Competitiveness and decarbonisation must go hand in hand to grow Europe’s economy. Direct electrification is the cost-effective solution to decarbonise Europe, but despite the high technological potential, cost and regulatory barriers prevent this from happening at the scale needed. Eurelectric’s position paper shows how to make electrification more competitive for industry while keeping a sound business case for decarbonised power. The call is clear: policymakers should provide real incentives for industry to electrify by including the expected Electrification Action Plan in the EU Clean Industrial Deal, establishing an electrification bank, revising EU energy taxation policy and implementing the electricity market design reform.
Higher electrification will be crucial to both decarbonise and drive Europe’s competitiveness. Yet, only a third of industries’ final energy demand in industry is electrified today. On top, overall power demand has declined in Europe by 7.5% between 2021 and 2023 – shows Eurelectric’s Power Barometer 2024 – mainly due to industrial slowdown. If there is no demand for power, there won’t be the investor certainty to invest. And if electricity is not more competitively priced there won’t be enough large consumers to drive demand for it. That’s why we need to work hand in hand with consumers. Policymakers can be a catalyst for these synergies.
“We need to find win-win solutions that work both for industry and energy. This requires carefully crafted political solutions. Brute-force interventions and short-term fixes will damage competitiveness and delay climate action” – said Eurelectric’s Secretary General Kristian Ruby.
As highlighted in the Draghi’s report, expensive energy bills are one of several factors hampering industrial competitiveness. High energy costs risk putting significant economic pressure on consumers, reducing their financial resources to invest in electric technologies to decarbonise and boost innovation for the EU to keep a competitive edge. Ensuring energy is more affordable is crucial. This should be achieved without scaring investors away from clean and renewable power investments, to simultaneously deliver on Europe’s decarbonisation efforts.
The first step to make electricity more attractive to consumers is fixing the EU’s current energy taxation policy. Eurelectric’s Power Barometer shows that following a significant drop between 2022 and 2023, wholesale electricity prices have stabilised below pre-energy crisis levels. On the retail end, however, unfair taxes and levies are influencing the competitiveness gap with international competitors. Taxes weigh on average 1.4 times more in the electricity bill compared to the gas bill in the EU. The revision of the European Taxation Directive is the opportunity to level the playing field between the two vectors.
Another way to shield consumers against highly volatile prices is implementing the electricity market reform. Fostering access to long-term contracts such as power purchase agreements (PPAs) and contracts for difference (CfDs) for clean power procurement will provide price stability to large energy users and visibility on return for suppliers. The PPA market is growing but not at the needed speed, with most volumes concentrated in Spain and Germany. Beyond that, Europe also needs tobreak the dependence on fossil fuel imports to reduce the exposure to highly volatile gas prices and bring down energy costs. The surest way to do so is by boosting clean and renewable power.
Policymakers could help in this regard by establishing a toolbox of solutions to incentivise the electrification of industrial processes through, for instance, a dedicated electrification bank, the proposed competitiveness fund, and counter guarantees. This is essential as higher electrification translates into higher efficiency, lower energy use and ultimately lower energy bills.
The electricity industry calls on the European Commission to include an Electrification Action Plan within the Clean Industrial Deal, remove cost and regulatory barriers to electrification and incentivise synergies between industry and energy to make our economy thrive towards net-zero.
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