“High power prices not only pose a significant threat to European decarbonization efforts but could also result in increased reliance on overseas manufacturing, something governments are eager to avoid. Building a reliable domestic low-carbon supply chain is essential if the continent is going to stick to its goals, including the REPowerEU plan, but as things stand, that is in serious jeopardy.”

European electricity prices have risen to unprecedented levels in recent weeks due to unplanned nuclear and hydropower plant outages, soaring demand for cooling during an oppressive summer heatwave and reduced gas deliveries from Russia. Daily average spot power prices in Germany – Europe’s leader in solar and battery cell manufacturing capacity – have surpassed €600 per megawatt-hour (MWh), while rates in France have topped €700 per MWh. During peak hours, European power prices have spiked to €1,500 per MWh, unsustainable levels for consumers, including the industrial sector. Although prices have retreated significantly since these record highs in August, rates remain in the €300 to €400 range, many multiples above pre-energy crisis norms.

In recent years, Europeans have benefited from reliable and affordable electricity. Low-carbon manufacturers have also predicated their build-up of production capacity on stable power prices of around €50 per MWh. With manufacturers in other regions, such as Asia, enjoying lower electricity input tariffs, European producers are becoming increasingly uncompetitive by comparison.

Solar

Although Europe’s solar manufacturing capacity is relatively modest on a global scale – making up only 2% of total capacity – any shutdowns or abandonment of projects would have significant long-term negative consequences. The European Union (EU) has targeted 20 GW of production capacity by 2025, and although 35 GW of projects is currently planned, many have not secured funding, increasing the risk that these projects will fall through if high power prices continue.

In Norway, electricity costs have risen six fold, leading the energy intensive solar panel manufacturing industry to consider shutting down for the remainder of 2022. With Europe expected to be short on gas for several years and high electricity prices to continue as a result, attracting financing and investment for solar manufacturing plants could prove challenging.

Battery cells

Battery cell manufacturing – crucial in the EV and battery storage supply chain – is even more energy intensive than solar manufacturing, and Europe is a major global player. The EU currently boasts about 550 GWh of capacity, representing 27% of global operational capacity. Announced projects under development are set to boost that total significantly, increasing capacity to 2.7 terawatt-hours, positioning the EU as a global leader. However, those are now at risk and the car manufacturing and battery storage sectors could struggle to source European-made batteries as a result.

Britishvolt’s signature giga-sized battery factory in Blyth in the UK – which would add 30 GWh to the continent’s manufacturing capabilities – has already been delayed to mid-2025 due to rising energy costs and the need for additional fundraising. With Chinese manufacturers enjoying much lower power prices, European manufacturers’ plans to rapidly scale production could be challenged. Depending on how long elevated power prices continue, a slowdown in EV adoption in Europe could follow.