EU sees growing dependence on clean technology imports

The European Commission’s review of the competitiveness of clean energy technologies finds that while remaining highly cost competitive, market shares are falling.

While there are positive trends, such as the 50% increase in the roll-out rate of wind and solar in the EU in 2022 compared to 2021, from raw materials to key intermediate components and final clean energy technologies, the region is becoming more dependent on imports from third countries, the report finds.

For example, over 60% of the global manufacturing capacity for key value chain segments of batteries and solar is located in China, with over 90% of the capacity for the wafers and ingots required for solar PV there.

The progress report, part of the 2023 ‘State of the Energy Union’ assessment, notes the Green Deal Industrial Plan, Net-Zero Industry Act and Critical Raw Materials Act as amongst the EU’s key actions to lower the dependence on the imports of net zero technologies and to build a strong domestic manufacturing base.

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However, skills remain an issue and may curb growth in the sector, according to the report, which cites almost 80% of small and medium-sized companies reporting it generally difficult to find workers with the right skills in 2023.

Moreover, designing a successful R&I pathway is also key for a competitive clean energy industry and defining clear national 2030 and 2050 targets are crucial elements to this.

Another indicator is venture capital investments. In 2022 VC investments in 2022 were 42% up on 2021, but, except for batteries, the EU has still not fully unlocked its capacity to attract higher growth deals as the US and China have done.

Clean energy technologies

Regarding individual clean technologies, the report states that for solar PV there needs to be a scaling up of manufacturing plants and a focus on innovative products and advanced and more sustainable manufacturing processes.

Likewise innovative solutions and continuous technological advances are key to boost competitiveness of solar thermal.

The wind sector remains strong, despite a drop in the market share to 30% in 2022 from 42% in 2019 but the new wind action plan should help to accelerate permitting, improve auction systems across the EU and strengthen the supply chains.

For the ocean energy technology sector, investors need reassurance, while for the geothermal sector more available underground data as well as technology improvements are needed.

With the need to develop the grid to integrate these renewable technologies the report notes the European market has become 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.

The report finds that the EU is on track to meet the forecast 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 and battery factories are being built with increasing speed across Europe.

The biggest relative increase needed to meet the 2030 target is in recycling.

The EU market for individual heat pumps also is growing, with estimates indicating that sales increased by 41% in 2022. However, while EU production capacity was estimated to have covered 75% of the demand for individual hydronic heat pumps in 2021, manufactures are dependent on imports for components such as compressors and synthetic refrigerants.

An action plan is being prepared to accelerate the deployment of heat pumps.

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. However, there are challenges to increase renewable energy to power these electrolysers and avoid negative impacts on freshwater availability.

Finally on carbon capture and storage (CCS), the range of technologies is mature and readily available in the EU but needs to be deployed at scale for climate neutrality by 2050. Public funding will be needed to attract private capital and business models for this emerging market will also be essential.