PARIS (Reuters) – Europe’s electricity demand could be significantly lower than government expectations by the end of the decade as faltering economic growth slows the switch to cleaner technologies, a report by McKinsey showed on Thursday.

WHY IT’S IMPORTANT

Electricity demand growth is a strong indicator of Europe’s industrial competitiveness with other regions, and is also a signal of the efficacy of energy transition plans, such as the switch to electric vehicles and cleaner fuels.

BY THE NUMBERS

The European Union, Norway, Switzerland and Britain have together forecast around 460 terawatt-hours (TWh) of additional demand by 2030. But around 40%, or 180 TWh, might not materialise due to lagging growth and high market prices, the McKinsey report said.

Uptake from key technologies is flagging, with growth in battery electric vehicle and plug-in hybrid sales halving to 21% in 2023 from 42% in 2021, the report showed.

Annual heat pump sales dropped 3% in 2023, while some European manufacturers reported a 47% drop in sales in the first half of 2024, which has led to job reductions and temporary layoffs in the sector, the report said.

KEY QUOTE

The countries that have the highest shot at exhibiting some of this demand growth are the countries that are on a relative basis better structurally positioned to deliver low-cost energy,” McKinsey partner Diego Hernandez Diaz told Reuters.

Those countries include the Nordics, with strong hydro and wind power output, and some in southern Europe with strong solar supply. France has similar potential, depending on its nuclear programme, he said.

CONTEXT

European power demand has yet to fully recover from a steep dive in the wake of Russia’s full-scale invasion of Ukraine when power and gas prices surged and governments urged industry to scale back power use.

GRAPHIC

(This story has been refiled to correct the name of the McKinsey partner to Diego Hernandez Diaz, not Diego Hernandez Ruiz, in paragraph 6)

(Reporting by Forrest Crellin; Editing by Mark Potter)