The European Union (EU) is experiencing a significant decline in electricity demand, with a 3% reduction predicted for this year, according to a report by the International Energy Agency (IEA). This decline is the largest in EU history and is attributed to the declining industrial output in the bloc. The report highlights the impact of the EU’s decision to impose sanctions on Russian fossil fuels and the subsequent rise in power costs.
The decline in electricity demand follows a 3% fall in demand last year, bringing consumption back to levels not seen since 2002. The report indicates that two-thirds of the reduction last year came from energy-intensive industries and this trend has continued into 2023. The EU’s industrial sector has been particularly affected by the energy embargo imposed on Russia in response to its military operation in Ukraine.
The EU’s decision to embargo Russian fossil fuels, combined with increased demand following the COVID-19 pandemic in 2020, led to a record rise in wholesale electricity prices. Last August, prices reached €430 ($478) per megawatt hour, more than double the price in January of that year.
Although prices have stabilized since then, the EU’s industrial sector has not recovered. Recent figures from the EU’s statistics agency show that industrial output across the bloc fell by 1.3% between February 2022 and March 2023. Germany, which heavily relied on Russian energy for its industrial sector, has been particularly affected by the decline. Major manufacturers in Germany, such as BASF and Volkswagen, have reduced production at home and announced plans to build new plants abroad. The unexpected drop in Germany’s industrial output in May has raised concerns of a prolonged recession.
The report also notes that deindustrialization in Europe is being influenced by subsidies and policies in other countries. For example, subsidies such as the US Inflation Reduction Act and Japan’s Green Transformation Act are encouraging production curtailment, plant closures, and diverting investment.
Outside the EU, the IEA predicts a decline in electricity demand of almost 2% in the US and 3% in Japan. However, increased consumption in China and India will offset these declines, resulting in a global increase in electricity demand of just under 2% this year.
Overall, the decline in electricity demand in the EU reflects the challenges faced by the bloc’s industries due to rising power costs and the impact of sanctions on Russian fossil fuels. As industrial output continues to decrease, concerns about a prolonged recession and deindustrialization persist. Meanwhile, global electricity demand is expected to be driven by consumption in China and India, while developed economies in the EU, US, and Japan struggle.