United StatesEurope’s energy transition is entering a new phase. Decentralised generation – characterised by a combination of rooftop solar PV, battery storage, electric vehicle (EV) chargers and heat pumps, for business and residential consumers – is emerging as an essential and fast-growing part of a future energy system.
The rising cost-competitiveness of decentralised generation (DG) technologies is sustaining their expansion across Europe, where elevated electricity prices and falling hardware costs tilt the economic scales in their favour. The adoption of affordable and clean DG solutions can reduce strains on grids, accelerate the build-out of electricity supply and contribute towards meeting national and corporate emissions targets.
While the characteristics of individual markets vary, we perceive attractive opportunities for selective private market investors who tailor the interlinked DG products discussed in this article for end consumers.
The compelling economics of decentralised generation
Falling technology costs underpin the irreversible trend towards DG.
Since 2010, solar PV module prices in Europe have declined by at least 93%.1 Solar PV is the region’s fastest-growing electricity source and already contributes 11% of total EU generation.2
As with solar panels, rapidly expanding China-led production is driving down the cost of battery storage: lithium-ion battery pack prices dropped by 20% in 2024 alone.3 Correspondingly, the rate at which battery energy storage systems (BESS) are being installed in Europe is growing by 15% a year.4
Source: International Renewable Energy Agency (IRENA), 2024: Renewable Power Generation Costs in 2023.
* Average solar PV module prices sold in Europe. Figures for 2014 to 2016 have been extrapolated using IRENA levelised cost of electricity generation factors (2024).
** Behind-the-meter lithium-ion battery storage costs for residential systems in Germany. 2023 data is Q3 2023.
Subhead: Rebased prices of solar PV modules and residential lithium-ion storage systems in Europe, per kWh (2014 = 100)
Overview: This line compares the relative cost of solar PV modules and residential lithium-ion battery storage systems in Europe, per unit of electricity, between 2014 and 2023. Numbers are indexed, with 2014 figures equal to 100.
Overall, this chart illustrates the sharp decline in the cost of both solar and battery systems over the past decade. Both had fallen to roughly one-quarter of their equivalent 2014 prices by 2023.
European electricity prices, meanwhile, have risen sharply since 2021: non-residential consumers in the EU were paying roughly twice as much in late 2024 as in 2009.5 Elevated market prices fundamentally make it more economically attractive for homeowners and businesses to install DG.
The combination of falling technology costs and elevated electricity prices means that consumers installing DG assets – which can last up to 25 to 30 years – can expect a payback period of between seven and nine years.6 If system use is optimised (including higher self-consumption), it could potentially be less.
Sidestepping grid bottlenecks
The construction of large-scale renewables projects – from hundred-turbine wind farms in the North Sea to million-panel solar farms in Spain – will be essential for Europe to meet its ambitious decarbonisation targets targets and rising electricity demand. Governments including Germany’s forecast annual demand growth of up to 7% this decade, driven by the electrification of transport, heating and industrial processes, as well as the proliferation of energy-intensive data centres.7
Major renewables projects rely, however, on extensive grid networks to transmit electricity from remote regions to demand centres. As more come online, Europe’s grids are buckling. Grid connection queues reflect planning bottlenecks: an estimated 1,700 GW of potential renewable generation capacity awaits connection across 16 European countries.8
By generating and storing power closer to users, DG can reduce transmission dependencies and help electricity systems sidestep these limitations. European policymakers have introduced legislation to encourage the adoption of DG solutions, including the EU Solar Standard, adopted in 2024. This legislation mandates that solar installations must be integrated into new commercial and public buildings from 2026, and on new residential and existing public buildings by 2030.9
Streamlined permitting, in conjunction with higher levels of public acceptance towards decentralised generation assets, can accelerate the roll-out. This has been illustrated in Germany where reforms to reduce bureaucracy have contributed to target-beating solar installation rates.10 Government initiatives, such as zero-emission vehicle and REPowerEU targets to drive the electrification of transport and heating, also provide regulatory tailwinds to support the adoption of EV chargers and heat pumps.
Major electricity consumers are also adopting DG to secure electricity supply amid tight grids and contribute towards meeting their voluntary decarbonisation pledges. The market has responded to rising demand with competitive leasing and hire-purchase options to enable rapid customer adoption of DG solutions.
DG technology adoption is expected to continue apace. Between 2024 and 2028, rooftop solar PV generation capacity in the EU is forecast to expand at an annual rate of 15%.11 Meanwhile it has been projected that heat pump installations (which fell in Europe in 2024) will grow by around 12% a year in Germany this decade.12
Source: SolarPower Europe, December 2024
Subhead: EU solar PV electricity generation capacity by segment in 2024 (GW)
Overview: This area chart shows the breakdown of solar PV electricity generation across the EU as a whole in 2024, according to the location of generation.
Overall, this graphic illustrates how almost two-thirds of EU solar energy is generated on rooftops. Combined, commercial and industrial rooftops account for two-fifths of the total.
Source: SolarPower Europe, December 2024: EU Market Outlook for Solar Power 2024-2028. Forecast data for 2025 to 2028.
Subhead: Forecast EU solar PV electricity generation capacity by segment (GW)
Overview: This bar chart compares rooftop and utility-scale solar power generation in the EU in 2024 and forecasts for rooftop and utility-scale solar generation between 2025 and 2028.
Overall, this graphic illustrates how rooftop panels are projected to remain the dominant location for solar generation in the EU this decade.
Why investors need to be selective
These drivers are not equally strong across Europe. Electricity market characteristics vary between economies, meaning investors need to carefully select markets in order to maximise prospective risk-adjusted returns. We see four criteria that determine the appeal of DG in individual markets.
Firstly, local grid electricity prices are critical. In markets like Ireland, where retail electricity prices exceed €300 per megawatt-hour, the payback period for DG installations can drop below five years.13
Secondly, binding national regulatory deadlines typically accelerate adoption. In France, for example, large car parks must be furnished with solar canopies by the end of 2026.14 Meanwhile, the targeted phase-out of internal combustion engine vehicles and gas-powered heating helps to drive EV charging and heat pump uptake respectively. Mandates provide clear visibility on future demand and ensure a robust pipeline of projects.
Thirdly, government support in the form of subsidies or incentives can have both beneficial and detrimental effects on deployment. They can materially improve project economics by subsidising costs of deployment but may also stall progress through unclear implementation. As an example, Spain’s grants cover 30% of installation costs, enhancing returns and reducing upfront risk for investors and end users.15 Conversely, DG uptake in Germany slowed in late 2024 and early 2025 due to regulatory uncertainty around the introduction of new grants and subsidies, which led to a wait-and-see approach from consumers.16
Finally, the availability of third-party capital and bank lending solutions determine how viable it is to fund DG projects and to structure investments in a way that mitigates risk. Our view is that providing funded solutions to enable to domestic and commercial consumers to install DG technologies will play a critical role in the path towards net zero.
Getting the product right
Investors must also be selective in the partnerships they choose. With 20 years’ experience as a private markets manager focused on clean energy investments, we understand how partner expertise can be valuable to help minimise risks specific to local markets.
Product design is also imperative to maximise prospective returns from DG projects. To be competitive, packages have to satisfy consumer demand, in terms of contract length and monthly payments, and cover multiple technologies.
Where products meet European consumers’ rising demand for cost-competitive decentralised generation, it is our conviction that there are compelling risk-adjusted opportunities for selective private market investors.
1 International Renewable Energy Agency, 2024: Renewable Power Generation Costs in 2023
2 Ember, January 2025: European Electricity Review 2025
3 BloombergNEF, December 2024: Lithium-Ion Battery Pack Prices See Largest Drop Since 2017, Falling to $115 per Kilowatt-Hour
4 SolarPower Europe, May 2025: European Market Outlook for Battery Storage 2025-2029
5 Eurostat, April 2025: Electricity price statistics
6 Impax analysis, 2025
7 McKinsey, 2024: Electricity demand in Europe: Growing or going?
8 Beyond Fossil Fuels, E3G, Ember and the Institute for Energy Economics and Financial Analysis, May 2025: How Europe’s grid operators are preparing for the energy transition: A snapshot of electricity transmission system operator practices and plans
9 European Parliament, March 2024: Energy efficiency of buildings: MEPs adopt plans to decarbonise the sector
10 Ember, November 2024: Germany sets new record for renewable power
11 SolarPower Europe, December 2024: EU Market Outlook for Solar Power 2024-2028
12 Apricum, March 2025: European heat pump market outlook:
13 Eurostat, April 2025: Electricity price statistics
14 PV Europe, April 2025: France rules on mandatory solar for car parks
15 Iberdrola, 2025: Subsidies for solar panels: grants for their installation in each autonomous community
16 SolarPower Europe, December 2024: EU Market Outlook for Solar Power 2024-2028
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