Energy transition - Accelerating the development of European industrial supply chains

Accelerating the development of European and Italian industrial supply chains in strategic sectors for the energy transition - such as PV, batteries and heat pumps - to reach the decarbonization targets set by Brussels. The goal is ensuring greater levels of energy safety and strategic autonomy to EU Countries. These are only some of the insights that emerged from the report “Energy transition strategic supply chains. Industrial roadmap for Europe and Italy” by Fondazione Enel and The European House - Ambrosetti in partnership with Enel. The study was presented at the beginning of September, during the 49th edition of the Cernobbio Forum.

2030 targets

The analysis shows how, in order to speed up the transition and decarbonization process, the EU must develop and implement a new strategic vision, where the energy transition revolves around the creation and strengthening of an integral and coordinated local technological and industrial basis. By recognizing the need to act swiftly and effectively to bridge the gap with international competitors - especially China - European and national institutions identified a series of targets to be reached before 2030, which would allow Europe to enhance the safety and sustainability of its energy system, while ensuring significant economic and social gains.

“The decarbonization process is a unique opportunity to support important industrial sectors for our economy and reduce our international dependency”, explains Nicola Lanzetta, Italian Director of the Enel Group. “A realistic objective, provided that the entire value chain is innovated in a sustainable sense.” Valerio De Molli, Managing Partner and CEO at The European House – Ambrosetti, adds: “In order to fully grasp the benefits of the current energy transition, investing massively in infrastructures is not enough; we also need to develop local competences and strengthen “green” industrial supply chains.”

This process is strategic, as it will support the expected growth over the next years, while reducing the technological dependency on third-party Countries. The report highlights how an effective use of the available funds, environmentally and socially-sustainable production processes, and a greater recycling capacity, R&D and innovation are the main factors detained by the EU and Italy to drive the development of local PV, battery and heat pump supply chains.

In a current market with a strong penetration of made in China products, the report shows how the EU can have a competitive advantage tied to the quality of “made in Europe” PV products. Indeed, the Old Continent has a great PV R&D capacity. If this capacity were to be translated into efficient, high-quality industrial products, this could be a relevant leverage for this area. 

By exploiting these opportunities and completing the projects announced within the terms, Italy and the EU will be able, in 2030, to meet more than 50% of the PV demand, about 90% of the battery demand, and over 60% of the heat pump demand, thus achieving the Net Zero Industry Act (NZIA) targets.”

Concentrating production in Europe

Italy and Europe have set ambitious goals to develop renewable energy sources and electrify end consumption. However, the supply chains for the main technologies needed to reach decarbonization are mostly outside of Europe, mainly in China (65% of the total on average), where investment costs in green technology production chains are significantly lower.

For instance, the manufacturing cost for PV module production plants in Italy is up to five times higher than in China. The same goes for battery production Gigafactories. It is estimated that investment costs in EU Countries are 33% higher than in China. And even manufacturing times are different. It takes up to three years to make a module factory in Europe, while in China it only takes between one to two years for a new plant to be operative. Concerning raw materials, Europe lacks in the production of polysilicon, bars, wafers, cells and PV modules.

All these issues may impact the decarbonization targets. Indeed, Europe should reach 30 GW/year of production capacity for all phases of the PV supply chain, and at least 550 GWh of production capacity for the battery value chain and 31 GW for heat pumps.

Concerning energy production technologies, an increase in the capacity installed in Europe will be registered for photovoltaic, the less expensive generation technology among those available. Between 2021 and 2030, the EU will register a 432 GW increase for solar power, compared to 323 GW for wind power. In the same period, the forecast for Italy is a 58 GW for solar power and 25 GW for wind power.

Measures to relaunch production and benefits

The report suggests the main policy measures to reach these objectives: using the public funds currently available effectively; strengthening socially and environmentally sustainable production processes; adopting ambitious policies in terms of material recycling and circular economy; developing cooperative innovation processes at European level; defining a transparent and stable regulatory and tax framework.

After defining the European and national manufacturing capacity growth scenarios as of the 2030 NZIA, the report focuses on the social and economic benefits resulting from the creation and strengthening of industrial supply chains in the sectors taken into consideration. Considering both the net benefits determined by the reduction of foreign products and technologies, and those direct, indirect and induced resulting from the creation of local supply chains, the investments necessary to reach the NZIA objectives would create economic gains up to over 640 billion euro from now until the end of the decade.