Europe is addicted to gas, but a new geopolitical crisis makes the case for an accelerated deployment of solar energy and energy storage even stronger. As policymakers consider possible methods to decouple electricity markets from volatile gas prices, renewable generators and energy storage developers are ready to break the link in the most direct way possible.
The conflict in the Middle East has put Europe’s dependence on gas back in the spotlight. As exposure to gas market volatility fuels the energy sovereignty debate, the solar industry stands ready.
European solar energy has already softened the impact of the US-Israeli-led conflict with Iran. SolarPower Europe claims that the EU’s existing solar fleet offset more than €110 million in gas imports per day by March 2026, and that more than €10 billion in avoided gas imports had been saved by the end of May, the industry association said.
Solar energy may have provided some protection against gas price volatility, but there is still a long way to go. According to an analysis by the Center for Research on Energy and Clean Air (CREA), Europe has spent more on importing fossil fuels than on investments in clean energy. According to European Commission data, EU gas demand for the period 2021 to 2025 was around 335 billion cubic meters (BCM) per year.
Current prospects
How much solar energy and energy storage can reduce dependence on gas depends on how imports are used. In 2024, around 22% of gas was used in the electricity and heat generation sector, but there were large differences between Member States (see graph on page 11). According to the European Union Agency for Energy Cooperation (ACER), decarbonization will be more challenging for countries where a large share of gas imports are used for industrial purposes, but possibly less so in member states with a strong gas-electricity connection. Efforts to decarbonize these energy markets will be shaped by expanding renewable capacity, investments in the electricity grid and increased electrification.
For households and businesses, however, the pressing issue is cost. European gas futures prices rose around 70% week on week following the US and Israeli attacks on Iran, but are still far from reaching the highs that followed Russia’s invasion of Ukraine in 2022. Nevertheless, the spikes in the wholesale electricity market that occur when gas peaker power plants set the price are coming under renewed scrutiny. When gas sets the price, the marginal price system (see box) under which wholesale electricity market auctions operate can lead to huge revenues for renewable producers with trading exposure and electrons to sell, but the contribution to total energy costs is controversial among consumers.
What comes next is up for debate. European energy producers appear to be averse to large-scale market reforms. In March 2026, the Eurelectric federation wrote a letter to the European Commission on behalf of its 3,500 utility sector members warning against reopening the debate on how electricity is bought and sold. Instead, they called for the removal of barriers to entering into power purchase agreements (PPAs) and other long-term offtake contracts, increased financing for low-carbon technologies for the industrial sector, the reform of taxes and levies on electricity, and new measures to address grid tariffs, licensing and infrastructure bottlenecks. In short, reduce exposure by supporting investments.
Security for investors
Copenhagen Infrastructure Partners (CIP) is clear about what it wants from European energy market policy. The renewables developer recently set out its own roadmap for an electrified, competitive and resilient European energy system. The CIP concluded that Europe is structurally exposed to imported fossil fuels and therefore to geopolitical volatility, and formulated sixteen policy recommendations to combat this exposure. First on the list: maintaining a robust electricity market design.
“There could be different models. The US model is one model, the CfD model is another model. As long as we can see that there is stability and we can see that the risk is being shifted in the right way,” said Phillip Christiani, partner at CIP. He added that he views the CfD model as a risk-shifting tool rather than a support model like the US tax credit approach.
“There are cases with the CfDs where they get virtually no support, but you’ve just shifted the risk,” he said.
With an international portfolio of assets in solar energy, onshore and offshore wind energy and battery energy storage systems (BESS), CIP has experience in deployment in various European energy markets. The developer calls on policymakers to strengthen the resilience of the European energy system by taking action in five key areas: ensuring market design and accelerated electrification, deploying electricity networks at scale, unlocking the scale of offshore wind energy and reducing costs, and facilitating scalable supply, bankable demand and timely deployment of hydrogen infrastructure.
Enhancing investor certainty by not interfering with market fundamentals is high on the list and CIP’s vision for a competitive European energy system by 2050 envisions an expansion of renewables that will see solar and wind power account for more than 90% of installed capacity and almost 80% of energy generation – with fossil fuel generation accounting for less than 5%. Christiani explained why 225 GW of flexible capacity was retained in the outline of the CIP for Europe’s future energy system.
“Battery storage is a bit like a scalpel in managing the system, the gas-fired power plants – that is the scoop on solving major imbalances. What we argue in the report is not that 2050 should be a zero-emissions society. Rather that the system should be optimized for the lowest possible costs of energy and power.
“If you do that, you take away some of the applications that you would otherwise have adopted in a zero-emissions society,” he said.
Christiani cited Germany as an example, where there has been a political debate about the role of hydrogen in the future energy system, with some policymakers seeing a role for gas in the longer term.
“What we assume is that gas plants will pick up the slack and address the challenges when batteries are not enough,” Christiani explains. “We average around 600 full charging hours per year across 35 bidding zones in Europe, where we don’t think batteries – at least what we predict – will be able to guarantee that we have a very reliable supply of power.”
Wholesale CfD
If gas remains in the energy system, electricity prices will continue to be sometimes very high for hours. This has become a pressing political issue in Britain, where cutting household electricity bills has become a key policy objective for a government under fire in the polls, although a successful outcome remains far from certain. The war in the Middle East has led to action.
In response to rising gas prices, the UK government has announced a two-pronged approach: carrot and stick to reduce the impact on electricity prices. Existing power stations operating under the historic Renewables Obligation program will soon have the opportunity to join a voluntary ‘wholesale CfD’ (WCfD). The WCfD is essentially an offer to asset owners to exchange their exposure to wholesale electricity markets for a new fixed-price contract that will provide revenue security, even if it removes the ability for plants to benefit from huge revenues when gas-fired electricity sets the price. That’s the root.
The big stick is an increase in the tax rate applied through the Electricity Generator Levy – a tax paid on electricity sold wholesale above a benchmark price, currently set at GBP 82.61 ($111)/MWh. The levy was first introduced in 2023 and imposed a 45% levy on generation above the threshold, which will rise to 55% on July 1, 2026. The idea is to make traders’ exposure less attractive. But Adam Bell, a partner at consultancy Stonehaven, told pv magazine that the impact was fairly negligible when assessing future earnings.
How many existing renewable power plants will actually make use of the UK government’s WCfD offering also remains an open question. The government has not yet decided what WCfD price it will offer, whether it will be determined at auction, or what the terms of the contracts will be.
“I suspect that, quite frankly, a lot of them will look at this and say there’s no benefit to me in it because it would require me to reinvest in assets that I may not want to reinvest in,” Bell said. “It’s not clear to me that anyone is going to care about it.”
Bell’s position is consistent with Baringa’s analysis. The consultancy concluded that only a minority of Britain’s roughly 44 GW of non-CfD carbon capacity is likely to transition to a WCfD – possibly just 7 GW to 10 GW. Consumer benefits also appear modest, with Baringa’s continued high price scenario predicting savings of around GBP 17 per household per year. As for attempts to decouple electricity prices from gas, the UK intervention could fall short – a clearer picture should emerge when the full WCfD offer is made public. However, to make a real impact, Bell proposed removing gas from the energy market entirely.
“If you take gas off the market completely, you will probably save approx [GBP 6 billion] Depending on your assumptions and how the market is structured.’
In such a scenario, gas-fired power plants would function as a strategic reserve under the control of the system operator, which would dispatch the assets depending on system conditions. The gas plants would be paid through a regular asset base structure, in the same way that electricity networks are paid now, and the gas plants would become operators rather than market participants.
“You basically get paid for availability, and they get a fixed return based on capex plus operational costs,” Bell says.
The message No more petrol first appeared on pv magazine Global.
