KUALA LUMPUR (Oct 5): Record-breaking electricity prices across Europe are damaging the continent’s attempts to build a reliable low-carbon supply chain and reach its decarbonisation targets, as solar and battery manufacturers face mounting costs, according to Oslo-based energy consulting firm Rystad Energy.
In a statement on Tuesday (Oct 4), Rystad said that 35 gigawatts (GW) of solar PV manufacturing and more than 2,000 gigawatt-hours (GWh) of battery cell manufacturing capacity could be mothballed unless power prices quickly return to normal levels.
It said the energy intensive nature of these manufacturing processes is leading some operators to temporarily close or abandon production facilities, as the cost of doing business escalates.
The firm said unless prices turn around soon, Europe’s plans to cut dependence on imported fossil fuels by boosting installed renewable generation capacity and electric vehicle (EV) usage could be derailed.
Rystad head of energy service research Audun Martinsen said high power prices not only pose a significant threat to European decarbonisation 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,” said Martinsen.
Rystad said 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.
It said 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.
Rystad said that in recent years, Europeans have benefitted from reliable and affordable electricity.
It said 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.