Energy transition: Europe must not lose momentum and can be a leader.

The world is facing one of the most important challenges in its history: making decarbonization, and in particular energy transition, a success. As economic and geopolitical balances are shifting, the underlying issues of reindustrialisation, jobs and sovereignty raised by this transition must finally be answered.?

The IRA is working.?It is a true wake-up call for the EU. Since its launch, about $213 billion were invested to manufacture and deploy clean energy for 2022/2023 in the US. A huge leap in comparison to the prior period 2021/2022, with ‘only’ $155 billion. These investments brought significant growth in solar energy, battery storage, as well as the launch of many H2 projects.?

The IRA’s key strength: its simplicity.?Its support mechanisms are much simpler than those of the EU, not so much in terms of funding as in terms of access to that funding. In the EU, we are still operating within a complex system of call for tenders, subsidies,?State aid approvals?while the US?tax credit?system functions by means of administrative applications. A striking illustration is hydrogen development. While Europe is stuck in an endless debate around its color,?additonnality etc.?the US clearly chose to support any type of low carbon hydrogen. And they support it effectively: with the introduction of a tax credit of $3 per kilo of green H2 – ensuring thus the immediate profitability of projects. The current EU system (based on?IPCEI/State aid approvals) is much more complex, with sometimes 18 months between file application and award, and unpredictable outcomes.?

Europe used to have a vision and to lead the energy transition – with the Green Deal and?the Fit for 55 Package –?which includes?the Renewable Directive, the ETS system. Most importantly, we?had a broad public support to back us. Our leadership was a competitive advantage.

Europe should not lose its momentum. We were ahead of the game, and we can still be.??

On the energy front, the feat is monumental. To develop the low carbon energy system of tomorrow - one that is affordable, socially equitable and therefore desirable, we need:??

• A massive deployment of renewable energy, primarily electric. According to?ENGIE’s energy transition scenario for Europe, wind and solar need to increase 3.5 fold by 2035 and 6 fold by 2050.?

• To multiply by 4 our flexible capacities: 600 additional GW will be necessary to accompany the intermittence of renewables.??
• To combine two key drivers, both crucial to meet our ambitions: gas and electricity - the alliance of the electron and the molecule. E-molecules’ demand is expected to increase 6 fold by 2050 (IEA’s Net Zero Scenario).?

We now need to accelerate!?At ENGIE, we are on track:?

• For 2023-2025, we expect to invest 22 to 25 billion euros worldwide, more than half in Renewables, with a target of 80GW of renewable capacity by 2030.?
• To ensure the robustness of the system, we are developing flexible assets targeting 10 GW of battery storage capacity worldwide by 2030.?
• We have the ambition to produce 10TWh per year of biomethane in Europe and to operate 4GW of H2 production capacity worldwide by 2030.?

However, the European energy sector is today in a tight spot. At the very moment we need to gather some speed, we seem to be stuck. Surging inflation, supply chain bottlenecks, fierce international competition,?challenge to the Green Deal, misalignment regarding the best energy mix?for Europe.

What we need is to remember our vision, present a united front, and grease the European machine.?

This will be achieved through:???

• A long-awaited decision on the?revised market design?– which preserves the integrated market – with simple mechanisms to encourage much-needed investments in renewable energy, flexible capacity and power networks?(introduce instruments offering long-term price signals for low-carbon investments like PPAs and CfD when necessary?/ encourage the development of flexible assets thanks to existing mechanisms such as CRMs and stationary storage /?increase investment in power grids but also in methane and hydrogen networks).
• Simplified, clarified?support?schemes?-?IPCEI, Innovation Fund, Sovereign Fund in the future??,.?They should be outcome-based and technology agnostic, to enable the emergence of new low carbon sectors.???
• A?clear industrial strategy. Europe has to make choices. We will not be able to relocate all our supply chains because of competitiveness challenges. But we need to be clear about what needs to be done for reasons of sovereignty. Once these choices have been made, we need to give ourselves the means to put them into practice.?What happened with solar panels could very well happen with wind turbines if we don’t do anything to prevent it.??

We need a clear vision and goal: an affordable and resilient transition.

We need to convince people that the energy transition is synonymous with immense opportunities for our economy?and for the well-being of citizens.?

It creates jobs by developing new economic sectors, skills and professions. The transition certainly has a cost, which we are trying to minimize, but it is also an opportunity for growth. To succeed, we need to make this visible to the public; to make it credible and desirable. This is vital to turn our vision into reality. Otherwise, we will face a massive backlash.?