Stronger increase in EU investment in cleantech capacity needed

• Within the EU, there is an urgent need for more renewable energy and clean technology

• The EU goal is to produce at least 40% of clean technologies in the EU by 2030

• The 'Green Deal Industrial Plan' is about maintaining competitiveness of the EU cleantech sector, energy independence in general and to foster a faster transition to climate neutrality

• The additional investments from the 'Green Deal Industrial Plan' are positive for the cleantech sector. The plan helps to remove current obstacles to the sector

Ursula von der Leyen - president of the European Commission (EC) - made no secret of it. Her conclusion was that the US Inflation Reduction Act (IRA) further increased concerns in Europe. Indeed, according to her, the IRA firmly increases global competition in the cleantech sector and it also intensifies the need for the critical raw materials necessary for making the clean technologies. Other committee members jumped in, arguing that the IRA encourages the relocation of EU cleantech companies to the US and that it also discriminates against current EU exports of cleantech companies to the US. This would be against World Trade Organisation (WTO) rules. All in all, the EU could not afford to be left behind in the cleantech race and launched Europe’s 'Green Deal Industrial Plan'.

Clean tech plans

The EU is fighting battles on several fronts. In these battles, the cleantech sector plays an important role. With its 'Fit-for-55' plan, the EU has set itself the goal of reducing EU greenhouse gas emissions by 55% from 1990 levels by 2030. Meanwhile, an energy crisis has yet to be contained as a direct result of the war in Ukraine. To overwin both battles effectively, it urgently needs more renewable energy and, above all, clean technology. More to the point, the EU wants to be competitive in these sectors. This includes, for example, zero-emission energy using solar power, wind, hydro, geothermal, biofuels, biomass, nuclear and carbon capture and storage. But it also involves, for example, (IT) consultancy services related to the environment or transmission technologies such as smart grids and energy storage, and energy efficiency technologies. These applications are necessary in sectors such as industry, mining, oil & gas, transport, power generation, water and agriculture. In competing for these cleantech activities, the EU needs to engage more robustly on the global stage, with superpowers such as the US and China. Both made billions of dollars available in the form of favourable tax incentives and subsidies to attract cleantech companies around the world.

Investments clean energy

Since 2015, global investment in clean energy has increased by 40%. Europe and Asia have been particularly fast growers. There, investments increased by 46% and 44% respectively over the same period. Green investment growth in North America remained stuck at a ‘meagre’ 30%. However, it is not only in the growth rate that there is a difference. There is also a similar discrepancy in relation to total energy investments (which also includes fossil investments).

For instance, the share of clean energy investments in Europe and in China in total energy investments is significantly higher than in the North America. In Europe, however, the share of clean energy investment in total energy investment is the highest, at 80% by 2022. Moreover, this has been the case for the past three years.

The level of globally committed green investments is substantial. The IRA has committed some USD 369 billion in investments and grants until 2032 to reduce US greenhouse gas emissions and accelerate the adoption of renewable technologies. In China, this is approximately USD 280 billion. And the 'Green Deal Industrial Plan' would – according to some sources – involve about USD 270 billion (EUR 250 billion). This funding will be mostly redirected from REpowerEU fund (in response to war in Ukraine) and/or the Recovery and Resilience Facility (RFF, in response to Covid-19). The exact amount and other details of the EU-plan are yet to be worked out.

Under the International Energy Agency's (IEA) Net Zero scenario, renewable energy capacity needs to increase by about 7-8% annually over the next 30 years to reach the 2050 target. This means an immense expansion of capacity and indicates that global investment in renewable energy will have to start rising sharply in the coming years. Following on this, investments in clean technologies, some of which overlap with clean energy, are also increasing significantly.

Necessary industrial transformation

The 'Green Deal Industrial Plan' should strengthen the competitiveness of Europe’s cleantech industry, enhance energy independence and trigger a faster transition to climate neutrality. This requires a more favourable business environment. To achieve this, the EC wants to simplify current regulations, speed up access to finance, attract and also train more skilled cleantech staff and boost cooperation to ensure trade of critical raw materials. All in all, the commission is quite confident: 'Europe is determined to lead the cleantech revolution'. The goal is to produce at least 40% of the EU need for clean technologies in the EU itself by 2030. Here, the highest targets have been set for wind energy and heat pumps. In these two clean technologies, the share should be around 85% by 2030.

Increased investment - both private and public - in cleantech is almost inevitable. And it also goes beyond meeting climate goals and reaching energy independence. Because more often, investors, customers and financiers alike are looking at companies' decarbonisation initiatives with much more interest. These initiatives go hand-in-hand with investment in and implementation of available low-carbon or zero-carbon technologies. Indeed, the companies that do not decarbonise or take the initiative to do so in time pose greater risks. The company becomes obsolete or even irrelevant to those same investors, buyers and lenders.

China remains cleantech giant

China is by far the largest producer in terms of most clean technologies. On average, the country has a 70-75% share of global cleantech capacity. So the EU and other countries need to invest heavily in the clean tech sector to close this gap.

According to BloombergNEF calculations, some EUR 149 billion still needs to be invested in production facilities in Europe to meet 100% of its needs in battery and solar power alone. The EU budget made available for cleantech development is largely related to easing the conditions to enable stronger growth of the cleantech sector in Europe.

The additional investments from the 'Green Deal Industrial Plan' are positive for the cleantech sector. The plan helps to remove current obstacles to the sector so that it remains attractive for private parties to continue investing in the EU cleantech sector. What is important here, however, is that innovative start-ups also benefit from the plan. Because it is precisely these parties that are badly needed to meet the continued growth in demand. However, dependence on cleantech superpower China is still high and investments there too are only increasing.

The amount of clean energy consumed has exploded in Europe in recent years. This is especially true for the installed capacity of heat pumps, but also for solar energy. For instance, the installed capacity of heat pumps in the EU (27) has increased by 974% since 2010 and solar energy consumption increased by 562% over the same period. Wind power consumption has a longer history and has increased by 163% over the past decade.

To reach the net-zero target, global solar energy consumption needs to grow by an average of 11% annually until 2050 and wind energy consumption by almost 10% annually, according to the IEA's Net-Zero Emissions Roadmap. The average growth rate in Europe of solar and wind energy has been below these global targets since 2015 (both around 8% annual growth). That Europe is below the global average is in line with expectations. However, it is important that the growth rate is maintained over the coming decades in order to make the dream of cleantech giant come true.

This article is part of the SustainaWeekly of 20 March 2023