Europe - The Next Major Renewable Energy Market?

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Summary

Europe, as an industrialized continent with a large amount of people, consumes a massive amount of energy. As this demand grows, it will need to somehow be filled.

The North Sea, one of Europe's largest source of fossil fuels, is running out. And the political environment in Europe is becoming increasingly favorable for renewable energy.

Solar power is competitive with all forms of fossil fuels consumed in Europe. This price competitiveness will allow Europe to become the next major market for renewable energy.

Europe is a continent with a large amount of people that consumes a massive amount of energy. As we will see throughout this article, Europe's progressiveness, its massive energy consumption, and the increasing economical benefits of renewable energy will combine to make this continent the next major renewable energy market.

Introduction

Europe, as a continent, has a surface area of almost 4 million square miles, larger than the United States. At the same time, the continent has 0.75 billion people and contains some of the most industrialized countries in the world. These are countries that consume a significant amount of energy.

Europe - Bike Tours

Europe, as a continent, is well spread out and made up of dozens of different countries. However, these countries share several things in common including open borders and a progressive policy. This common stance results from their joint control by the European Union. That means that, as we will see, a decision by the European Union has the potential to turn Europe into the next major renewable market.

European Union Energy Consumption

Now that we have an introduction to the European Union and the things that will make the continent the next major renewable market, let's continue by discussing the continent's energy consumption.

European Union Energy Consumption by Fuel - Gail The Actuary

The European Union consumes a massive amount of fuel. Out of this consumption, a massive amount of the energy comes from nuclear power, natural gas, coal, and oil. However, despite this massive amount of consumption of fossil fuels and nuclear power, the continent is looking to decrease its reliance and move increasingly towards renewable fuel.

The European Union has already announced that it plans to move away from nuclear power. Nuclear power, while it releases minimal contaminants, has the risk of a meltdown. At the same time, it releases long-term environmental contamination. As a result, the European Union has announced that it is turning away from nuclear power, which along with other decisions, should promote renewable energy.

World Energy Consumption Growth - StratoSolar

On top of this significant energy consumption, worldwide energy consumption is anticipated to continue increasing. From now until 2038, worldwide energy consumption is anticipated to increase by 50%. This continued growth in energy consumption will need to come from somewhere.

And combining increasing needs for energy and increasing resistance to fossil fuels and nuclear power, this energy will likely come from renewables.

Renewable Energy Cost Effectiveness

So far, we have discussed Europe's massive energy consumption. Now let's discuss the increasing cost effectiveness of renewable energy that will support its future growth.

Fossil Fuel Cost Per Kilowatt-Hour - Institute for Energy Research

The above image shows U.S. electricity production costs per kilowatt hour for different sources of fossil fuels. While these numbers are for 2011 in the United States, it is valid to assume that they will carry over to Europe. Currently, petroleum and natural gas are the most expensive forms of production at 21.56 and 4.51 cents per kilowatt hour.

Nuclear and coal are the cheaper forms of energy at 2.19 and 3.23 cents per kilowatt hour. As we can see here, these are the costs that renewable energy will have to compete with if it wants to make an impact. Because fundamentally, until it results in a profit, the renewable energy industry will not make an impact.

Canadian Solar Cost Structure - Motley Fool

Canadian Solar (NASDAQ: CSIQ) has some of the cheapest costs for setting up entire solar systems in the solar industry. The company has lowered costs from $1320 per kilowatt hour in 2011 to $410 per kilowatt hour at the start of last year. The company anticipates lowering costs all the way down to $290 per kilowatt hour by the end of this year. These are significant costs, but as we will see, make solar a cost-efficient form of power.

European Solar Profile - Imgur

The above map shows Europe's annual sum of radiation per year. Peak solar radiation is approximately 1050 watts per meter squared. As a result, we can see for the majority of Europe, there is an average of 1000 hours of full solar radiation per annum. Looking at a 10 year period, that means that 1 kWh of solar panels, costing $290 will cost 2.9 cents per kilowatt hour to produce electricity.

Above we saw that the cheapest form of fossil fuel electricity coal at 3.23 cents per kilowatt hour. That means after approximately 9 years, solar panels are immediately competitive with all forms of fossil fuels. After just over a year, they are competitive with petroleum. However, given that solar panels last 25 years, that means that they are noticeably cheaper than all forms of fossil fuels.

As we can see, solar panels price are dropping rapidly. Over the past 5 years, the cost of solar panels per kilowatt hour has gone to 20% of what it was. Now, solar panels are immediately competitive with all forms of renewable energy. And this shows why Europe should, from a financial point alone, turn towards fossil fuels.

European Fossil Fuel Policy

So far, we have discussed, in detail, the European Union energy consumption along with the cost effectiveness of renewable energy, focusing primarily on solar, which can be spread out throughout Europe. Now, let's finish up by discussing Europe's policy on fossil fuels.

North Sea Oil Production - Aleklett

The North Sea has long been Europe's most significant source of fossil fuels, and the amount of fossil fuels from this region has been decreasing. Now that it is in decline, Europe will need to turn to new sources of energy, and the fossil fuels from this region will continue to decrease. Given the North Sea's increasing costs, this oil crash might be the end of the North Sea's power.

On top of this, the source of oil that was supposed to replace oil from the North Sea, shale oil, has failed. As I have discussed before, the European shale revolution failed to occur. A combination of opposed governments, France has banned all shale drilling, and a difficult geological environment means that the European shale boom won't happen.

Sweden alone, is planning on completely phasing out fossil fuels. While the country only has 10 million people, its northern location means that it consumes a large amount of energy per capita, energy which renewables can replace. As we can see, the European government is focused on decreasing their reliance on fossil fuels.

This should politically support a growing renewables market.

Conclusion

Europe has a large population spread over a fairly tight area. This, combined with the region's industrialization, means that it consumes a massive and growing amount of electricity. Presently, the majority of this energy comes from fossil fuels with a significant portion coming from the North Sea. However, the North Sea is declining and energy will need to come from elsewhere.

Renewables represent another way to get this energy. Politically, the progressive European Union has long favored renewables, and with the rapid decline in their cost, their popularity is only likely to grow. The perfect storm of an increased need for energy, the profit potential of solar power, and a favorable political environment mean that Europe will be the next major market for renewables.

Disclosure: I am/we are long CSIQ.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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