It is time to act now – Europe needs a new, strong industrial policy
Massively increased energy costs, rising inflation and the U.S. Inflation Reduction Act – three enormous challenges that show how important it is for Europe to speak with one voice and act now. It needs a strategically oriented, pragmatic and equally sustainable industrial policy – driven by political and business leaders alike. After all, both sides bear equal responsibility for ensuring that Europe does not fall behind in global competition.
1. Speed and simplicity – Europe’s response to the Inflation Reduction Act
With the Inflation Reduction Act, the United States has shown how pragmatic private investment interest can be mobilized. Focused on tax breaks for profits over a clearly defined period of time, this simple, transparent and technology-open principle attracts companies to invest in profitable growth businesses. We can learn from this in terms of speed and simplicity, while avoiding the protectionist tendencies that are rightly criticized. What can be done?
- We must enhance the attractiveness of public-private partnerships and an incentive system that directs private investment to Europe and keeps it there permanently. Long-term direct tax credits with clear deadlines could encourage highly scalable businesses like the hydrogen industry and keep jobs in Europe – what is more, they can also be decided quickly and pragmatically at national level.
- A right of way for the approval of renewable energies as well as gas and electricity infrastructure will lead the energy transition to success quickly and unbureaucratically in the future.
- In addition, we need an active foreign trade policy that protects the entrepreneurial interests of European industry from global geopolitical and geo-economic influences. Europe needs to make clear that unfair competition with products and solutions developed and manufactured by other countries with massive government support is not supported. This will ensure a level playing field in project financing (“global level playing field”). For the energy industry, climate partnerships and existing Just Energy Transition Partnerships (JETPs) can create an international framework that secures foreign markets for European companies and drives the energy transition forward globally.
- We also need to create green lead markets in Europe. Binding quotas for lead sectors such as industry and transport can be an approach to take.
- In doing so, the public sector can play its role model function in decarbonization. This would create competitive incentives for low-GHG products – products like “green” steel for public construction projects and hydrogen or eFuels for public fleets.
We as an industry can and want to support all of these issues by clearly committing ourselves to Europe as home base as well as investing here not only in projects and manufacturing capacities but also in the initial and advanced training of our employees. In this context, strongly scaling large industrial projects is of particular importance, as they lead to massive cost reductions through economies of scale and entail large business volumes for small and medium-sized enterprises (SMEs) (example plant engineering). After all, the energy transition is a strong growth driver for the economy if we approach it the right way. This includes building a sustainable energy system as well as implementing climate-neutral production processes that will make European industry competitive in the long term. However, this assumes that we have made progress on the aforementioned points.
2. Secure Europe’s wind energy industry now – reduce dependence on individual energy sources
Europe needs a sustainable energy system that can keep pace with global competition and reduce dependence on individual energy sources. To achieve this, the share of renewable energies on the continent must at least triple or even quadruple by 2050. At the same time, this is necessary to secure and maintain the existing European energy industry.
We will succeed only if we lay the appropriate foundation now. Many ambitious goals have been set. But, so far, we are falling far short of them. Take wind energy as an example: Instead of the planned installation of 39 gigawatts per year by 2030, only 11 gigawatts were actually realized in Europe in 2021. The same applies to the solar industry, which we lost in Europe years ago, even though the know-how for it was developed here and is still in demand worldwide today. We must not allow the European wind industry to suffer the same fate.
The European wind industry is currently a major economic driver on the continent, employing more than 300,000 people and generating €5 billion in tax revenues annually. It ensures that Europe has system-critical infrastructure, historic growth rates and enormous opportunities for value creation.
But: The European wind industry is in a severe crisis that threatens our collective future as a leader in renewables and our freedom to make independent energy decisions. Targeted framework conditions can help make the European wind industry successful again. After all, competition with Chinese companies that have grown rapidly under government protection is distorted. The European wind industry can bounce back only through more fairness – and thus secure know-how and jobs on a large scale. This is why the wind energy industry needs clear decisions and swift action from the EU member states, especially on the following points:
- Accelerated approval procedures: We need much simpler and faster approval procedures in Europe. This also includes the necessary investments in new electrical networks to eliminate current bottlenecks and strengthen the infrastructure. And it needs transparent network access rules with clear deadlines and uniform contacts for approval decisions.
- New auction concepts: Auction concepts urgently need to be adapted. In addition to the price component, important qualitative criteria must also be taken into account, such as sustainability criteria for the supply chain or recycling concepts. In this context, it is important to design the auction in such a way that bidding competition does not lead to unrealistic price spirals that would not allow subsequent economic recovery.
- Better trade agreements: Governments around the world need to foster global trade agreements for green technologies. The high-level B2B forum between the U.S. and the EU on offshore wind, held in Atlantic City in April 2022 and attended by European and U.S. representatives, demonstrated a willingness to cooperate in the offshore wind market. We need more of this.
- Inflation compensation: Contracts must compensate for the effects of high inflation and provide support when price increases cannot be absorbed.
These levers would help industry get projects off the ground faster, secure financing early and better plan supply chains. The production of PV solar modules and battery storage in Europe, which the European Union is now visibly promoting, can serve as a model. We would like to see this support for wind power as well. Fair competition is the basic prerequisite for economic success – and thus for secure and well-paying jobs. The prospect of success is the only way to encourage the industry to make the major forward-looking investments that are needed to expand production capacities. It will be only at this point that we can create the energy independence that we so urgently need. Fundamentally revised approval procedures are an important step along this path.
3. Connecting Europe – a sustainable energy system needs stable and eco-friendly power grids and secure generation capacities
The rising share of renewables and increasing electrification require a much faster expansion of transmission networks. According to the European Network of Transmission System Operators for Electricity (ENTSO), cross-border capacity expansions of 64 GW are needed by 2030, creating 1.6 million highly skilled jobs through the development of electricity infrastructure projects in the EU. But the industry can make the required investments only if improved framework conditions have been put in place. The following three points are essential:
- Currently, network expansion throughout Europe is being slowed by lengthy approval procedures. The official procedures must be accelerated quickly in order to facilitate truly necessary investments.
- Fiscal incentive schemes and cost and risk sharing by the public sector are important levers to accelerate the necessary private sector investment in additional production capacity.
- Extremely climate-damaging operating materials such as SF6 gases must be replaced quickly by climate-friendly solutions. The industry has the necessary technologies. It is now a matter of applying them across the board.
Furthermore, an electricity system based on renewable energies can function only if a corresponding increase in control energy is guaranteed. Short-term fluctuations can be offset by batteries and grid-stabilizing elements. Longer-term/seasonal fluctuations will require the addition of “H2 Ready” gas power plants. This will not work without a fundamental adjustment of the electricity market design.
4. Creating a coordinated European raw materials policy – securing raw materials and supply chains
The energy transition is increasing demand for raw materials and minerals immensely. A typical electric car requires six times more minerals than a conventional vehicle, and an onshore wind turbine requires nine times more minerals than a gas-fired power plant for the same output. Since 2010, the average amount of minerals needed to generate electricity has increased by 50%.
- The EU’s planned raw materials law should focus specifically on the energy industry. Strategic raw material partnerships with supplier countries could be an effective instrument for securing long-term supply conditions and preserving the EU’s “strategic autonomy” in terms of industrial policy. This will often be accompanied by increased procurement costs, for example for minerals from countries that extract the substances from ores with lower mineral contents. However, this requires effective mechanisms that can offset the resulting additional burdens either through financial solutions or other market-based measures.
- The recycling rate and thus the circular economy must be massively increased. Here, industry must lead the way with its own voluntary commitments. Siemens Gamesa Renewable Energy, for example, was the first wind turbine manufacturer to bring a recyclable rotor blade for onshore wind farms to market.
- It must be possible to pass on rising raw material prices to end customers as part of public-sector contracts or state-regulated transactions, for example via contractual price escalator clauses. This is particularly the case for projects with long durations, such as the expansion of the electricity grid. Manufacturers must have the ability to add increases in raw material costs that occur up to the point of installation to the fees charged for using the network instead of being forced to bear the risk alone.
We will enable European companies to compete internationally for minerals and supply chains in the long term only if we develop and stringently implement a uniform European raw materials policy.
If we move forward together on these points quickly, Europe will remain in a strong position because it will remain competitive. There is no time to lose. Coordinated action is required, and it is required now. Industry is ready to provide its know-how and technological implementation strength. Let us get to work – right now.
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