Rystad: European gas prices will be 10 times higher than solar PV in the future
2022-11-01
According to research by Rystad Energy, the cost of operating gas-fired power stations in Europe will be 10 times higher than the cost of building new solar PV projects in the coming years.
High gas prices, market challenges and falling renewable energy costs all point to a shift away from gas as the main source of electricity in Europe in the medium to long term, the research firm said.
The study is based on a comparison of the calibrated kilowatt cost (LCOE) of natural gas with solar PV and wind. Natural gas will struggle to remain competitive in the European electricity landscape even if prices fall from their recent extraordinary highs, research suggests.
Rystad Energy says high gas prices, market challenges and falling renewable energy costs all suggest that gas will no longer be the main source of electricity in Europe
Natural gas prices have increased from an average of 46 euros /MWh ($45.80 /MWh) in 2021 to 134 euros /MWh ($134 /MWh) in 2022, a surge of 189%. Still, natural gas generation was up 4 percent in the first seven months of the year, driven in part by a 100TWh drop in nuclear and hydro generation in 2022. The situation is not expected to improve this winter and natural gas will be needed to keep the lights on until 2023.
Next year, however, will see the return of nuclear power plants. EDF hopes to bring 30GW of capacity back on line after it shuts down for maintenance, in addition to more than 50GW of solar PV and wind projects in the pipeline. Gas prices are expected to stabilise, with LCOE of around €150 /MWh for existing power stations and around a third of that for new solar PV projects by 2030, cementing solar's position as the cheapest way to generate electricity in much of the world.
Carlos Diaz Torres, head of power at Rystad Energy, said: "Gas will continue to play an important role in Europe's energy mix for some time to come, but unless there is a fundamental change, pure economic performance and climate issues will tip the balance in favour of renewables."
European countries have been accelerating renewable energy projects in light of recent price rises and as the market tries to adjust to the loss of Russian gas. In fact, according to projections, there will be a "significant" increase in solar PV development in Europe following Russia's invasion of Ukraine.
Rystad forecasts that more than 100GW of renewable capacity could be developed if funds used to sustain gas-fired generation were redirected, and 333GW by 2028 if funds used to sustain gas-fired generation were redirected. That's enough to generate 663TWh of electricity.
These projections are based on reusing money originally planned for gas and build on Rystad Energy's projections of more than 2TW of solar and wind installations by 2050, with 520GW of large project batteries.
Rystad said gas is still needed to support the intermittent nature of renewable power generation and will remain crucial to Europe's power mix until adequate infrastructure is in place.
However, in the face of an uncertain and expensive future for gas, it is important that European power companies develop renewables quickly. Although the European Commission has approved solar manufacturing measures and set energy security policies, economic and market forces can move much faster.
