McKinsey: Spain and Portugal can Lead Green EU Energy
The shift to renewable energy is central to reducing emissions in line with Paris Agreement commitments.
The International Energy Agency says that energy-related emissions rose by 1.1% in 2023 to reach a record high of 37.4 billion tonnes.
It is hoped that by 2050, renewable energy will be responsible for reducing the power sector’s emissions by 90%.
In the European Union, renewable energy sources accounted for 41.2% of gross electricity consumption – but there’s still another 58.8% to transition.
A McKinsey & Co report shows that Spain and Portugal have an “unprecedented opportunity” to lead the energy transition in Europe.
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?
The McKinsey report says Spain and Portugal’s unique geographic endowments, including significant raw materials and opportunities for cost-effective renewable energy production, positions the peninsula well to capitalise on the energy transition.
The region is at risk from the effects of climate change, with 90% of the Portuguese mainland and 60% of Spanish countryside experiencing drought in May 2023.
The impacts of climate change may negatively impact key sectors of the economy in the region including tourism and agriculture.
The countries have set ambitious decarbonisation targets for 2030, but to meet them action needs to speed up significantly.
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%.
The Iberian Peninsula boasts well-established export infrastructure, including 18 deep-sea ports that handle around 20% of the EU's container traffic.
It also accounts for the largest single share, approximately 30%, of the EU's liquefied natural gas import capacity.
Portugal is projected to contribute around 30% of the EU's lithium production capacity by 2030, and Iberia has significant potential in biomass supply, accounting for the third-largest feedstock for biobased gases and fuels in Europe.
Spain and Portugal’s green energy goals
Currently, Spain aims to build around 90 gigawatts of renewable power capacity and Portugal’s goal is to add about 25 gigawatts by 2030 compared to 2023.
Green hydrogen has huge potential to decarbonise a range of industries.
Spain and Portugal are aiming for 11 gigawatts and 5.5 gigawatts respectively in capacity for green hydrogen production by 2030.
Meeting these green energy goals won’t be cheap, requiring an estimated investment of €2.5tn (US$2.7tn) and €500bn (US$554bn) by 2050 for Spain and Portugal respectively.
The benefits of renewable energy for Iberia
Renewable energy won’t just make the peninsula more sustainable.
André Anacleto, Partner at McKinsey, says: “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.”
The transition could also lead to the creation of over 1.5 million net direct and indirect jobs and boost tax revenues and exports.
Importantly, these benefits would extend beyond national economies, strengthening regional economies and promoting more balanced development across the Iberian Peninsula.
McKinsey’s advice for unlocking green energy in Spain and Portugal
McKinsey says to realise this green opportunity, Iberia must address the cross-sectoral challenges through five key actions:
- 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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