Europe Needs $3.5 Trillion of Power Investment Through 2035

After 15 years of declining demand, Europe's appetite for power is set to increase again, driven by widespread electrification as well as new industries such as electric vehicles and data centers. Goldman Sachs Research estimates that around $3.5 trillion (€3 trillion) worth of investment in the power sector will be required over the next 10 years to reduce the risk of a European power crisis.

A large part of the investment will go into capital expenditures to modernize aging power grids and improve generation capacity. "This scenario will drive significant growth across the electricity value chain, thanks to rising investments and higher margins," says Alberto Gandolfi, head of European utilities research in Goldman Sachs Research.

The forecast for Europe's power sector

Between 2008 and 2024, power demand in Europe dropped by around 7% as a result of a series of upheavals, from the financial crisis in 2008 to the Covid pandemic. Industrial consumption has declined the most since 1990, down nearly 8% cumulatively.

But now Europe's power demand is on an uptick. Our analysts forecast power demand will grow 1.5-2% per year from 2026.

The rise in demand is the result of a number of factors. Vehicles, homes, and factories are increasingly going electric. Energy efficiency measures are approaching a plateau. More and more data centers are being constructed, and the use of air conditioning is increasing across the continent.

Europe's power generation sector is undergoing a profound change as well. By the end of the decade, our analysts estimate that around 75% of the installed base will be from renewables, compared with around 45% around a decade ago and about 65% currently.

"Although this shift will boost Europe's self-sufficiency and will lower carbon emissions, the power system is becoming increasingly volatile, and increasingly reliant on weather-dependent supplies" such as wind, solar, and hydropower, says Gandolfi. "This would make the system less 'secure'-unless backup measures (batteries, gas plants, power grid upgrades) are put in place."

In addition, parts of most European power grids are around 40-50 years old, and they need to be reconfigured to suit decentralized generation and new customers.

Will Europe face a power crisis?

A combination of these factors-rising demand and changes in the power supply industry-could move European power markets into a deficit, with reserve margins-the difference between available capacity and peak demand-falling to zero by 2029.

To avoid such a scenario, Goldman Sachs Research expects Europe to need total investments in the power sector of around €2-3 trillion over the coming 10 years. Compared with the past 10 years, which saw around €1.4 trillion in capital expenditure, this implies a 60-100% increase in spending.

Capex on transmission and distribution infrastructure alone could double to around €1.2-1.4 trillion over 2026-35-a significant increase compared with the past ten years. Our analysts estimate power generation investment needs another €1-1.4 trillion in that same period.

Such investment offers value for investors up and down the entire electricity value chain. Some electrification compounders-companies involved in the electrification of the power sector-could grow profits at between 9-11% per annum over 2025-30, depending on the abundance of power.

"This capex acceleration could bring on challenges: logistics, supply chain, permitting, financing and affordability," says Gandolfi. "Yet, we should also stress that the cost of inaction could cost Europe significantly more."

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