Future of power in Europe

Europe stands at a critical juncture, navigating a complex energy landscape shaped by ambitious climate targets, the urgent need for energy sovereignty, and intensifying geopolitical tensions. The imperative to design a power system that aligns with climate goals, ensures security of supply, and bolsters European competitiveness has never been more pressing.

To inform the path ahead, the analysis draws on robust, scenario-based modelling of the European energy system to explore the structural choices that will shape its future. It  relies on DARE, Deloitte’s in-house energy system model. By capturing interactions between sectors and energy carriers, the model assesses how different technology and policy pathways could shape European power system, investments, and energy mix.

It focuses on several key uncertainties: the speed at which Europe can achieve climate neutrality, the pace of electrification across sectors, the level of integration of the European electricity system, and the future role of nuclear and gas-fired generation. It also considers the impact of emerging sources of demand, such as data centers, which could place additional pressure on electricity networks and generation capacity.

The modeling explores two distinct pathways:

1. Current trends: This scenario accounts for current market developments and the progress of policy implementation, in line with resilience and competitiveness challenges. It sees a gradual decline in fossil fuel use with continued imports, and progress toward renewables and electrification broadly following recent trends.
   
2. Policy vision: This scenario reflects the EU's core political objectives – the Fit-for-55 package, 2040 emission reduction target, and the European Climate Law – guiding a net-zero trajectory. It leverages the current period of potentially lower gas prices as an opportunity to accelerate electrification and commit to rapid investment in renewables, nuclear, and grids. 

The choice between these paths, particularly over the next five years, will have profound implications for gas demand, security of supply, and greenhouse gas (GHG) emissions.

The gas market: a shifting landscape and strategic opportunity

Recent developments in global gas markets offer a crucial context. The current situation exemplifies the cyclical nature of LNG. Following the spike in gas prices in 2022 and 2023, unprecedented investment has surged in the LNG industry. While some export capacity is already expanding, the “big wave” of new LNG capacity is set to come online over the next five years.

Currently, global LNG export capacity stands at around 600 billion cubic meters (bcm). By the early 2030s, this is projected to increase by about 50%, to just under 900 bcm – a massive expansion. While the war in the Middle East, that began in early March 2026, has damaged some of Qatar’s LNG export capacity for a few years, the overall wave of new liquefaction projects is expected to more than offset these losses and the projected demand growth. As a result, an oversupply of LNG is still likely in the period to 2030 (Figure 1).

Almost half of this investment is happening in the US, with two critical implications for Europe. Firstly, US exporters are typically price-setting in Europe. This overcapacity could force US LNG to be priced at short-run marginal cost to be traded – potentially between US$6-7/MMBtu (or about €20/MWh), very close to pre-crisis price levels that can be considered relatively cheap. Such a situation could persist until overcapacity is absorbed.

Secondly, with the US already the largest LNG exporter and Qatar (the second largest) also significantly expanding capacity, two-thirds of the additional supply will come from just these two countries. This creates dependence on concentrated resources and raises important questions about security of supply. The role gas plays in Europe’s future will determine its dependence on these key suppliers. After the Russian invasion of Ukraine, the war in the Persian Gulf started in March 2026, once again, showed this vulnerability. In two weeks from the start of the war, the TTF gas price in Europe has almost doubled and reached its highest level since early 2023, despite Europe’s low dependence on the oil and gas from the region.

The evolution of gas demand in Europe will largely determine how this additional LNG supply is absorbed. Under the Policy vision scenario, gas demand declines as electrification accelerates and low-carbon alternatives scale up, gradually reducing Europe’s reliance on LNG imports. In contrast, the Current trends scenario maintains a more sustained role for gas in the energy mix, implying continued LNG imports, with US volumes likely absorbing much of the adjustment given their scale and flexibility. The divergence between the two scenarios therefore has direct implications for the trajectory of US LNG exports to Europe, shaping both import dependence and exposure to external supply dynamics. 

The future is electric: Europe’s core strategy

The modelling results show that the future of Europe's energy system is fundamentally electric, enabling cleaner energy, high levels of efficiency, and significantly reducing fossil dependency (Figure 2).

In the Policy vision scenario, the share of electricity in end-use more than doubles to almost 60% by 2050. It is worth noting that this is only direct electrification, which doesn’t include indirect electrification, notably through the electrolytic hydrogen for direct use in heavy industry and production of e-fuels for aviation and shipping. Electrification, combined with hydrogen and its derivatives is the clear pathway to climate neutrality by 2050:

Powering the grid: renewables, batteries, nuclear, and what about gas?

To meet this surging electricity demand, the supply side must undergo a radical transformation.

Renewables are leading the charge. In 2025, for the first time, renewables overtook fossil fuels as Europe's number one power generation source³. In the Policy vision scenario, wind and solar represent wind and solar will represent about 60% of power generation by 2035 and almost 75% by 2050 (Figure 3), requiring an average annual growth rate of 6% (vs. 7.7% growth in renewable electricity generation in 2024⁴). 

However, the variability of wind and solar necessitates accelerated battery deployment. Batteries are key to improving system flexibility, shifting renewable generation to periods of lower availability. With installed capacities projected to grow almost tenfold in the next decade to reach nearly 90 GW in 2035 and exceed 300 GW in 2050, and costs continuing to fall, a system powered by renewables and batteries promises to deliver affordable energy (Figure 4).

The nuclear sector is experiencing strong tailwinds across Europe, with several countries supporting new nuclear and lifetime extensions⁶. However, even under optimistic assumptions of 60-year lifetime (20 years of lifetime extension) and the realization of all planned and proposed projects, new capacity will just about offset retirements (Figure 5).

Gas-fired power plants are playing a key role in phasing out coal, as demonstrated by the UK’s transition, where the shift away from coal was largely enabled by natural gas and renewable uptake despite declining nuclear output. Similar trends are emerging in Germany and Poland, though these countries remain in earlier stages of coal phase-out⁸.

Looking ahead, the role of gas plants will depend on the pace of renewable expansion: under the Policy vision scenario, they may serve primarily as backup capacity during periods of low solar and wind generation, with some transitioning to hydrogen, while under Current trends, gas plants could continue to provide a sustained baseload and mid-load role (Figure 6). 

The economic equation: investment, costs, and prices

Transitioning to electrification fundamentally shifts energy costs from high, recurring operational expenses (fuels) to predominantly upfront capital investments. The Policy vision scenario requires a significant increase in power sector investments (roughly €1.16 trillion over the 2025-2050 period for renewables, nuclear, batteries, and grid expansion). However, this upfront investment leads to less fuel spendings (about €1.69 trillion less cumulatively). Overall, both scenarios see significant reduction in Europe's dependence on natural gas imports and long-term exposure to price volatility. By 2050, the annual spendings in natural gas for power generation falls by about 40% in Current trends and 90% in Policy vision, compared to 2024 levels. 

Analysis shows that a growing share of low marginal cost generation (wind and solar) will push down average wholesale electricity prices over the long term. In the Policy vision scenario, average prices could fall from around €80/MWh to €60/MWh by 2050, while Current trends sees higher prices (Figure 7). It is also important to recognize the geographical variability behind these averages. Today, countries with abundant low-cost hydro or legacy assets, such as Norway, already benefit from structurally lower wholesale prices, while others – for example in Western and Central Europe – face higher price levels. In our modelling, this diversity persists: prices decline on average across Europe but remain lower in hydro- and RES-rich regions than in high-price markets such as Germany as more low-marginal-cost capacity is deployed.  

At the same time, the variable nature of renewables also leads to more volatile electricity prices, creating the business case for batteries, flexible demand and new market risk-management tools.

The integrated grid: a European imperative

Decisive integration of the European power grid is a critical prerequisite for an efficient, renewables-based, and highly electrified energy system. An integrated network lowers overall system costs by coordinating generation and reserves across countries, reducing the need for redundant generation and backup capacity. Analysis shows that sluggish interconnector expansion could add up to 7% to power system costs in the Policy vision scenario (about €233 billion).

High interconnection capacity is beneficial for every country. The challenge, however, lies in the distributional effects: alleviating interconnector congestion leads to price alignment. Countries with low prices (e.g., Norway with its hydropower) may see prices rise, while those with high prices see them fall. This price convergence does not necessarily imply higher costs for consumers in low-price countries. Any windfall gains accruing to generators because of higher market prices can be redistributed through policy mechanisms to compensate consumers who face increased electricity prices. This redistribution ensures a more equitable division of the overall benefits of improved interconnection. 

A call to action for Europe's energy future

The next five years are decisive. Whether the European power system follows Current trends or undergoes a deep transformation depends on the policy and business decisions made now. Policymakers must recognize that sovereignty, resilience, affordability, and environmental ambition are not competing goals; with electrification and decarbonization, they reinforce each other. This requires investing upfront to capture longer-term benefits. Delaying action risks locking in higher costs and continued vulnerability.

In a benign global environment with arrival of new LNG capacities in the medium run, gas prices could ease relative to recent peaks through 2030. The economic headroom provided by this transient drop in energy prices, over the medium term, is a unique opportunity to accelerate electrification and expand domestic renewable energy sources. This transformation would allow Europe to improve its energy independence, stimulate economic activity, and cut emissions. Conversely, complacency leaves the European energy system vulnerable to geopolitical pressures and future crises.

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