The shift to renewable energy is central to reducing emissions in line with Paris Agreement commitments. However, 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.
Spain and Portugal's Unique Potential
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.”
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.
Ambitious Decarbonization Targets
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. 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's Role in Decarbonization
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.
Significant Investment Needed
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.
Beyond Sustainability: Economic Benefits
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.
Five Key Actions for Success
Mckinsey says to realize this green opportunity, Iberia must address the cross-sectoral challenges through five key actions:
1. Secure and Accelerate Permitting Processes
2. Develop a Green Hydrogen Ecosystem
3. Strengthen Interconnections and Infrastructure
4. Attract and Retain Talent
5. Create a Green Energy Investment Fund
The Iberian Peninsula has the potential to be a leader in Europe's green energy transition. The McKinsey report highlights the region's unique advantages and the significant opportunities it presents. However, realising this potential requires a collaborative effort involving governments, businesses, and communities to address the challenges and seize the opportunities that lie ahead. The success of this ambitious endeavor will not only contribute to a cleaner and more sustainable future but also propel the Iberian Peninsula towards a more prosperous and resilient economy.
The Future of Green Energy in Iberia
The McKinsey report underscores the importance of a proactive approach to harnessing the potential of green energy in Spain and Portugal. By effectively implementing these five key actions, the region can achieve its ambitious targets, leading to a sustainable energy future that benefits both the environment and the economy. This will require a concerted effort involving governments, businesses, and individuals to collaborate, invest, and innovate, ultimately paving the way for a more sustainable and prosperous future for the Iberian Peninsula.
