It is easy to be pessimistic about Europe's economy. But the continent's next economic recovery may be built on something surprisingly concrete — mass deployment of renewable energy and batteries. Europe's supply of cheap domestic electricity is growing and storage additions are stabilising regional grids. Electrification has stopped being a climate project and started to look like an economic one. Batteries are at the centre of this, turning intermittent renewable power into reliable industrial energy, and enabling a new electrical economy that Europe is well placed to exploit.
Electrification in Europe began with cars, because this was where policy, publicity and economics aligned. Road transport is carbon-intensive and US electric vehicle (EV) manufacturer Tesla's early innovation proved the market was technologically ready for change. Mandates and subsidies are now doing the hard work in Europe, pushing automakers and consumers through an uncomfortable but decisive transition.
The costs are front-loaded. Early EVs were expensive, charging networks lagged and supply chains strained. But Europe has forced the adjustment. Battery costs fell, thanks in no small part to EV growth in Asia. Infrastructure in Europe is now scaling and EVs have moved from a novelty to the default choice in large parts of the market, especially fleet sales. Behaviour is changing. Carmakers, utilities and regulators have begun planning around electricity rather than fuel.
"Once electrification reaches scale, the economic benefits begin to reinforce themselves," energy watchdog the IEA executive director Fatih Birol said.
That moment has arrived. The mental shift that electricity, not oil, will power Europe's future is largely complete. What follows is less visible but more powerful — compounding gains from lower operating costs, integrated power systems and rising productivity.
Battery production scales
Europe's early battery innovation phase delivered progress, but not the outcome policy makers had hoped for. Cost curves came down, manufacturing knowledge improved and supply chains localised faster than expected. Yet the collapse of Swedish battery maker Northvolt — once positioned as Europe's answer to Asian battery champions — exposed the limits of trying to build a fully domestic battery industry from scratch.
The lesson was not that Europe failed to innovate, but that battery manufacturing is brutally capital-intensive, unforgiving of delays and dominated by incumbents with decades of operational experience. Scale matters more than symbolism and Europe had to learn that the hard way.
What followed, however, looks more durable. Rather than retreat, foreign investment moved in to capitalise on the lack of European innovators. Europe's battery supply chain is being built, just not always by European owners. South Korea's LG Energy Solution operates one of the continent's largest battery plants in Poland, China's CATL is commissioning capacity in Germany and Hungary, while South Korean Samsung SDI and Chinese Envision AESC continue to expand across central and western Europe.
Europe's battery cell manufacturing capacity is expected to exceed 300 GWh/yr by the end of the decade, according to forecasts compiled by Germany's VDMA and Fraunhofer ISI based on announced project capacity. The ceiling could be higher. Even without full ownership, the economic spillover of jobs, grid resilience and cheaper electrification will accrue locally. Ownership matters less than outcomes at this stage. Factories employ European workers, supply European industry and feed directly into domestic electrification. Batteries do not need to be fully European-made to generate European economic value.
Deflationary impact of electrification
Europe's duel supply and energy shocks in 2020 and 2022 forced an adjustment. Renewables scaled faster, gas dependence on foreign adversaries fell, and power markets adapted to volatility by hard-wiring flexibility into the system. What is emerging is not a temporary easing in prices but a structural shift towards lower marginal electricity costs and domestic supply, cutting reliance on foreign energy imports over the long term.
That shift has direct macro implications. "The expansion of renewables and the decarbonisation of energy supply are likely to be disinflationary over the medium term," European Central Bank president Christine Lagarde said.
Cheaper, more predictable electricity does not just reduce household bills, it compresses costs across industry, logistics and services at a time when new products and technologies are reaching a deployable scale.
Batteries make that environment durable. By absorbing surplus renewable generation and releasing it during peak demand periods, energy storage flattens price volatility and reduces reliance on expensive fossil fuel back-up supplies. This lowers the risk premium embedded in long-term power contracts and brings down the cost of capital for energy-intensive investment. In effect, batteries turn intermittency into stability and stability into lower prices.
Europe is now entering a cycle where electricity demand will rise sharply. Data centres, artificial intelligence infrastructure, advanced manufacturing, electrified heat and defence systems are all power-hungry and highly sensitive to price volatility. A battery-backed grid allows that demand to grow without recreating inflationary pressure.
The first phase of Europe's energy transition was inflationary — capital-heavy, inefficient and politically fraught. The next phase looks different. As batteries scale alongside renewables, electricity will become a deflationary input and one that quietly improves productivity, planning horizons and competitiveness. If the past decade was about surviving the energy transition, the next may be about benefiting from it.
