Spain and Portugal Can Lead EU Green Energy, Says McKinsey
The pivot towards renewable energy stands as the cornerstone for slashing emissions to meet the targets of the Paris Agreement.
According to the International Energy Agency, emissions from energy soared to a new height of 37.4 billion tonnes in 2023, marking an increase of 1.1%. It's predicted that by 2050, renewable energy will slash emissions from the power sector by a staggering 90%.
In the grand scheme of European energy consumption, renewables now fuel 41.2% of electricity usage. Yet, the push for a complete transition remains, with 58.8% still needing conversion to green energy.
A report by McKinsey & Co lays out how Spain and Portugal are primed to spearhead Europe's renewable energy revolution, offering a unique opportunity to advance the energy shift.
Jose Pimenta da Gama, Senior Partner at McKinsey, says: “With Europe’s energy transition in full swing, there is a real opportunity for the Iberian Peninsula to lead it.
“Spain and Portugal are very well placed to leverage their natural resources to produce decarbonized energy at very competitive costs and, therefore, to lead the reindustrialisation of Europe.
“Now is the time for action.”
Why Iberia stands out
The unique geographic and climatic advantages of Spain and Portugal, highlighted in the McKinsey study, sets the stage for low-cost renewable energy production. However, the looming shadow of climate change, with severe droughts impacting most of their landscapes — 90% of the Portuguese mainland and 60% of Spanish countryside in May 2023 — threatens crucial economic sectors like tourism and agriculture.
The ambitious decarbonisation goals set by both countries for 2030 necessitates an accelerated pace of action. Thanks to their favorable conditions, Spain and Portugal’s solar and wind energy prospects are among the most cost-effective and productive in Europe.
Spain and Portugal’s solar energy is 20-25% more economical than in Central Europe, and their wind resources exceed the EU average by 5-10%.
Moreover, the Iberian Peninsula's established export infrastructure and significant shares in the EU's LNG capacity and impending lithium production capacity underscore their potential as renewable energy powerhouses.
Spain and Portugal's ambitious renewable energy targets
Spain and Portugal are on a mission to significantly boost their renewable power capacity by 2030, with plans to install 90GW and 25GW respectively. The spotlight is also on green hydrogen, with both nations collectively aiming for more than 16GW of capacity in a bid to decarbonise various industries.
The financial blueprint for achieving these green milestones points to a hefty investment, demanding around €2.5tn (US$2.8tn) for Spain and €500bn (US$551.5bn) for Portugal by 2050.
The Iberian renewable advantage
Transitioning to renewable energy holds keys to not just ecological sustainability but extensive economic benefits for the Iberian Peninsula, suggests André Anacleto, a Partner at McKinsey.
“Based on existing infrastructure, announced projects and additional capital expenditures, we estimate that five value pools could contribute around 10% of the region’s GDP by 2030,” he said.
Based on current and forthcoming projects, renewable energy could bolster the region's GDP by approximately 10% by 2030, alongside creating 1.5 million jobs and enhancing tax revenues and exports.
As well as this, these gains would bolster regional economic cohesion, fostering balanced development across Spain and Portugal.
Key strategies for harnessing Spain and Portugal's renewable potential
To capitalise on this renewable venture, McKinsey outlines five critical steps for Iberia: establishing efficient incentive schemes. They are:
- Effective incentive schemes to improve the cost-competitiveness of green solutions
- Clear and stable regulation to provide long-term certainty
- Faster and smoother permitting processes
- Strengthened project bankability to attract investments
- Substantial grid deployment to support increased electrification and renewable energy integration.
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