The US Inflation Reduction Act (IRA) presented in August 2022, in its support for the energy transition ($369 bn allocated), is proving to have a greater impact than initially anticipated, for US domestic industry of course but also by pushing Europe to question the effectiveness of its own support policies in a context of value chain reconfiguration. On February 1 st, 2023, the European Commission published a proposal to strengthen its support plans for the energy transition, a "European IRA" under the name "Green Deal Industrial Plan for the Net Zero Age". In the meantime, pending the upcoming announcements that may be made during the European Council of March 23rd and 24th, let’s have a look into the measures that could support the growth of European companies offering green solutions.
IN SEARCH OF SIMPLIFICATION AND EFFICIENCY IN THE POLICIES SUPPORTING THE GREEN TRANSITION
Europe has historically been a pioneer in environmental policy, with the obligation to integrate environmental protection into the Union's sectoral policies as early as 1999 (Amsterdam Treaty), the definition of a specific objective to fight climate change as of 2009 (Lisbon Treaty), and the launch in 2019 of the European Green Deal, which aims to achieve carbon neutrality by 2050 and whose legislative implementation came in 2021 with the "Fit for 55" energy and climate change package (supplemented by the RePowerEU plan in May 2022). However, while there is no lack of ambition, the announcement in August 2022 of the Inflation Reduction Act (IRA) in the United States highlighted the complexity and slowness of implementing policies to support the energy and ecological transition in Europe.
The February 1st, 2023 announcement in response to the U.S. IRA focuses on three key areas :
- Regulatory simplification: presented under the name "Net Zero Industry Act", the regulatory pillar aims to create or strengthen measures to accelerate the deployment of green technologies needed to achieve the European Union's net zero objectives. This should include technologies already targeted by the Next Generation EU and RePowerEU plans (wind, solar, heat pumps, green hydrogen, storage) but also hydroelectricity, biomass and renewable gases. The objective is also to set quantified targets for the development of European green industry capacities by 2030 and to create a "one-stop-shop" to simplify administrative procedures.
- Clarification of financing methods: while the call by certain countries, France in particular, to create a European sovereign wealth fund dedicated to financing the ecological transition has not been accepted at this stage, the European Commission's objective is to clarify existing financing methods and to make the rules for their allocation and use more flexible The existing plans¹ should make it possible to mobilize about $330 billion by 2030 for the transition, in the form of loans to the States (it is then up to each State to allocate the resources to national projects) and direct subsidies.
The proposal to change the rules for direct allocation by States is probably the most significant element, via the extension of the temporary aid mechanism linked to the Covid crisis to the financing of the ecological transition (from the Temporary Crisis Framework " (TFC) to the "Temporary Crisis & Transition Framework" (TFCF). A consultation was launched around 5 axes.
Giving access to subsidies to all green technologies present in the Renewable Energy II Directive (including green hydrogen and biofuels) ; Subsidize a fraction of the capex dedicated to the decarbonization of the most emitting sectors in order to facilitate electrification, energy efficiency gains or the use of renewable hydrogen ;
Allowing reciprocity of aid for strategically important green technologies in order to avoid relocation outside the European Union ; Authorize tax credits for strategically important projects (Germany in particular would like to propose the possibility of using production tax credits for photovoltaic, wind and electricity network development projects) ;
Raising the exemption threshold for direct aid above which consultation at European level is required. The supply of critical raw materials: Europe is 98% dependent on China for its supply of critical materials essential to the ecological transition (rare earths, lithium, nickel, copper), and in the face of rising geopolitical risks, the European Commission wishes to strengthen Europe's ability to extract, transform and recycle these essential resources. Targets should be set in the framework of a dedicated law, the "Critical Material Act". OUR EXPOSURE TO THE GREEN TRANSITION IN EUROPE We are currently present in four companies with direct exposure to European energy transition funding: Iberdrola, a Spanish group of global scale present in networks (transmission and distribution) and renewable energy generation activities 50% of the group's investments by 2026 will be made in renewable assets, 45% of which in Europe (approximately $17 bn). EDP , a Portuguese group active in the generation, transmission and distribution of electricity, with approximately 70% of its business in Europe. EDP plans to invest €24 billion by 2025 including €8 billion in new renewable capacity in Europe.
Orsted, a Swedish company that is a world leader in the development, construction and operation of offshore and onshore wind farms. The group aims to increase its installed capacity fourfold by 2030 compared to 2021, i.e. approximately 50 GW.
Prysmian , an Italian group, world leader in cables for energy and telecoms, generating around 50% of its sales in Europe. The group has an order book of almost €7 billion for infrastructure projects for the supply of high-voltage cables (connection to the grids of offshore and onshore wind farms, solar farms, recharging and energy storage infrastructures).
