Solar Energy Development In Europe: Opportunities & Challenges
27 Mar 2023
Europe has long been an advocate for the use of, and a leader in the production of, renewable energy sources (RES). A diverse continental topography allows countries across the region to tap into and generate large amounts of energy from varying renewable sources.
As the continent charges towards targets of net zero, Europe has emerged as a leader in the adoption and implementation of solar technology, with several key countries making significant investments in this field.
With sunlight one of our planet's most widely accessible natural resources - one hour's worth of sunlight that makes it to the earth's surface is enough to satisfy global energy demands for a year - it makes sense that this be a core source to target. However, harnessing this immense power is not without its challenges as this article will explore.
In the article below, we’ll explore the future of solar energy in Europe and key renewable energy trends, taking a look at the opportunities and challenges faced in harnessing one of nature's most abundant resources.
We will examine EU renewable energy policies and frameworks, gain a better understanding of technological advancements responsible for driving growth, analyse the main barriers currently restricting the widespread adoption of solar energy and finally, discuss what potential exists for investment opportunities.
Overall, this article will provide a comprehensive overview of the future of solar energy in Europe and the role it is likely to play in shaping the region's energy landscape.
Table of contents
- The current state of solar energy in Europe
- Overview of current EU policies and incentives
- Opportunities for private investors in solar energy projects in Europe
- PF Nexus
- The future outlook for solar energy projects in Europe
The current state of solar energy in Europe
The future of solar energy in Europe looks bright. EU solar grew by 25% between 2021 and 2022, from 167.5 GW to 208.9 GW. By comparison, the previous year saw growth of just 16%. The accelerated production was responsible for 20 EU counties setting new records for their biggest-ever annual share of solar electricity.
The continent’s transition to renewable energy has been expedited by the global pandemic and the Russia-driven energy crisis. The EU saved an estimated $10.8 billion in gas costs in 2022 thanks to its speedy increase in solar energy investment and capacity preceding and during the invasion.
Improvements in the efficiency and recyclability of solar panels, alongside advances in CSP (concentrated solar power), smart grid technology, and batteries mean government incentives are producing more efficient solar outcomes than ever before.
Whilst the overall direction is clear, there are still disparities throughout Europe’s solar energy sector. Sweden’s share of energy from renewable energy stands neck and shoulders above its neighbours at 62.6%. The closest EU Member state is Finland at 43.1%. Yet Sweden’s total solar energy output is only 1%.
On the other hand, Cyprus is proportionally one of Europe’s leading users of solar energy, behind only Greece. Yet other renewable energy sources cumulatively still provide less than the island’s reliance on the sun. It is one of Europe’s least renewable energy-reliant countries.
The point is, having a strong renewable energy sector is not indicative of significant investment in solar energy, nor is a strong solar sector a guarantee of a wider push for increased renewables. Technology and initiatives are key factors in solar energy production, as Germany’s success proves, but the climate is still the number one factor in solar production over politics and innovation.
Overview of the EU's solar energy strategy
In May 2022, as a result of Russia's invasion of Ukraine, the European Commission released its REPowerEU plan which builds upon previous initiatives to reduce the continent's dependency on fossil fuels. The plan increases Fit for 55 renewable energy targets from 40%-45% by 2027.
In the plan laid out by the European Commission, solar energy production has a key role in hitting these targets. As the fastest-growing source of renewable energy in the EU, the EU installed a combined 41.4 GW of solar in 2022, up 47% from 2021. To put this into context, 41.4 GW is enough to power 12.4 million homes.
2021’s revised Renewable Energy Directive (RED) is still Europe’s leading driver in renewable energy. Whilst much of the success has come from states’ own directives to meet their RED-mandated goals, the total metrics of the continent's solar output prove that Europe’s solar energy ambitions are being chased with more vigour than ever before.
Feed-in tariff policies have been one of the most effective governance mechanisms for boosting solar investment and output since the early-2000s but are now falling out of favour across the continent.
Italy, one of the main proponents of feed-in tariffs, has now turned to competitive contracting for renewable energy projects.
Germany and France haven’t broken with the practice completely but have responded to financial pressures by tweaking their formula in recent years to make the tariffs more monetarily sustainable. The practice in the 3 countries was the leading factor in their initial build-up of solar capacity but all are now looking to improve their ROI.
We may still see the adoption of feed-in tariffs in countries where solar production lags behind. However, the decreasing cost of solar technology means these tariffs will never be as effective in boosting solar capacity as they once were, all else being equal. Competitive auctioning of contracts for large solar projects, further bringing the private sector into the fray, is likely to be the mechanism that bears most of the responsibility for continued renewable energy growth.
The impact of EU-wide initiatives on the future of solar energy projects in Europe
In the months following the outbreak of Covid, the EU committed to an unprecedented recovery plan called Next Generation EU (NGEU) valued at €750 billion. Combined with the EU’s long-term budget for the years 2021-2027, a total of €2.018 trillion is available to rebuild the EU in the years ahead, of which 30% has been earmarked for climate-related investments.
Through these unprecedented support packages, the EU is making investment readily available for member states to embark on the development of renewable energy programmes. For many countries, the next step is integrating readily available technology into the grid. For example, The Horizon 2020 research and innovation framework programme’s role in developing lithium-ion batteries and other technologies has been a huge success.
Other examples include the improvement in photovoltaic panel technology, increasing their average efficiency from around 15% to over 20% in 2020. During the same period, the cost of utility-scale solar photovoltaics decreased by 73%.
Grid resiliency and innovations in consumer participation are other key advancements that make investing in solar capacity more appealing to European governments and private investment.
Progress can be slow though, with interconnection capacity between EU countries only moving from 9% to 10.5% between 2015 and 2020, for example. Fossil fuel marketing’s resistance to regulation is one of the factors that has slowed the uptake of potential game-changers for consumers like energy usage monitoring and sophisticated energy storage solutions. Unclear initiatives and anti-green movements also make consumers think twice. The erraticism of the Hungarian government is a good example.
Regional disparities are clear, with Eastern Europe lagging behind Northern Europe (Scandinavia acting as a major contributor in this regard) in both grid resiliency and consumer participation.
Europe sits on the precipice of an exciting future. Through the provision of incentivised renewable energy policies (tax incentives for those starting a solar farm in the UK for instance), technological advancements (find out more about how these advancements are impacting the solar project development process) and increases in investment from private and government sources, Europe continues full steam ahead with its transition to a greener way of life.
If you're interested in understanding more about the financial aspects developers need to consider when starting a solar renewable energy business, take a look at our solar power project financing guide or if you're looking at targeting a different energy niche, take a look at our guide titles 'Project Finance & Its Role In Renewable Energy Project Development' to find out more.
Adjusting to shocks
Technological advances are or will be, somewhat undermined by decreased access to capital in the medium term, regional problems with grid infrastructure, and supply chain challenges. Russia’s invasion of Ukraine has exacerbated all of these problems.
Europe has been adjusting to this stress since the annexation of Crimea in 2014. Improved interconnections of European energy systems, improved energy efficiency, and new contracts for non-Russian energy imports mean disruptions from the East are likely to dissipate somewhat.
In the meantime, the geopolitical situation also encourages the relaxing of state aid rules in the EU, which have been monitored closely for fears of undermining the single market’s competitiveness.
State-heavy China’s position at the front of the solar pack will play a key role in undermining those fears. President Biden’s willingness to provide state aid in the US provides further evidence that the standoffish approach to industry support is in decline globally.
These changes, along with the improved technological options lying in wait for green European governments and investors mean a U-turn in state aid policy is imminent.
Opportunities for private investors in solar energy projects in Europe
Private investors have a range of scales to choose from when it comes to solar energy project investment.
A factor that may seem obvious for the future of European solar energy that hasn’t materialised in a strong correlation yet, is climate.
Despite already impressing with its renewable energy numbers and being far from Europe’s sunniest country, Germany leads solar capacity by some distance. It had 45 GW of capacity installed as of 2021, with Spain and Italy rounding off the top 3 with capacities of just 10 GW and 9 GW, respectively.
Those lagging 2 countries provide ample opportunity for solar investors. They have some of Europe’s best-suited solar irradiance but as of yet, have not fully realised their potential.
Spain in particular is in healthy economic shape and has little tension with the EU. This makes it a safe option for solar energy project investment. Their commitment to renewable energy is clear and has been driving investment in the sector for the last few years.
Italy's renewable energy landscape has a lot of potential for increased solar capacity but bumpy European relations and a perpetually strained budget make things more challenging. Its Euroscepticism is long-lasting but the population’s strong aversion to nuclear energy may force it to embrace solar energy if it’s to meet its climate expectations.
It’s also important to look at the storage aspects of renewable energy production. There are areas where solar energy production can be increased quickly, but the demand for infrastructure such as energy storage systems, a key renewable energy trend for 2023, is harder to meet and could therefore become more readily supported and paid for.
Investment opportunities in solar energy infrastructure are also likely to increase as Europe continues to pivot away from Russia and increase its self-reliance. Eastern Europe will see interconnected capacity as not just a way to improve energy efficiency and utilisation of renewables, but also as a chance to further integrate with the continent as Russia is left in the cold.
PF Nexus is revolutionising the renewable energy investment sector by providing global visibility and connectivity. The platform offers a centralised hub for financial and business development teams to discover, research, shortlist, collaborate and discuss investment opportunities in the renewable energy sector.
With access to an ecosystem database and renewable energy project marketplace, subscribers can analyse deal flow and connect with project owners and transaction advisors for a variety of renewable projects including utility-scale solar, battery, wind, and other sustainable and renewable infrastructure.
Boasting over 4,500 users from 2,500 clean energy developers, investors, lenders, and advisors, the platform is seeing strong growth as countries strive towards Net Zero emissions and the energy transition continues to advance.
The future outlook for solar energy projects in Europe
We are witnessing the sector’s fastest-ever growth. Over the last 10 years, Europe has shown itself to be proactive, placing great emphasis on achieving the climate goals that it has set for itself.
Whilst such breakneck speeds won’t last, solar energy is now in a prime position for private growth. State aid is still there for technological advances but governments are generally keen to move away from expensive feed-in tariffs and market interference so the private sector can deliver efficient increases whilst reducing costs.
This approach doesn’t mean investors will be without governmental support though. Geopolitical concerns mean the European market can expect to receive incentives and boosts similar to those being introduced in the US, if not quite on the same level as China.
Serious investment will be welcomed in the East’s infrastructure for several reasons, whilst the South is just waiting for a helping hand to start competing with Germany’s capacity. Whilst their climate is ripe though, the Mediterranean governments still don’t have quite the steady hands of Berlin. Increased investment from the private sector coupled with regional renewable energy targets provide a unique opportunity for the growth of solar energy.
The race to Net-zero is set to heat up, with Europe well-positioned to achieve this through the use of solar energy.