Super Mario to the EU’s rescue, again

After months of waiting, former Italian Prime Minister, Mario Draghi, published his report on The future of European competitiveness – A competitiveness strategy for Europe and passed it on to Ursula von der Leyen ’s hands. Twelve years have passed since the “Whatever it takes” speech that began Draghi’s mission – at the time as President of the European Central Bank – to rescue the eurozone from the Euro Crisis (which also earned him the nickname “Super Mario”). Now, he is back in action, trying to save Europe from a ‘slow agony’ of declining global competitiveness.

From innovation to decarbonisation and security, the comprehensive report sets the basis for a new industrial strategy which will require around three times the investments that were deployed by the post-World War II Marshall Plan.

Today we’re looking at its content and the implications for the power sector based on a first reading of the report and on Draghi’s speech at the European Commission .

The genesis

Last year, Commission President, Ursula von der Leyen, tasked Draghi with producing a comprehensive report on Europe’s competitiveness which was to complement Enrico Letta ’s report on the EU’s internal market. Initially set to be published in June, Draghi’s report was inevitably postponed until today, due to political considerations around proposed investment figures.

To put together the mammoth 400-page report, Draghi has counted on the contribution of the Commission’s team, experts from the academic community, the corporate world, social partners, the European Parliament , as well as Member States. Such a diverse and cross-sectoral approach is something that has been appreciated among its readers and that explains the granularity of the report.

What’s in the report – and what it means for the power sector

Draghi’s vision to revitalise Europe’s industry includes around 270 proposals in three main areas for action.

1. Close the innovation gap with the United States

Innovation is pointed out as the long-neglected child, especially in the field of digital technology. For this reason, the EU is lagging behind the United States, where almost 30% of European “unicorns” (startups reaching a $1 billion valuation without being publicly listed) have moved since 2008.?

To close this gap, Draghi deems it necessary to break down the existing barriers to commercialise and scale up innovative solutions in the EU. Interestingly, The Artificial Intelligence (AI) revolution is highlighted as an opportunity that the EU should not miss.

The power sector offers a great example for this: at a time when companies like E.ON need to make “one connection every seven seconds of a working day” to stay on track with the 2030 electrification targets, AI holds great potential to accelerate the energy transition.

At Eurelectric we work on these themes and explore solutions within our Digitopia business hub, where we gather digital gurus in the energy space to exchange ideas, discuss common challenges, and share best practices in a peer-to-peer setting.

2. Decarbonisation combined with competitiveness

This second point is the one we are most interested in. As Draghi said during his speech on Monday, “We want decarbonisation to be a source of growth”, and we could not agree more. The point is that efforts to decarbonise society have not always been framed by a wider lens that includes competitiveness and growth.

Take the example of electric vehicles: according to Power Barometer 2023, electric passenger cars sales have grown?by 21% from 2021 but should be reaching 58% in only 6.5 years to meet Europe’s 2030 decarbonisation targets. And the latest figures are not showing signs of acceleration but are rather gloomy. Europe needs to take action to accelerate the production of affordable passenger electric vehicles (EVs), or we risk production moving elsewhere. Actually, this is happening already.

With its cheap, state-subsidised, and driver-friendly EVs, China is dominating the EV sales race – and the same scenario can be applied to solar photovoltaics (PV). Meanwhile, the US’ Inflation Reduction Act (IRA) is threatening to bring clean tech innovations across the Atlantic with attractive subsidies. What actions will von der Leyen’s second Commission take to plug the competitive leakage? So far, there have been mentions of a Clean Industrial Deal to be launched within the first 100 days of her new mandate, but only time will say what will be put on the table.

Nonetheless, Draghi does not only explore how to provide the clean technologies that enable decarbonisation. His main focus is how to lower energy prices – and this brings the focus back to the all-too-well-known electricity market. Since we had quite a say on the topic last year during the reform of the electricity market design, we will dive deeper on the points raised by Draghi later, with our analysis. ?

3. Increasing security and reducing dependencies

The third area in this report addresses increasing security and reducing dependencies. For the power sector, this issue became crystal clear when Russia invaded Ukraine and weaponised gas supplies in a bid to tamper support for Ukraine.

On top of it, with the need to accelerate the energy transition, new dependencies could emerge as the raw materials and technology value chains that make the transition possible rest in the hands of a few suppliers. Draghi has a set of recommendations to address these risks – and so do we.

We have started a project on energy security that aims at redefining the concept of security of supply as an issue for the sector and bring more awareness of the issue to the public. This stems from the acknowledgement that the energy security has two different dimensions (an internal and an external one), and both come with their specific sets of risks that the power sector, and society need to consider if we are to be successful in our net zero journey.

It is therefore encouraging that the security dimension is an important pillar of Draghi’s plan for Europe’s competitiveness, and we look forward to unveiling more of our work on the topic. But for now, let’s stick with the content of Draghi’s report.

The Electricity Industry’s reaction

Our Policy Advisors are deep diving into the gigantic report, and we will come out with more detailed observations, but there are already a few points on which we can share our preliminary comments.

Let’s start with the good: it was nice to see that Draghi’s recognition of the benefits of an internal electricity market that is based on a marginal pricing system that promotes efficiency and ensures competition – something we have advocated for during the reform of the market design.

Moreover, the report highlights the importance of long-term instruments like Power Purchase Agreements (PPAs) and Contracts for Difference (CfDs) to better pass on the benefits of affordable renewable and clean energy to consumers and enhance the competitiveness of the EU. These are indeed two key elements in ensuring investments in the energy transition, especially CfDs which can foster investments in a power generation asset with significant upfront costs and capital-intensive expenses (Capex) by providing price visibility over the long term. In this video, Fabien Roques and Cesar Villar debunk the myths around CfDs.

However, there are some aspects of the report that are not "market-friendly" and could undermine investor confidence. As our Secretary General stated,

"It will be important to take a systemic perspective when considering having a predefined share of public subsidised production to specific industries. In essence, this is a major market intervention which we fear will act as a disincentive to invest in the electricity sector. At a time when we are competing with other sectors to attract capital, we feel this is not the correct approach.” – Kristian Ruby

What next?

The report will be instrumental for Ursula von der Leyen’s second term, giving recommendations on which direction to steer the EU as it juggles geopolitical tensions, industrial challenges and decarbonisation efforts.

This comes at a perfect time as she is still set to allocate the different portfolios by next Tuesday, 17 September. At that point, we will have some insight into what the report meant for her and the Commission she is trying to build for the coming five years.

This week's edition written by:

Chiara Carminucci, Digital Communications Officer - Eurelectric

With technical input from:

Nicholas A. Steinwand, Policy Communications Advisor - Eurelectric

Eleonora Rinaldi, Press and Media Relations Officer - Eurelectric

Christian Gruber, Advisor – Wholesale Markets - Eurelectric

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