Electricity’s strategic role in leading Europe’s decarbonization

Electricity’s strategic role in leading Europe’s decarbonization

An Enel Position Paper


1. The role of electrification 

Why do we need electrification within the energy system? Why is electricity the energy of the future?

Electricity emerges as the critical energy vector and an unprecedented opportunity to foster a clean energy transition and the decarbonization of energy uses. The European Union is determined to increase its climate ambition by 2030, pushing to at least a 55% reduction in greenhouse gas (GHG) emissions compared to 1990, in order to achieve carbon neutrality by 2050. In this scenario, in the EU27 the penetration of electricity in final energy demand is foreseen to grow from 23% to 30-31%1 by 2030 and between 47%1 to 60%2 by 2050, whereas the actual share of electricity for the main sectors accounts for nearly 2% in transport, 33% in building, and 32% in industry. This can be achieved thanks to “direct” electrification, shifting from fossil fuels to carbon-free electric vectors in the energy end-uses for the sectors that are the main cause of global greenhouse gas emissions. Furthermore, this process can be complemented with “indirect” electrification in hard-to-abate sectors thanks to green hydrogen and e-fuels via electrolysis in those cases where direct replacement of fossil fuels is not cost-effective (e.g. for heavy industrial applications, maritime shipping, and aviation).

Electrification brings multiple benefits that go beyond decarbonization. Electrification can bring forward a set of benefits that go well beyond GHG emission reduction, including: 1) affordability and security of supply through highly resilient power grids; 2) increased energy efficiency; 3) improved urban air quality; 4) customer empowerment through increased flexibility and sector coupling thanks to digitalization; 5) circularity and resource efficiency, and new quality jobs emerging from a well-planned just transition process.

  1. Electricity produced with an energy mix increasingly powered by renewables is the route for an affordable and reliable energy system. In line with the recent institutional debate evolution between the European Commission, Council, and Parliament, and the climate investments supported by the EU recovery plan, the more ambitious climate energy targets are indeed realistic. Deeper electrification, both on the supply and demand-side, can be achieved thanks to the combination of recent technological advances and cost reduction. New solar and wind projects are undercutting the cheapest power generation options based on fossil fuels: between 2010 and 2019, the global weighted average levelized costs of electricity have seen a decline of 82% for photovoltaics (PV), and from 29% for offshore wind to 40% for onshore wind. At the same time, electrification ensures higher resilience of the energy system and security of supply by increasing overall system stability thanks to storage and by reducing geopolitical exposition for countries highly dependent on energy imports.
  2. Electrification is the path for increasing the efficiency of energy uses. Electrification can generate substantial energy savings thanks to higher efficiency compared to other energy carriers for the same end-use of energy. Significant efficiency gains are achievable in the transport sector thanks to the large-scale deployment of electric vehicles, which are three to five times more efficient than internal combustion engine vehicles. In the building sector, energy efficiency gains are possible mainly thanks to the increased electrification through the deployment of heat pumps, which use four times less energy than oil or gas boilers. In the industry sector, energy intensity decreases thanks to electrification of industrial processes.
  3. Switching from the direct use of fossil fuels to electricity will lead to enhanced air quality in cities thanks to lower emissions of local pollutants. Poor air quality is the number one environmental and health problem in Europe. Electrification eliminates tailpipe and boiler emissions, sharply reducing the emission of local pollutants in final energy uses. As a result, air quality, especially in densely populated areas, is drastically improved in terms of reduced pollutant concentrations, urban population exposure, and related health impacts. The electrification of transport, residential, and tertiary sectors accompanied by the development of renewable energy sources (RES) in the power sector will therefore be instrumental in achieving the EU’s air quality short and long-term objectives.
  4. Electricity enables the digitalization of energy uses through the integration of smart technologies and supports the development of innovative products, services, and business models. Digitalization coupled with the electric energy vector can optimize energy consumption and reduce waste. Benefits reach all stakeholders: citizens become more conscious of their energy use thanks to digital devices that make consumption transparent and improved customer service, while the electric system evolves towards higher efficiency standards. Nowadays, and evermore in the coming years, there are new opportunities to involve stakeholders and empower customers, allowing them to actively participate in electricity markets and also provide flexibility and ancillary services to the grid. Electrification will enable the flexibility to manage increasing volumes of variable RES and will allow consumers’ participation to demand response, unlocking the potential to generate energy costs savings for both users and system operators. Citizens will receive compensation for their active contribution to balancing the system, which will benefit from reduced network and market costs.
  5. Electricity and electrification technologies can play an important role in favoring and supporting the circular economy. An ever-increasing deployment of smart services in the energy system, such as those activated through smart meters, can facilitate a more active role of prosumers, easing their chances to embrace sustainable choices. On the demand-side of the energy equation, batteries and electricity storage can offer a valuable asset for consumers: on the one hand, they could ensure a cleaner and more affordable mobility for all, while on the other, they contribute to the adoption of a truly circular economy model throughout our societies. Second-life batteries are a good example of such synergies. On the supply-side of the equation, renewable technologies offer good potential for circularity. RES sites can be easily upcycled with new components when the old ones reach their end of life. Depleted photovoltaic panels can be remanufactured and ultimately recycled, and dismantled components from re-powered wind farms can to a great extent be recycled, including steel, other metals, and highly valuable rare earths.


2. Electrification roadmap

What steps are needed to deploy electrification across the energy system?

With the current policies, the 2050 climate goals rely on a hypothetical acceleration of the effort post 2030, making it necessary to pursue a more ambitious target in 2030 to ensure reaching EU carbon neutrality by 2050. In this regard, the study “Sustainable Paths for EU Increased Climate and Energy Ambition”3 performed an impact assessment of a more ambitious scenario aiming at increased GHG emissions reduction in 2030 and carbon neutrality in 2050, aligned with the current European Commission climate and energy targets.

To pursue the carbon neutrality ambition, structural changes are required throughout the entire EU energy value chain from now to 2050, with the electrification of end-uses accelerated by decarbonization of power generation and supported by the digitalization of electricity networks. Increasing penetration of electrification in final uses urges for clean and decarbonized technologies in power generation, notably new wind and solar capacity, hand in hand with the development of digitalized smart grids. In an electrified system, infrastructures will play a fundamental role as an enabling factor both for the supply and demand-side so as to deliver the multiple benefits of electrification to system users.

Final consumption

Through electrification, electricity will quickly become the leading energy carrier in a rapidly decarbonizing EU, with the share of final energy consumption rising from today’s 23% to 31% in 2030 and 60% in 2050. The contribution of all sectors (transport, industry, and building) is necessary to achieve carbon neutrality in 2050 and can be realized through the electrification of end-uses. Consistent electrification trajectories show that the electricity share increases in all sectors, with electricity demand totaling ca. 2,700-3,000 TWh in 2030 and ca. 3,500-3,800 TWh in 2050.


The transport sector, both private and public, progressively sees a growing role for electrification driven by the electrification of the vehicle fleet through electric vehicles (EVs), with the share of electricity in the final energy demand rising to 8% in 2030 up to 63% by 2050. The rate of electrification projected for 2030 heavily depends on the annual rate of replacement of the fleet. A clean passenger vehicle fleet will take more than a decade to materialize in full, with EVs forecasted to be vastly adopted by 2050. It is estimated that in 2030 EVs will represent 67% of new private vehicles sales, and in 2050 EVs will represent almost 80% of private vehicles, rapidly growing from 64 million EVs in 2030 to more than 165 million EVs in 2050. Decarbonization of maritime and aviation sectors will require technological progress to develop affordable and technologically feasible solutions (including biofuels and synthetic fuels).

In the building sector, the share of electricity in the final energy demand will increase from 42% in 2030 up to 72% by 2050 through the deployment of heat pumps and deeper renovations fully incorporating smart technologies. By pushing convenient electrification in buildings, fossil fuels for heating purposes will be gradually replaced. In this scenario, increasing the renovation rate of existing buildings is imperative. It will need to rapidly move from the 1% registered in 2020 to 3.5% in 2030. Thereafter the pace of renovation will need to remain sustained at levels of 3-4% until at least 2045. The latter are in line with the rates targeted by the Commission in its recent Renovation Wave Strategy.

Direct electrification of industrial processes will need to reach 37% in 2030 and 46% in 2050, backed by fuel switching and demand response. Such increases will be delivered by fuel switching in industrial processes such as in iron and steel through the use of electric arc furnaces. Electrification will be key to enable the participation to demand response, unlocking the potential to generate energy costs savings for both industries and system operators. Through demand response, industrial users will receive payments for their dynamic interactions with the grid, which in turn will benefit them through reduced network and market costs. Furthermore, indirect electrification will contribute an additional 16% through hydrogen and 13% through e-fuels. CCS/CCU technologies are also introduced from 2040 onwards, but their development remains limited and will support the net-off of emissions in the industry in 2050.


Power Generation

In order to maximize its multiple benefits, electrification of final uses will have to rely on increasingly decarbonized power generation with the RES share of the mix rising to 60% by 2030 and 84% by 2050. According to the study “Sustainable Paths for EU Increased Climate and Energy Ambition,”4 new wind and solar capacity additions (including both large utility-scale facilities and distributed generation for self-consumption and energy sharing) will take the lead in the power sector with 450 GW of new installed capacity by 2030, reflected in a total share in electricity production of 13% from solar and 30% from wind, while in the 2030-2050 period the increased RES installed capacity will totalize 1,270 GW. The total installed RES capacity will reach 2,210 GW by 2050. Of the latter, 960 GW will be solar and 1,090 GW will be wind, leading to a total share in electricity production of 21% from solar and 47% from wind. These findings are consistent with the European Commission’s increased ambition for the climate target plan for 2030 and are mainly due to recent technological progress and scale effects leading to unexpectedly accelerated significant cost reductions for both solar PV and wind (85% for PV and 30% for onshore wind in the 2010-2020 period).


Flexibility of supply and demand will need to support the integration of variable and non-programmable RES. The development of storage technologies (batteries, P2G) and demand flexibility (DSR, EVs, Heat Pumps) are necessary to meet the growing flexibility system needs. By 2050, 270 GW of new batteries will be developed, of which 220 GW will be stationary large-scale batteries, 10 GW will be behind-the-meter batteries often associated with solar PV, and 40 GW will be batteries associated with the penetration of Vehicle-to-Grid technologies. Both implicit (price-based) and explicit (incentive-based) demand response will contribute an additional 43 GW by 2050. Seasonal balancing will be ensured through power-to-gas-to-power (P2G2P) technologies, which will contribute 126 GW to the system’s flexibility.


Digitalization of distribution grids supports the optimization and reliability of the power system in the context of increased electrification of energy uses and penetration of renewables. The pace of decarbonization and electrification of the energy system brings two dominant challenges for power grids and systems:

  • Managing variability and uncertainty to ensure the continuous balancing of the system.
  • Balancing supply and demand during periods of generation scarcity or surplus.


Ever smarter power grids using digital and advanced technologies will enable distribution networks to play an increasingly new role within power systems. Smart Grids will help manage multi-directional power flows more efficiently and therefore support the integration of more variable resources and distributed resources control through flexibility services and optimal network resource allocation. The benefits will include peak load demand reduction, congestion management, reduction of grid losses, and increased grid stability and reliability. Moreover, smart grid technologies are necessary to enable management of reverse of power flow, which can challenge the traditional planning and operation of distribution and transmission networks. New market players (prosumers, aggregators, and active consumers) pose new needs and require the introduction of third-party business models. By procuring flexibility services such as voltage support and congestion management from their network users, once proper regulatory framework and market rules are defined, distribution system operators (DSOs) can be empowered with more advanced instruments to provide reliable electricity supply and quality of service, and optimize future grid investments for the benefit of both the distribution grid and consumers.

3. Actions and recommendations

How can policy makers promote and foster the electrification of energy systems?

Although electrification technologies are generally mature and market-ready, the significant potential associated with electrification of final energy uses often fails to materialize due to a number of economic and non-economic barriers. While investments in many energy-efficient electrification technologies appear to make good economic sense, the level of their deployment is often much lower than expected. However, decision makers and consumers, including households and businesses, are often discouraged from making the best economic choices. The current electricity price structure, overburdened by taxes and policy support costs, does not allow for effective signals driving efficient customers’ energy choices. Non-economic barriers include inadequate information for consumers and installers, lack of training in the installation and use of the technologies, low awareness among policy makers of the technological and economic potential associated with increased use of electric technologies, and the lack of proper access to financing.

A much more reassuring policy framework accelerating electrification of the energy system is needed to overcome the barriers hindering its adoption despite its multiple benefits:

  1. It is paramount to establish a level playing field for all energy carriers, reduce the tax burden on electricity, and eliminate practices promoting and subsidizing fossil fuels. EU average tax weight for household electricity stands at 39.5%, whereas the corresponding value for gas is 27.8%. The burden is slightly lower on non-household prices, standing at 34.4% for electricity and 12.5% for gas (2019 Eurostat). Efficient electrification requires fair competition between energy carriers, which requires a deep revision of fiscal measures on energy vectors. Key actions in this regard will be reducing or eliminating subsidies to fossil fuels, removing inappropriate charges on electricity bills (i.e. taxes or levies), also by means of well-designed tariffs, and taking environmental externalities into account. Electricity prices should be cost reflective and compete on the same level playing field with other energy carriers. As a result, customers would receive the correct price signals over what, when, how, and how much to consume. They would also have the opportunity to choose the most efficient energy vector at fair prices compared to other fuels. The positive effects on the increased and efficient use of the electricity commodity would contribute to the decarbonization of sectors like transport, industry, and heating.
  2. The power sector can effectively contribute to deeper decarbonization, provided that an investment framework for RES is adequately designed and that markets fit for RES are put in place. While combined cycle gas turbine (CCGT) technologies typically imply a 50/50 CAPEX/OPEX cost distribution along their useful lifecycle, renewable technologies such as wind and solar PV have more than 90% CAPEX. This implies that in the future scenario of high penetration of RES in the power sector, intermittently used thermal technologies are no longer a consistent price reference for wholesale markets. A revised market design is needed to support increased RES penetration, acknowledging wind and solar renewable energy technologies as key strategic value chains and promoting Corporate Power Purchasing Agreements (PPAs) to encourage the participation on the industry demand-side.
  3. Regarding infrastructure, setting up regulation and support for the modernization and digitalization of infrastructure helping electrification will be needed, as networks are the backbone of the energy system and key energy transportation avenues to deliver electrification. The digitalization of networks and infrastructure, and new digital services to increase comfort in homes (smart homes), efficiency in cities (smart cities), and mobility (vehicle-to-grid, vehicle-to-home) will pave the way for an optimization of power infrastructure and cost reductions, while complying with the most stringent system reliability requirements. Policy frameworks should accelerate the integration of “smart-ready” equipment and appliances in networks while supporting further rollout of new generation smart meters. Policy frameworks should also adequately support and incentivize distribution system operators in procuring efficient local flexibility services and providing the best solution from a cost-benefit analysis perspective. Flexibility services from prosumers could indeed avoid congestions and optimize the grid’s ability to accommodate a larger share of renewables.
  4. On the demand-side, the role of electrification should be reinforced throughout the different EU policies leveraging on a more thorough cost-benefit analysis of the multiple benefits it delivers across different sectors. Synergies among policies should be better exploited through more thorough and effective cost-benefit analysis. EU policies should be reviewed with a view to achieving a real and full integration of climate, energy, and environmental policies. A more holistic approach should be implemented based on the reinforced and enhanced application of policy tools, including cost-benefit analysis, to develop integrated measures. Holistic solutions should involve technological development as well as structural and behavioral changes. As improved efficiency can often induce additional demand, such technological developments will need to be properly priced to account for the associated environmental externalities. In such respect, transport, heating, and power systems should go through a wider integration better exploiting potential synergies. A roadmap with concrete milestones on the electrification of energy demand is needed to support the economy’s full decarbonization by 2050.
  5. The deployment of electric mobility calls for key enablers shaping a renewed policy framework for transport. Introducing public policies addressing the change of paradigm in transport is key to accelerate the adoption of e-mobility. Actions and measures may include: (1) clear and shared development plans for the charging infrastructure to provide certainty over its regulation and accessibility; (2) ambitious standards for CO2 and pollutant emission reductions; (3) developing high connectivity ICT infrastructure, which will support the advance operation of EVs and the emergence of new business models. (4) Promoting industrial ecosystems to move from competition to collaboration among all actors involved, boosting value creation for end-customers through interoperable services and making being part of it highly advantageous. (5) Strengthening the financial sustainability of public charging infrastructure (in urban and extra-urban areas) through funding, low-interest financial loans, and OPEX support. (6) Exploiting the potential of electrification of short-range ships and onshore power-supply (OPS) in ports, enabling docked ships to turn off their engines and connect to the electricity grid, with a reduction of noise, GHG, and pollutant emissions, allowing the positive spill-over effect of decarbonization of the power sector into the maritime sector. (7) Leveraging on the electrification of corporate fleets to curb emissions – with 63 million vehicles, fleets account for 20% of the total European vehicle stock, travel more than 40% of total vehicle kilometers, and contribute half of total emissions from road transport.5 (8) Exploiting the full potential of electrification of public transport – electrification of buses is a perfect use case for large-scale decarbonization due to the captive nature of the fleets (geographical concentration, regular services) and the role of Public Transport Authorities in the management and renewal of both vehicles and infrastructure uses.
  6. Policy enablers in driving building electrification are needed to accelerate efficient renovation of buildings, support fuel switching, and promote the deployment of private recharging points. A forward-looking policy framework in the building sector should point at: (1) well-targeted renovation objectives for the building stock; (2) updated building codes requiring electrification technologies and energy management systems to be present in new and renovated buildings; (3) simplification of administrative procedures for building renovations; (4) mandatory energy efficiency audits and inspection schemes linked to energy performance certificates and building renovation passports; (5) promotion of interoperability among assets; (6) tax reductions and deductions for building renovations; (7) funding schemes and innovative financing models for repaying the upfront investment; and (8) training and enhancing skills of artisan and building sector companies in order to lower cost and increase quality of work.
  7. To enhance the electrification of industry, policy frameworks have key roles to play to unlock the potential of demand response and new technologies. Industrial players have become an increasingly active part of the energy supply and demand chain. Therefore, market regulations should favor the adoption of demand response capabilities by industries, setting adequate signals and allowing proper access to the various balancing markets. Creating R&D roadmaps is paramount to prepare next-generation processes for the longer-term. Development efforts could deliver electricity technologies for high temperature processes, by expanding the scope of existing efficient technologies in the mid-term. Technologies such as industrial-sized advanced heat pumps and 3D printing are especially promising.
  8. Decarbonization through direct electrification should be complemented by indirect electrification (green hydrogen and P2X technologies) in hard-to-abate sectors for those cases where direct electrification is not a viable option yet. Green hydrogen produced by RES power via electrolysis is the only future-proof sustainable solution. Hydrogen needs to be produced on a 100% RES basis from flexible modular electrolyzers and must be produced and consumed mainly locally.


Investments needed

What investments are needed to implement electrification?

Investments in power generation

Additional investments will be needed to fully decarbonize the power sector, increasing from the roughly 30 billion euros (€) currently invested in power plants annually to about €60 billion in the 2021-2030 period and about €100 billion in the 2031-2050 period. According to the study “Sustainable Paths for EU Increased Climate and Energy Ambition,” average annual investments of €63 billion are needed in the 2021-2030 period to decarbonize the power sector to the level foreseen by the increased EU climate ambition for 2030. During 2031-2050, average annual investments will have to reach €100 billion to fully decarbonize the EU power sector. Nevertheless, such costs may well turn out to be lower thanks to the ever-decreasing costs of renewable and flexibility technology as well as the digitalization of power generation. The assessment by the European Commission in the Impact Assessment accompanying the communication “Stepping up Europe’s 2030 climate ambition” provides in fact similar but lower estimates: average annual investments in power plants of ca. €55 billion in 2021-2030 and ca. €90 billion in 2031-2050, which should be compared to an average €31 billion invested annually over the 2011-2020 period.


Investments in infrastructure

Investments in power distribution networks in the range of €375-425 billion over the 2020-2030 period will have to be deployed to support the deep electrification of energy system.6 Electrification (and its related benefits) will require key investments focused on:

a)    €180-210 billion for supply-side and demand-side management: new power lines, additional transformer capacity, integration of increasing RES, and electrification of end-uses (building, industry, transport).

b)    €145-170 billion for smartening of grids: reinforcements and upgrading/renewal of existing assets, digitalization of station/substations and advanced protection systems, smart meters to enable customers’ monitoring and observability of grid.

c)     €30-35 billion for resilience: management and control of the grid and load curve, predictive maintenance and control.


The assessment by the European Commission in the Impact Assessment accompanying the communication “Stepping up Europe’s 2030 climate ambition” brings similar results: average annual investments in power grids of ca. €55 billion in 2021-2030 and ca. €80 billion in 2031-2050, compared to average annual €24 billion invested over the 2011-2020 period.

Investments in end-uses

To reach electrification-driven full decarbonization by 2050, end-use investments will have to increase from the current €627 billion a year to about €900 billion over the 2021-2030 period, and to €1.1 trillion over the 2031-2050 period. According to the study “Sustainable Paths for EU Increased Climate and Energy Ambition,” average annual investments for end-use sectors (transport, building, and industry) will increase from €914 billion in 2021-2030 to €1.172 trillion in 2031-2050 due to the need to reach deeper decarbonization towards 2050, primarily driven by electrification. The electrification-related investments will increase from 36% in 2021-2030 to 69% in 2031-2050.

  • Electrification of transport will be the main driver for new investments to decarbonize this sector, for both fleet renovation and charging infrastructure. Annual investments in the transport sector will increase after 2030 in order to achieve deep decarbonization by 2050 (from an average €611 billion/year in 2021-2030 to €797 billion/year in 2031-2050). Electrification-related investments will increase from €317 billion/year to €770 billion/year accordingly.
  • Relevant electrification-related investments will be needed to decarbonize the building sector due to the increasing penetration of heat pumps. Annual investments in the building sector will be sustained after 2030 in order to achieve deep decarbonization of the sector in 2050, due to the yearly renovation rate increasing from 3% to 4% (from an average €287 billion/year in 2021-2030 to €349 billion/year in 2031-2050). Electrification-related investments will increase from €11 billion/year to €24 billion/year accordingly.
  • Industry will see electrification-related investments increasing from a third in the 2020s to more than half the amount invested in the 2030s and 2040s. Annual investments in the industry sector will increase significantly after 2030 in order to achieve deep decarbonization in 2050. Investments in fuel switching processes to decarbonize the sector will be necessary after 2030 (from an average €16 billion/year in 2021-2030 to €27 billion/year in 2031-50). Electrification-related investments will increase from €5 billion/year to €17 billion/year accordingly.


The assessment by the European Commission in the Impact Assessment accompanying the communication “Stepping up Europe’s 2030 climate ambition” brings similar results, with average annual investments in the demand-side of ca. €900 billion in 2021-2030 and ca. €1 trillion in 2031-2050, compared to the average annual €627 billion invested in 2011-2020.



1 European Commission Impact Assessment accompanying the communication on the 2030 Climate Target Plan (September 2020).
2 ENTSOE & ENTSOG TYNDP 2020 Scenario Report (June 2020).
3 The study distinguishes itself for the coupled use of the Poles Enerdata model for the full economy and the Plexos Compass Lexecon model for the power sector, allowing the integration of flexibility from both supply and demand-sides in the energy system.
4 The study distinguishes itself for the coupled use of the Poles Enerdata model for the full economy and the Plexos Compass Lexecon model for the power sector, allowing the integration of flexibility from both supply and demand-sides in the energy system. 
“Accelerating fleet electrification in Europe. When does reinventing the wheel make perfect sense?” Eurelectric, 2021.
6 “Connecting the dots: Distribution grid investment to power the energy transition,” Eurelectric, 2021.