Europe is hooked on gas, but another geopolitical crisis makes the case for accelerated solar and energy storage deployment even stronger. As policymakers mull potential methods for decoupling electricity markets from volatile gas prices, renewable generators and energy storage developers stand ready to break the link in the most direct way possible.

Conflict in the Middle East has put Europe’s reliance on gas back in the spotlight. As exposure to gas market volatility fuels debate around energy sovereignty, the solar industry stands ready.

European solar has already mitigated the impact of the United States and Israel-led conflict with Iran. SolarPower Europe claims the EU’s existing solar fleet offset more than €110 million ($127.9 million) of gas imports per day in March 2026, and by late May more than €10 billion was saved in avoided gas imports, according to the trade association.

Solar may have provided some insulation to gas price volatility, but there is still a long way to go. Europe spent more on fossil fuel imports than on clean energy investments, according to analysis from the Centre for Research on Energy and Clean Air (CREA). EU gas demand for 2021 to 2025 stood at around 335 billion cubic meters (BCM) per year, according to European Commission data.

Current outlook

How much solar and energy storage can reduce dependency on gas depends on how imports are used. In 2024, about 22% of gas was used in the electricity and heat generation sector but there was major variation across member states (see chart, page 11). Decarbonization will be more challenging for countries where a large proportion of gas imports are used for industrial purposes, according to the European Union Agency for the Cooperation of Energy (ACER), but potentially less so in member states with a strong gas-electricity link. Decarbonization efforts for these energy markets will be shaped by renewable capacity additions, grid investment and increased electrification.

For households and businesses, however, the pressing issue is cost. European gas futures prices increased about 70% week on week after the US and Israel attacks on Iran, but have not reached anywhere near the highs that followed Russia’s invasion of Ukraine in 2022. Despite this, the electricity wholesale market spikes that occur when gas peaker plants set the price are again under scrutiny. When gas sets the price, the marginal price system (see box) that electricity wholesale market auctions operate on can lead to bumper revenues for renewable generators with merchant exposure and electrons to sell, but the contribution to total energy cost is controversial among consumers.

What comes next is up for debate. Europe’s energy generators seem set against large-scale market reform. In March 2026, the Eurelectric federation wrote to the European Commission on behalf of its 3,500 utility sector members to warn against reopening the debate on how electricity is bought and sold. Instead, they called for the removal of barriers to entering power purchase agreements (PPAs) and other long-term offtake contracts, more financing for low carbon technologies for the industrial sector, the reform of taxes and levies on electricity, and new measures to address grid fees, permitting, and infrastructure bottlenecks. In short, reduce exposure by supporting investment.

Investor certainty

Copenhagen Infrastructure Partners (CIP) is clear on what it wants from European energy market policy. The renewables developer recently produced its own roadmap for an electrified, competitive and resilient European energy system. CIP concluded that Europe is structurally exposed to imported fossil fuels and, therefore, geopolitical volatility, and set out 16 policy recommendations to combat this exposure. First on the list: preserve 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 shifted in the right way,” said Phillip Christiani, partner at CIP. He added that he views the CfD model as more of a risk-shifting tool than a support model like the United States’ tax credit approach.

“There are cases with the CfDs where they come out with roughly zero support, but you’ve just shifted the risk,” he said.

With an international portfolio of solar, on- and offshore wind and battery energy storage system (BESS) assets, CIP has experience deploying across different European energy markets. The developer is calling for policymakers to shore up Europe’s energy system resilience by acting in five key areas: market design certainty and accelerated electrification, unlocking grid build-out at scale, unlocking offshore wind scaling and lowering cost, and facilitating scalable supply, bankable demand, and timely infrastructure build-out for hydrogen.

Shoring up investor certainty by not interfering with market fundamentals is high on the list and CIP’s vision for a competitive European energy system in 2050 imagines a renewables buildout that results in solar and wind accounting for more than 90% of installed ­capacity and nearly 80% of power generation – with fossil generation constituting less than 5%. Christiani explained why 225 GW of flexible capacity was retained in CIP’s outline for Europe’s future energy system.

“Battery storage is a little bit like a scalpel in managing the system, the gas-fired power plants – that’s the shovel in solving big imbalances. What we are arguing in the report is not that 2050 should be a zero emissions society. Rather, that the system should be optimized for the lowest possible cost of energy and power.

“If you do that, you will take away a couple of the applications that you would otherwise have assumed in a zero-emission society,” he said.

Christiani pointed to Germany as an example, where there has been political debate over the role of hydrogen in the future energy system, with some policymakers seeing a longer-term role for gas.

“What we assume is that gas power plants will pick up the slack and deal with the challenges when batteries are not sufficient,” Christiani explained. “We have about 600 full load hours per year on average across 35 bidding zones in Europe where we don’t think batteries – at least of what we forecast – they will not be able to ensure we have a very high reliable delivery of power.”

Wholesale CfD

Gas remaining in the energy system will mean hours of occasionally very high electricity market prices will continue. This has become a pressing political issue in the United Kingdom, where bringing household electricity bills down has become a key policy goal for a government under fire at the polls, although successful delivery remains far from certain. War in the Middle East has sparked action.

In response to climbing gas prices, the UK government announced a two-pronged, carrot and stick approach to reducing the impact on electricity prices. Existing plants operating under the historic Renewables Obligation scheme will soon be offered the chance to sign up to a voluntary “wholesale CfD” (WCfD). The WCfD is essentially an offer to asset owners to swap out exposure to electricity wholesale markets for a new, fixed-price contract that will provide revenue certainty even if it removes the opportunity for plants to profit from bumper revenues when gas-fired power sets the price. That is the carrot.

The stick is an increase to the rate of tax applied through the Electricity Generator Levy – a tax that is paid on wholesale electricity sold above a benchmark price, which is currently set at GBP 82.61 ($111)/MWh. First introduced in 2023, the levy applied a 45% charge on generation over the threshold, which will increase to 55% on July 1, 2026. The idea is to make the case for merchant exposure less attractive. But Adam Bell, a partner at consultancy Stonehaven, told pv magazine the impact was fairly negligible when assessing forward revenues.

How many existing renewables plants will actually take up the UK government’s WCfD offer also remains an open question. The government has not decided what WCfD price it will offer, whether it will be set at an auction, or what the terms of the contracts will be.

“I suspect that, quite frankly, a lot of them will look at this and go there’s no real upside for me in here whatsoever, because it would oblige me to reinvest in some assets I might not want to reinvest in,” Bell said “It’s not clear to me that anyone’s going to bother.”

Bell’s view lines up with analysis from Baringa. The consultancy found only a minority of the roughly 44 GW of Great Britain’s non-CfD low carbon capacity is likely to move to a WCfD – possibly as little as 7 GW to 10 GW. Consumer benefits also look modest, with Baringa’s sustained high-price scenario forecasting savings of around GBP 17 per household per year. As far as attempts to decouple electricity prices from gas go, the UK intervention may fall short – a clearer picture should emerge when the full WCfD offer is made public. To really make an impact, however, Bell suggested removing gas from the energy market entirely.

“If you take gas out of the market entirely, you probably save around [GBP 6 billion] depending on your assumptions and how the market is structured,” Bell said. “Government, I think, understands that but wants to do it for the longer run and move gas into a strategic reserve.”

In such a scenario, gas plants would operate as a strategic reserve controlled by the system operator, who would dispatch the asset depending on system conditions. The gas plants would be paid via a regular asset base structure, in the same way electricity networks are paid now, and the gas plants become operators rather than market participants.

“You’re basically paid for availability, and they’d have a fixed return based on capex plus opex,” Bell said.

The post Running out of gas appeared first on pv magazine Global.