Less Hydro and Wind Power Could Tighten Europe’s Gas Market This Summer

Europe’s energy transition faces a critical test this summer as reduced hydropower output and slower-than-expected wind energy growth could force a greater reliance on natural gas, complicating efforts to rebuild gas storage ahead of winter. With storage levels starting April at their lowest since 2022 and competition for liquefied natural gas (LNG) intensifying, the interplay of weather, renewables, and geopolitics is set to shape the market’s trajectory.

The Renewable Backdrop: Hydro’s Decline and Wind’s Limits

Hydropower has historically been Europe’s most reliable renewable energy source, accounting for 12% of renewable electricity generation in 2023, per the EU’s latest data. Countries like Latvia (59% of electricity from hydro) and Austria (58%) rely disproportionately on this resource. However, a combination of low snowfall and below-average rainfall has left hydro reserves at critical lows. A Reuters report cited in the research highlights “skimpy snow cover worsening Europe’s clean power woes,” though quantifiable data for Q2 2025 is unavailable.

Meanwhile, wind energy, which supplied 19% of EU electricity in 2024, faces headwinds of its own. While installed capacity grew by 16.4 GW in 2024—driven by onshore projects in Germany, the UK, and France—the sector’s growth rate is slowing. To meet the EU’s 2030 target of 425 GW of wind capacity, annual installations must nearly double to 23 GW/year. Current projections suggest only 351 GW will be achieved by 2030, leaving a 17% shortfall.

The Gas Market: Storage Deficits and LNG Competition

Europe’s gas storage levels began April 2025 at just 28%, the lowest since 2022. Replenishing these to the 80% winter target requires importing an additional 30 billion cubic meters (bcm) of gas this summer. The bulk of this must come from LNG, as Russian gas no longer flows through Ukraine.

But LNG supply is not guaranteed. Northeast Asia’s summer demand could outbid Europe for cargoes, especially if temperatures rise sharply. Compounding this is a lack of market incentives to prioritize storage fills over cheaper alternative fuels like coal. The EU may need to impose storage mandates or price controls to avoid a winter crisis.

The Renewable-Gas Tradeoff: Solar’s Role and Hydropower’s Void

Solar power offers a mitigating factor. Installations in 2024 rose to 25 GW, with Germany and Spain leading growth. This capacity displaces gas-fired generation, particularly during peak daytime hours. However, solar’s contribution—9% of EU electricity in 2023—is insufficient to offset the combined loss of hydro and wind.

The net effect? A potential 5-8% rise in gas demand this summer compared to 2024 levels, assuming hydropower output falls by 15-20% and wind underperforms due to lower capacity additions. This would require an additional 5-8 bcm of gas imports, squeezing already tight LNG markets.

Key Risks and Investment Implications

1. Storage Shortfall Risk: If storage fills below 60% by August, winter prices could surge. Investors should monitor storage data and LNG tanker movements.
2. Asia’s LNG Demand: Track Asia-Pacific LNG imports via JPMorgan’s LNG Tracker or S&P Global Platts.
3. Renewables Momentum: Follow wind and solar capacity additions in Germany (target: 2 GW offshore by 2025) and Spain (4 GW solar pipeline).
4. Macroeconomic Drag: Weak industrial demand in Germany and Italy could reduce gas use by 3-5%, offsetting some supply pressures.

Conclusion: A Summer of Tensions, a Winter of Uncertainty

Europe’s gas market is entering a precarious summer. Reduced hydropower and slower wind growth could add 5-8% to gas demand, testing already strained storage and LNG supplies. While solar gains and weak industrial demand offer some relief, the risk of a storage shortfall—and subsequent winter crisis—remains high.

Investors should favor gas infrastructure plays like Eni (E) or TotalEnergies (TTE.F), which benefit from high storage utilization. Meanwhile, LNG exporters such as Cheniere Energy (LNG) may see elevated demand if Asian competition intensifies. Conversely, utilities reliant on gas-fired plants, like Uniper (UN01.GR), face margin pressure unless renewables fill the gap.

The stakes are clear: Europe’s energy resilience hinges on whether renewables can compensate for hydro’s decline and LNG can meet surging demand. If not, the summer of 2025 could be a harbinger of colder winters ahead.