Europe’s energy crisis: Understanding the drivers of the fall in electricity demand

Following Russia’s invasion of Ukraine, the world has been experiencing its first truly global energy crisis, which has caused prices to soar and disrupted energy trade flows. While natural gas supply to Europe was front and centre of the crisis, the ripple effects have been felt throughout the energy industry and across all regions of the world.

In the European Union, the carbon dioxide intensity of the power sector increased significantly in 2022. As security of supply became the overriding priority for policy makers, some countries restarted coal-fired power plants while outages at nuclear plants and low hydropower output challenged the reliability of the system. This supported gas demand for power generation even though gas prices were at record highs. Despite the focus on supply side issues, trends in electricity demand received less attention. In this commentary, we look at the drivers behind the decline in electricity demand including weather patterns and high prices as well as the regional differences between countries in the European Union.

The European Union was the only major region where electricity demand declined substantially in 2022

Global electricity demand remained resilient last year, growing by 2%, yet demand in the European Union fell by 3% – the only major electricity-consuming region to experience such a significant decline. Drops in demand of such scale have only happened on two other occasions this century: once in 2009 in the wake of the global financial crisis, and again in 2020 as Covid-19 lockdowns brought economic activity almost to a standstill. A myriad of factors played into the fall in electricity consumption last year. The mild winter in 2022 has been discussed extensively as a significant factor affecting electricity demand, while the impact of the higher summer temperatures has been overlooked by comparison. Our analysis shows that electricity demand in the European Union in 2022 was in fact shaped predominantly by a combination of a milder winter, a hotter summer and price effects.

Year-on-year change in global electricity demand, 2019-2022


The impact of the mild winter on electricity demand was tempered by a hot summer

In 2022, all EU countries – except for a few Mediterranean countries such as Malta, Greece and Cyprus1 – observed a significantly milder winter than in 2021. Across the European Union, heating degree days (HDDs) – a measure of how much energy is required to heat a building due to colder weather – were lower in 2022, resulting in lower electricity consumption for heating. The year-on-year decline was most pronounced in the fourth quarter of 2022. But there was also a considerable drop in the second quarter, mainly because April and May 2022 were milder than the same months in 2021, when many western and central European countries experienced exceptionally cold weather in late spring.

While the mild weather was a factor in the overall decline in electricity demand across the European Union, the hotter summer weather partially offset this, especially in southern Europe as heatwaves gripped the region. France, Italy and Spain saw prolonged periods of record temperatures resulting in a substantial increase in cooling degree days (CDDs) – a measure of how much energy is required to cool a building due to warmer weather.

Year-on-year quarterly change in cooling electricity consumption in the European Union, 2022


Year-on-year quarterly change in heating electricity consumption in the European Union, 2022


The weather effects on electricity demand varied across European Union regions

Europe has a very diverse climate and, as a result, the weather impact is not homogeneous across different regions and seasons. In 2022, southern Europe saw a net increase in electricity demand due to an extremely hot summer, with the increase in electricity consumption for space cooling exceeding the decline in consumption for heating. By contrast, the opposite was true in northern Europe. France is a notable case, as it is one of the few countries in the European Union where both heating and cooling can have a strong impact on electricity demand. In 2022, heating and cooling demand made up around 20% of total electricity consumption in France. The share of space heating in electricity consumption in France is one of the highest in Europe, surpassed only by the Nordic countries of Sweden and Finland. Yet, France also has a significant space cooling demand, predominantly in the services sector. Overall, the weather in 2022 led to a decrease in electricity demand in the European Union. By our estimates, the net impact of weather was limited to a decline of less than 1% in electricity demand in 2022, with the remaining reduction of more than 2% driven by other, non-weather-related factors.

Weather impact on electricity demand in the European Union per region, 2022


The second half of 2022 saw a marked drop in demand that was not attributable only to weather

Removing the impact of weather on electricity demand allows us to identify other factors that affected the change in electricity consumption from 2021 to 2022. The weather-corrected monthly demand profile of the European Union in 2022 aligns well with the actual demand profile in 2021 up until June. However, from June onward, the gap between these two profiles widens, highlighting significantly lower demand in 2022. A major driver behind this demand decline was the higher electricity price in 2022. Electricity demand is generally considered to have a low price elasticity, but some components of demand, such as electricity-intensive industry, are more price-elastic than others.

Monthly electricity demand in the European Union, 2021-2022


Higher electricity prices were a major factor in the demand decline in 2022 in the European Union

While wholesale electricity prices have remained at elevated levels since 2021, they rose sharply from around EUR 180 per MWh in May to peak at more than EUR 400 per MWh in August. Wholesale prices generally do not have an immediate impact on consumption for three main reasons. First, the cost of the electricity is only one of the many components in the final bill. Second, most EU countries provided support to electricity consumers – including energy-intensive industries, businesses and households – through various measures. And third, price fluctuations often take time to filter down directly to households and consumers. Whereas dependence on short-term price dynamics varies across sectors and countries, most consumers have limited direct exposure to spot markets and are subject to longer-duration tariffs that are adjusted after a period of time. Soaring wholesale prices in 2022 meant that the cost of electricity for consumers eventually rose substantially towards the end of the year. Many energy-intensive industries – such as chemicals, aluminium and steel production – further reduced their output in the second half of 2022.

Other non-weather-related factors contributing to the demand decline in 2022 also deserve attention. As highlighted in recent IEA work, these factors include behavioural changes in consumption in the residential and services sectors, voluntary energy savings as part of government-led public campaigns, affordability issues impacting the most vulnerable households, and efficiency improvements across a range of different sectors.

Average wholesale price and monthly non-weather-related reduction in electricity demand in the European Union, 2022


Quarterly year-on-year change in crude steel and aluminium production in the European Union, 2022-2021


Allowing for price signals while preparing for increased weather-dependency is vital

With the clean energy transition gathering pace across Europe and beyond, weather will play a more important role in the shaping of electricity demand due to the increased electrification of heating as heat pumps become more widespread. At the same time, more and more air conditioners are being installed. Given the expected increase in the frequency and intensity of extreme weather events, the impact of weather on electricity demand deserves more attention.

For the European Union in 2022, weather explains only part of the fall in electricity demand. As shown in this commentary, most of the decline has been due to non-weather-related factors, primarily the soaring electricity prices. The price elasticity of electricity demand suggests that, irrespective of the preferred electricity market design, only the right price signal will lead to adequate demand response. However, while allowing for price signals, governments should also ensure that their citizens have access to affordable electricity through appropriate policies and that the most vulnerable citizens and households are protected.

  1. Note by the Republic of Türkiye:

    The information in this document with reference to “Cyprus” relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Türkiye recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Türkiye shall preserve its position concerning the “Cyprus issue”.

    Note by all the European Union Member States of the OECD and the European Union:

    The Republic of Cyprus is recognised by all members of the United Nations with the exception of Türkiye. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus.