BAKGRUNN (fra Kommisjonens rapport 24.10.2023)

In response to the unprecedented disruption of the world’s energy system - caused by the COVID-19 pandemic and exacerbated by Russia’s unprovoked and unjustified military aggression against Ukraine - the EU has decided to accelerate its clean energy transition.

Despite rising prices due to the peak in energy and material costs in 2022, clean energy technologies remain highly cost competitive. The roll-out rate of clean energy technologies is increasing in the EU. In 2022, the roll-out rate of wind and solar increased around 50% compared to 2021. However, this trend should not obscure the challenges that the EU’s clean energy manufacturing industry faces. Even in sectors such as wind energy or heat pumps, where the EU has a strong manufacturing base, EU market shares are falling.

Overall, from raw materials to key intermediate components and final clean energy technologies, the EU is increasingly dependent on imports from third countries. Over 60% of the global manufacturing capacity for key value chain segments of batteries and solar is located in China. Over 90% of capacity for the wafers and ingots required for solar PV is in China.

The Green Deal Industrial Plan, the Net-Zero Industry Act and the Critical Raw Materials Act are amongst the EU’s key actions to lower the dependence on the imports of net-zero technologies, strengthen value chain resilience, and build a strong domestic manufacturing base. They seek to tackle the most pressing challenges. One such challenge is to improve skills, ensure quality jobs and to turn innovation into industrial production. Despite the positive trend in employment, the latest data show that the skills gaps and shortages seen since 2021 may curb growth in the clean energy sector. In 2023, nearly 4 in 5 small and medium-sized companies report it is generally difficult for them to find workers with the right skills.

Designing a successful R&I pathway is also key for a competitive clean energy industry. The EU remains at the forefront of clean energy research, maintains a strong position in internationally protected patents, and is leading on renewables and energy efficiency. Still, stepping up efforts in the synergistic use of the EU and national programmes, and defining clear national R&I 2030 and 2050 targets are crucial elements to design this successful R&I pathway.

The EU also needs to remain an attractive place to invest in, manufacture and deploy clean energy technologies. In 2022, venture capital (VC) investments in clean energy in the EU rose by 42% compared to 2021 and accounted for a growing share of global VC investment in clean energy technology firms, ranking third behind the US and China. However, when looking at strategic net-zero technologies as defined in the Net-Zero Industry Act, except for batteries, the EU has still not fully unlocked its capacity to attract higher growth deals as the US and China have done. To boost the EU’s competitiveness, resilience and leadership, the EU’s regulatory and financial frameworks are evolving to ensure investments and that capital keeps flowing to EU companies at the required scale.

In addition to these cross-cutting issues, net-zero technologies also face specific challenges and present different opportunities.

2022 was a record year for solar PV installed capacity in the EU. From a value chain perspective, however, the EU is strongly dependent on Chinese imports. For the EU to bridge the cost gap compared to its competitors, building on planned measures, it needs to scale up its manufacturing plants and focus on innovative products and advanced and more sustainable manufacturing processes.

The EU holds technology leadership on solar thermal but faces growing competition from Asian players. Innovative solutions and continuous technological advances are key to boost competitiveness. High EU demand for industrial process heat in the range of 150 – 400 °C is also a good opportunity to roll out solar thermal.

The EU wind sector remains one of the strongest players in the world, with EU manufacturers accounting for 30 % of the global market share in 2022, but down from 42% in 2019. The sector is facing specific challenges, including uncertain demand, auction design issues and slow permitting procedures. To tackle these issues, the Commission adopted the Wind Power Action Plan which will help accelerate permitting even more, improve auction systems across the EU, facilitate access to finance and strengthen supply chains.

The EU’s ocean energy technology industry is a strong innovator. To boost the competitiveness of this sector, investors need reassurance. Running technology-specific auctions or developing multiple uses (e.g. with other renewable installations or for multiple activities) would also support the industry.

The EU is on track to meet the forecasted demand for batteries for 2025 and 2030. The number of announced lithium-ion gigafactories increased in 2022 from 26 to 30 and continues to rise. While Europe’s share in global investment announcements in lithium-ion production capacity fell from 41% in 2021 to 2% in 2022, battery factories are being built with increasing speed across Europe and are projected to meet most of EU demand by 2030. The biggest relative increase needed to meet the 2030 target is in recycling.

The EU market for individual heat pumps is growing. Estimates indicate that sales of individual heat pumps increased by 41% in 2022. However, this growth has been partially captured by imports, with the trade balance deficit doubling in 2022 since 2021. EU production capacity was estimated to have covered 75% of EU demand for individual hydronic heat pumps in 2021 but EU manufactures are dependent on imports for components such as compressors and synthetic refrigerants. The Commission is preparing an EU action plan to accelerate the deployment of heat pumps.

Although the EU geothermal sector has limited installed capacity, it has the potential to contribute to REPowerEU targets and to the secure supply of raw materials. The sector needs more available underground data to increase the success rate and predictability of new geothermal projects as well as technology improvements. The sector would also benefit from action to simplify the licensing process, de-risking schemes, higher public awareness and a more skilled work force.

Investments in the EU in generating renewable hydrogen through water electrolysis have opened up the possibility for several manufacturers to build new electrolyser factories in Europe. At the same time, the EU faces the challenges to increase renewable and cost-efficient energy to power these electrolysers and avoid any negative impacts on freshwater availability to deploy this technology. Further action is needed to increase recycling capability in Europe including of the critical raw materials needed for electrolyser manufacturing.

In 2022, the EU was the largest producer of biogas, accounting for over 67% of global production. The EU is also an R&I leader in sustainable biogas. Decreasing production costs, notably through innovation, replication and a stable regulatory framework, could help boost the EU’s competitiveness in the sector.

On carbon capture and storage (CCS), this range of technologies is mature in the EU, proven and readily available. However, CCS needs to be deployed at scale if the EU is to reach climate neutrality by 2050. The EU is relatively well positioned on CO2 capture technologies and in terms of R&I, but has not yet developed full industrial carbon management value chains and facilities are still not operational on a commercial basis. Public funding – both at EU and national level – will be needed to attract private capital. Furthermore, proposing business models for this emerging market will also be essential. The EU has several policy tools in place supporting CCS development. The Commission is now working on an Industrial Carbon Management Strategy which is planned for the first quarter of 2024.

The emergence of sizeable offshore wind farms and regional interconnectors have made the European market very attractive for High Voltage Direct Current (HVDC) system developers and technology providers. However, the sector will need to overcome challenges such as higher global demand for components and the risk of supply chain disruptions. Closer cooperation between stakeholders is key, as is support for harmonisation and standardisation, in particular to stimulate investment in production capacity by EU suppliers. Bringing in streamlined procurement procedures and voluntary demand pooling for EU buyers could help tackle the main supply chain issues.

The competitiveness of the clean energy sector has been a topic of increased attention over the past year. The EU has reacted swiftly to support its industry in meeting the current challenges and will pursue coordinated action to this end. This 2023 edition of the Competitiveness Progress Report is particularly topical as it provides insights into the main drivers, opportunities and barriers to competitiveness in the EU’s clean energy sector.