The pandemic reduced energy demand in 2020, but the energy markets will bounce back in 2021 as the global economy recovers. Covid-19 has had little impact on the growth prospects for wind and solar, the oil market continues to tighten and LNG is boosting the gas market. On the back of these market trends, European utilities will likely increase investment by +5.5%.
The European wind and solar markets are expected to provide solid growth of 8% and 13% in 2021 in terms of capacity additions, which require €90 billion of investment. On the supply side, wind and solar continue to benefit from policy support for green local power systems. On the demand side, we expect power demand to increase by 3% in 2021, although the extension of lockdown periods and delays to the vaccine rollout could lead to stagnation.
Wind and solar energy are expected to gain cost competitiveness over fossil fuel and nuclear power in 2021. It's getting increasingly cheaper to add new wind and solar capacity compared to new fossil fuel power plants or nuclear power plants. The anticipated 35 GW addition of wind and solar capacity is likely to add to price volatility in European power markets in 2021 as large scale power storage facilities, such as batteries and electrolysis, remain relatively small.