansion. In the accelerated case, average annual wind additions increase to only 21 GW by 2027, 40% less than the 36 GW needed to achieve the 2030 goals.

For onshore wind, persistent permitting challenges hinder faster growth in the accelerated case. While some countries have announced plans to streamline processes and have formed institutional working groups to propose reforms, the only ones to implement substantial legislative changes for onshore wind permitting over the last year are Germany and Spain. More widespread regulatory changes would be needed to advance onshore wind development such as the temporary emergency regulations proposed by the European Commission to address permitting bottlenecks. In November 2022, the Commission proposed the designation of renewables as a matter of public interest to benefit from simplified procedures for new permits, and it introduced caps on permitting response times under certain conditions. If these were formally passed by the European Council2 and implemented rapidly at the member-state level, onshore wind development times would be significantly shortened. Uncertainty over the business case for repowering also limits the pace of growth in the accelerated case.

For offshore wind, long lead times and grid connection difficulties continue to be the main impediments to achieving faster growth by 2027. While many countries have raised their ambitions for offshore wind expansion and announced auction plans, the pace of implementation hinges upon new site selection and increasing transmission capacity. Excessive prerequisites for grid connection and for expanding transmission networks lengthen project lead times and limit the pace of deployment in the accelerated case.

In addition to the technology-specific challenges that hamper faster expansion of renewables, protecting vulnerable consumers through current and proposed market interventions (such as wholesale market caps and windfall-profit taxes) will affect renewable energy investments in the upcoming months. Moreover, the ongoing energy crisis has also sparked new discussions within the European Union concerning future electricity market design. While reforms could, in principle, boost market-driven renewable energy deployment, ensure energy security and encourage investment in flexibility resources, it is important that any reform proposal be carefully and transparently prepared, involving all relevant stakeholders. Failure in this regard could increase investor uncertainty and slow expansion.

In 2020, heating and cooling accounted for over half of the European Union’s total final energy consumption, with renewables representing only 23% of it. Decarbonising the heating and cooling sector will thus be crucial for alignment with the overall EU target of at least 55% GHG emissions reductions by 2030. However, our outlook for renewable heat developments in the European Union falls significantly short of REPowerEU requirements.

The 2018 Renewable Energy Directive (RED II) introduced an indicative target for each member country to increase the share of renewables in heating and cooling by 1.1 percentage points annually through 2030, with a similar target for district heating and cooling. The proposed 2021 revision of the RED II strengthens these targets and introduces new ones for integrating renewables in the buildings and industry sectors.

More recently, European Commission modelling of the REPowerEU plan, published in May 2022, suggests a pathway to meet the targeted 45% renewable energy share in overall total final energy consumption. In this scenario, the share of renewables in heating and cooling and in district heating and cooling increases an average of 2.3 percentage points annually to 2030 and by 1.9 percentage points in industry, while the share of renewables in the buildings sector climbs to 60% by 2030.4

Nevertheless, in June 2022 the European Council announced its negotiation position, which includes less ambitious minimal binding targets of an 0.8‑percentage-point annual increase in the share of renewables in heating and cooling up to 2025, and a 1.1‑percentage-point annual increase over 2026-2030. It is also considering the indicative target of a 1.1‑percentage-point annual increase for the share of renewables in industry, as well as a 49% indicative target for renewables in buildings sector final energy consumption by 2030.

In September 2022, the European Parliament adopted a series of amendments that define its starting position for the ongoing trilogue negotiations on the RED II revision proposal. They include the indicative target of a 2.3‑percentage-point average annual increase in the share of renewables in heating and cooling during the periods 2021-2025 and 2026-2030 (and the same target for district heating and cooling); an indicative average annual increase of 1.9 percentage points in industry during the periods 2024-2027 and 2027-2030; and an indicative target of 49% renewables in buildings by 2030.

Over 2010-2020, the EU share of renewables in heating and cooling increased by just 0.6 percentage points annually on average, with the industry sector on its own performing similarly. Only 13 member countries recorded average annual increases of more than 0.8 percentage points, and only 8 exceeded the indicative top-ups proposed in July 2021 for the period to 2030. While this progress was sufficient to meet the EU-wide overall target of 20% renewables in total final energy consumption by 2020, it fell short of REPowerEU targets. Thus, achieving REPowerEU ambitions for 2030 will require considerably faster renewable heat uptake in most member countries.

Looking forward, the EU share of renewables in heating and cooling – excluding ambient heat – is expected to rise an average of 0.8 percentage points annually over 2022-2025 and by 1.0 percentage point over 2026-2027. Including ambient heat harnessed by heat pumps, the outlook at the regional aggregate level may align with the European Council’s negotiation positions as well as with the minimal heating and cooling targets of the proposed 2021 RED II revision. However, it would still be far behind the much higher development pace required in the European Commission’s modelling assessment of the REPowerEU scenario (i.e. a 2.3‑percentage-point annual increase). According to the European Commission, the deployment of renewable heat technologies, especially heat pumps, would need to accelerate tremendously over the next seven years.

Regarding heat pumps, recent European market evolution is encouraging: in 2021, EU sales totalled a record-high 2.2 million units – a 34% increase year-on-year. In Germany, heat pump installations in the first half of 2022 were up by one-quarter compared with the same period in 2021, and there were as many applications for federal funding to install heat pumps in August 2022 as during the whole of 2021. In Poland, the share of heat pumps in applications for heat system subsidies under the Clean Air Programme in 2022 rose from 28% in January to 60% in June. This trend is expected to endure in the medium term, sustained by high energy prices and supported by the ambitious REPowerEU target of 10 million hydronic heat pump installations over the next five years. However, such acceleration is already challenging the capabilities of supply chains, which will need to expand rapidly to avoid bottlenecks. The availability of skilled installers is another uncertainty.

Projected developments in the industry sector and district heating are also expected to fall below REPowerEU ambitions, with the share of renewables (excluding ambient heat) in final industrial heat consumption anticipated to rise by less than 0.9 percentage points annually over 2022-2027, and in district heating by only 0.3 percentage points.

Achieving REPowerEU objectives will require strong policy action along two key axes: (i) accelerated deployment of renewable heat technologies in buildings, industry and district heating and cooling; and (ii) energy conservation and demand reductions through energy and material efficiency and from large-scale behavioural changes. Policy strategies may articulate a combination of informational measures, regulatory instruments and incentives. They could, for instance, focus on overcoming the relatively high upfront costs of renewable technologies through specific loan schemes, investment grants or support for the development of innovative business models (e.g. heat-as-a-service). Policies could also focus on making the business case for renewable technologies more attractive by offering specific energy tariffs.

Among the many other policy options to accelerate renewable heat uptake are bans on fossil fuel-based appliances in new buildings; tailored informational support for households and companies (e.g. through audit campaigns); and support for building and heat distribution system retrofits to enhance compatibility with renewable heat options. In addition, industrial policies that include job-training programmes (e.g. for renewable technology installers), as well as strong international co‑operation among EU member states and with other regions, will be necessary to enable rapid upscaling of international renewable heat technology supply chains, such as for heat pumps.