Ursula von der Leyen announced on 08th Nov, 2024 at the Budapest European Council Meeting that in the first 100 days of her new mandate they will produce a new „Clean Industrial Deal” (CID) proposal. This reiterated the European Commission’s commitment to the Clean Energy Transition and hinted at its future focus areas.
This article aims to explore the potential changes Energy industry stakeholders and their technology providers could expect and the opportunities they might presented with in turn.
What we know so far:
Draghi report & Green Deal foundations
The President of the European Commission stated, that the new proposal will build on Mario Draghi’s report on European Competitiveness as well as 10 sector dialogues that were conducted in the month leading up to the announcement.
Reports from the sector dialogues could summarize the energy sector’s views, from the perspective of its various stakeholders. While the other 9 may shed more light on the energy needs, challenges and opportunities of the other major industries.
At the time of writing, I was unable to unearth documents resulting directly from the referenced dialogues. I wrote an inquiry to the European Commission regarding them.
They answered that they are unable to provide further documents on the subject, other than what was published in the Draghi report, followed by a few helpful links pointing out the sections of the Draghi report dealing with ten sectoral policies and the list of dialogue partners and stakeholders that have been consulted. Concluding their reply with an invitation to „follow in the coming days and weeks the Commission President’s announcements on her policies for the new mandate”. — Europe Direct Contact Centre Tue, Nov 26, 2024, 1:38 PM
In the meantime, until further updates are published, we can study the Draghi report. We can also expect that the new proposal for an industrial clean deal will be heavily informed by its predecessor: the European Green Deal. So let’s see what they may have in store in a nutshell.
From Green Deal to Clean Industrial Deal:
An Evolution of Strategy
The European Green Deal, launched in 2019, laid the groundwork for a sustainable European economy through a comprehensive set of policy initiatives spanning various sectors. Its primary focus was on reducing greenhouse gas emissions, promoting renewable energy sources, and fostering a circular economy.
However, the emergence of substantial government support for clean technologies in other regions, particularly the United States' Inflation Reduction Act (IRA), has prompted the EU to refine its approach.
The Clean Industrial Deal represents an evolution of the Green Deal, recognizing the need for a more assertive industrial policy to ensure European companies can compete effectively in the global clean technology market.
While the Green Deal emphasized regulatory measures and carbon pricing mechanisms, the Clean Industrial Deal prioritizes targeted support for clean technology manufacturing, de-risking investments, and fostering a more dynamic innovation ecosystem.
Key Messages from the Draghi Report:
A Call for Urgency and Action
The "Report on the future of European competitiveness" authored by former European Central Bank President Mario Draghi, provides valuable insights into the challenges and opportunities facing European industry. Draghi emphasizes the urgency of the situation, arguing that Europe is at a tipping point, facing accelerating de-industrialization and increasing competition from abroad.
Draghi's report highlights three key areas for action:
- Closing the Innovation Gap: Europe needs to accelerate technological innovation and create a more conducive environment for startups and scale-ups to thrive. This includes addressing regulatory barriers, promoting access to finance, and fostering a stronger culture of risk-taking.
- Combining Decarbonization with Competitiveness: Europe's decarbonization efforts must be a source of growth, not a hindrance to it. This requires a comprehensive plan encompassing a reform of the electricity market, support for clean technology manufacturing, and a more strategic approach to trade policy.
- Increasing Security and Reducing Dependencies: Europe must address its dependencies on critical raw materials and key technologies, particularly in the context of a shifting geopolitical landscape. This involves diversifying supply chains, building up strategic reserves, and forging stronger partnerships with like-minded countries.
Potential Impact on Key Energy Industry Stakeholders
Arguably the Clean Industrial Deal's first and most important focus area will be the Energy sector.
All industrial sectors' competitiveness across the board depends heavily on energy prices (as well as its availability and stability). So it's no surprise that investments and opportunities will first and foremost be expedited for innovation and scaling projects for cheaper and cleaner energy.
In our estimation, proposed measures are likely to have a significant impact on various players in the European energy landscape:
Balance Responsible Parties (BRPs):
BRPs, responsible for balancing energy supply and demand, will face new challenges and opportunities as renewable energy sources become increasingly prevalent. The need to manage the intermittency of wind and solar power will drive demand for:
- advanced forecasting tools
- energy storage solutions
- and demand-side management programs.
Transmission System Operators (TSOs):
TSOs, responsible for operating high-voltage transmission grids, will need to invest heavily in grid expansion and modernization to accommodate the increased flow of renewable energy. The Clean Industrial Deal's emphasis on accelerating permitting processes for cross-border grid infrastructure will be crucial for enabling the seamless integration of renewable energy across Europe.
Although explicit policies or configurations are not outlined in the documents available, projecting the proposed plans for Europe’s energy grid into the future we can make conjecture:
We'll likely see a need in setting up and managing new transmission routes from new large scale renewable energy plants to industrial consumer endpoints. As well as new lines between industrial areas and settlements, facilitating more interregional energy transfer and building an increasingly smart & interconnected grid.
Distribution System Operators (DSOs):
We can infer a scenario where DSOs could handle an increasing share of localized generation and distribution, potentially operating at higher voltages to accommodate growing demand from industry.
DSOs, responsible for managing lower-voltage distribution grids, will face the challenge of integrating distributed energy resources, such as rooftop solar panels and home energy storage systems, into their networks. This will require investments in smart grid technologies, data analytics, and cybersecurity solutions to ensure grid stability and reliability.
How the Clean Industrial Deal Can Propel Businesses to Success
*Opening up the Energy industry for private financing investment structures was proposed by Ann Mettler, as covered in the next chapter.
The European Union's Clean Industrial Deal is already meant to be more than a mere environmental policy; it's an unfolding strategic blueprint for economic transformation, positioning Europe as a global leader in clean technology.
By prioritizing innovation and scaling up clean technology manufacturing, the Deal creates opportunities for businesses to drive advancements in energy solutions such as smart grids, energy storage, green hydrogen, and carbon capture. With support for breakthrough technologies like zero-carbon steelmaking by 2030, the initiative exemplifies the EU's commitment to aligning sustainability with competitiveness. As well as an overarching vision of industry with a circular economy in mind promoting sustainable production and use of critical raw materials.
Success in this transformation depends on expertise, partnerships, and funding. Companies must build specialized knowledge in areas like smart energy systems, emissions management, and cybersecurity, while leveraging collaborations to accelerate innovation and enter new markets. EU state aid via funding programs like the Horizon Europe program and the Innovation Fund provide crucial financial support for research, deployment, and workforce training.
Though challenges such as regulatory complexities will likely remain for some time yet. Especially initially, as the EUs efforts to streamline administrative processes and simplify legislation will likely bring about a lot of change in these areas. So businesses that adapt proactively can secure a competitive edge. Which may prove a worthwhile upfront investment two-fold, if down the line these simplified permits and regulations aim to and succeed in becoming easier to keep up with.
Constructive advice for policy-makers
Ann Mettler, Vice President, Europe, Breakthrough Energy voiced some very compelling criticism about the shortcomings of the Green Deal and advice for the Clean Industrial Deal at Bruegel’s “Forging Europe’s new Clean Industrial Deal” panel discussion that are well worth considering.
She started by highlighting that it will take a lot of hard work, sustained focus and a lot of confidence building measures that Europe can still manufacture at scale, at competitive prices and up to digital standards that the world has come to expect. The skeptical business climate Europe has created put us on a tipping point of “scale or fail”. Demo projects won’t do anymore.
The level of deindustrialization we’ve reached needs to be reversed and actively facilitated.
The single market is key in her view here. It would raise investment confidence more than any subsidies or joined debt could.
Furthermore, she voices that we’ve piled too much onto our companies:
“From the word’s highest taxes compliance, energy, labor and non-wage labor costs to a, frankly, constantly changing regulatory environment […]”
She urges that we need to prioritize lowering costs. For energy but across the board. This can be done via standardization, faster permitting, digitalization, lowering complexity (30.000 legislations vs 3.000 in the US). We need BETTER regulation, not more. And a plan on how to make Europe an attractive investment destination.
In terms of investment structures moving forward, she points out the need for a strategy for incorporating private finance and blended finance vehicles like the “EU Catalyst Partnership” in addition to grants and subsidies. As well as new sources like insurance or pension funds, private wealth such as family offices and even philanthropic organizations or foundations such as the Novo Nordisk Foundation. Because these represent patient capital, which, with some tweaks, can also be more risk-tolerant capital.
We need more patient, more risk-tolerant capital. Smart industrial policy needs to leverage and mobilize these kinds of capital but we can only do that if we have a compelling business and investment case, which the Green Deal was missing.
And lastly, looking at Europe – as she says – “not through a Europe in Europe lens, but a Europe in the world lens” we are a declining share of Global GDP <15%. We are consistently losing global share in manufacturing, at around 14%. Fewer and fewer of the most valuable companies in the world are European. Around the turn of the century 41 top global companies were European, today we’re down to 15. She argues that we need a much better aligned trade, competition and industrial policy.
In her view, the clean industrial deal needs to put much more onus on the public sector to ensure industry has the necessary context to be able to decarbonize while increasing global competitiveness.
Conclusion
Considering the documents published so far, the aspiration and vision laid out so far by the commission starts to become clearer. Along with some tough but encouraging words by Ann Mettler, we can start to piece together the unfolding landscape of the energy and industrial sectors of the European Union.
At this stage, it’s quite difficult to put hard figures to projections just yet with any degree of accuracy. We do encourage our readers to research further from historical data on the Green Deal as well as the newer documents on Europe’s focus on competitiveness. We’ll leave our sources and resources below:
Sources & Resources
- EU Competitiveness: Looking ahead
- The future of European competitiveness – A competitiveness strategy for Europe PDF Download
- The future of European competitiveness – In-depth analysis and recommendations
- Delivering the European Green Deal
- The European Green Deal - Legal document
- REPowerEU
- The Green Deal Industrial Plan - European Commission
- Youtube recording of Bruegel's "Forging Europe’s new Clean Industrial Deal" discussion panel.
- Pan-European 'supergrid' could cut 32% from energy costs, says new UCD study
- Single Market EU definition
- EU Catalyst Partnership
