EUROPEAN COMMISSION

Brussels, 14.10.2020

SWD(2020) 953 final

COMMISSION STAFF WORKING DOCUMENT

Clean Energy Transition – Technologies and Innovations

Accompanying the document

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL

on progress of clean energy competitiveness

{COM(2020) 953 final}

Clean Energy Transition – Technologies and Innovations Report (CETTIR)

Contents

Clean Energy Transition – Technologies and Innovations Report (CETTIR)

1.Introduction

2.Overall Competitiveness of the EU clean and low carbon energy sector

2.1.Macroeconomic competitiveness analysis

2.2.Share of EU energy sector in EU GDP

2.3.Human capital

2.4.Research and innovation investments

3.Focus on key clean energy technologies and solutions

3.1.Introduction - Energy system trajectories to the time horizons 2030 and 2050

3.2.Offshore renewables - Wind

3.2.1.State of play of the selected technology and outlook

3.2.2.Value chain analysis

3.2.3.Global market analysis

3.2.4.Future challenges to fill technology gap

3.3.Offshore renewables – Ocean

3.3.1.State of play of the selected technology and outlook

3.3.2.Value chain analysis

3.3.3.Global market analysis

3.3.4.Future challenges to fill technology gap

3.4.Solar Photovoltaics

3.4.1.State of play of the selected technology and outlook

3.4.2.Value chain analysis

3.4.3.Global market analysis

3.4.4.Future challenges to fill technology gap

3.5.Renewable hydrogen through electrolysis

3.5.1.State of play of the selected technology and R&I landscape

3.5.2.Value chain analysis

3.5.3.Global market analysis

3.5.4.Future challenges to fill technology gap

3.6.Batteries

3.6.1.State of play of the selected technology and R&I landscape

3.6.2.Value chain analysis

3.6.3.Global market analysis

3.6.4.Future challenges to fill technology gaps

3.7.Buildings (incl. heating and cooling)

3.7.1.Prefabricated building components

3.7.2.Energy efficient lighting

3.7.3.District heating and cooling industry

3.7.4.Heat pumps

3.8.Carbon Capture and Storage

3.8.1.State of play of the selected technology and outlook

3.8.2.Value chain analysis

3.8.3.Global market analysis

3.8.4.Future challenges to fill technology gap

3.9.Geothermal

3.9.1.State of play of the selected technology and outlook

3.9.2.Value chain analysis

3.9.3.Global market analysis

3.9.4.Future challenges to fill technology gap

3.10.High Voltage Direct Current

3.10.1.State of play of the selected technology and outlook

3.10.2.Value chain analysis

3.10.3.Global market analysis

3.10.4.Future challenges to fill technology gap

3.11.Hydropower

3.11.1.State of play of the selected technology and outlook

3.11.2.Value chain analysis

3.11.3.Global market analysis

3.11.4.Future challenges to fill technology gap

3.12.Industrial heat recovery

3.12.1.State of play of the selected technology and outlook

3.12.2.Value chain analysis

3.12.3.Global market analysis

3.12.4.Future challenges

3.13.Nuclear energy

3.13.1.State of play of the selected technology and outlook

3.13.2.Value chain analysis

3.13.3.Global market analysis

3.13.4.Future challenges to fill technology gap

3.14.Onshore wind

3.14.1.State of play of the selected technology and outlook

3.14.2.Value chain analysis

3.14.3.Global market analysis

3.14.4.Future challenges to fill technology gap

3.15.Renewable fuels

3.15.1.State of play of the selected technology and outlook

3.15.2.Value chain analysis

3.15.3.Global market analysis

3.15.4.Future challenges to fill technology gap

3.16.Solar thermal power

3.16.1.State of play of the selected technology and outlook

3.16.2.Value chain analysis

3.16.3.Global market analysis

3.16.4.Future challenges to fill technology gap

3.17.Smart Grids – Digital infrastructure

3.17.1.Smart Grids in the energy transition

3.17.2.Investment in Smart Grids & digital infrastructure

3.17.3.Digital infrastructure for O&M of the Grid

3.17.4.Digital infrastructure for flexibility management in the grid

3.17.5.Future challenges

3.18.Citizen and community engagement

3.18.1.Citizen and community engagement in the Energy transition – status and outlook

3.18.2.Technical and regulatory barriers & possible solutions

3.18.3.Social and behavioural barriers and key elements from science, research and innovation to address them

3.18.4.R&I to further develop citizen and community engagement

3.18.5.Challenges

3.19.Smart cities & communities

3.19.1.Introduction

3.19.2.Current situation and outlook

3.19.3.Value chain analysis

3.19.4.Global Market analysis

3.19.5.Challenges

4.Conclusions

5.List of missing indicators for specific technologies/topics

List of acronyms

1.Introduction

The Clean Energy Transition – Technologies and Innovations Report (CETTIR) is the underpinning analysis to the first annual Competitiveness Progress Report 1 (CPR) based on the results of the Low Carbon Energy Observatory 2 . It includes all the data supporting the arguments made in the Progress Report, as well as assessment of further key clean and low carbon energy technologies 3 . Further technologies will be addressed in future Competitiveness reports.

There are various definitions of competitiveness in the literature 4 , while “there is no single indicator that captures the essence of its meaning for an economy” 5 . For the purpose of this report, competitiveness of the clean energy sector is understood as “the capacity to i) produce affordable, reliable and accessible clean energy through clean energy technologies; ii) use clean energy productively; and iii) compete in energy and energy technology markets, with the overall aim of bringing benefits to the EU economy and people”.

The present Staff Working Document is structured in the same way as the CPR, and analyses competitiveness of the European clean and low carbon energy sector as follows:

I)Macroeconomic analysis assessing the overall competitiveness of the European clean and low carbon energy sector (part 2)

II)Analysis assessing the competitiveness of 18 clean and low carbon energy technologies and cross cutting topics (part 3)

The analysis is based on a range of competitiveness indicators, which are analysed through three steps:

I.Technology analysis – state of play and outlook

II.Value chain analysis

III.Global market analysis by comparing it with other key regions (e.g. US, China, Asia without China)

Table 1 Grid of indicators to monitor progress in competitiveness 6

Competitiveness is a multi-dimensional concept, which can be applied and measured at different levels of economic analysis. Nonetheless, it is always conceived, and evaluated, in comparison to the performance of others. The majority of existing competitiveness indices are composite indicators built on a number of variables. They address countries or geographical areas (i.e. Europe) rather than the EU as one entity and cover the entire economy and not specific sectors (i.e. low-carbon industry). The indices and underlying datasets are not always available at the desired level of granularity, or consistently updated.

Ideally, competitiveness indicators should:

·focus on the most relevant dimensions of industrial competitiveness and cover all sectors and markets open to competition;

·be straightforward and – as far as data is available – allow comparison of the EU with global trading partners based on robust and timely statistical data.

In practice, none of the competitiveness indicators encountered in literature can fulfil all these criteria. Following a review of frameworks and datasets 9 , the above indicators have been chosen for consideration in this first report, as more relevant to the competitiveness of the low-carbon industries.

Data availability remains the major limitation for the analytical evaluation of competitiveness and its quantification through a set of indicators. Existing data classifications often do not differentiate between low-carbon or conventional energy activities. In addition the definition of what ‘low-carbon’ or ‘clean energy’ entails differs across literature and data sources, and thus the group of actors covered, and underlying estimation methods also differ.

Future work could improve on the selection of indicators, were needed, and address the quality, coverage and consistency of data sources that underpin them. The indicators could be further grouped so as to focus on specific aspects of competitiveness. The construction of an index may be helpful in monitoring progress though a single metric.

2.Overall Competitiveness of the EU clean and low carbon energy sector 

The European Green Deal aims at transforming the European economy by decoupling the growth and the use of resources, and reaching carbon neutrality by 2050 10 . This context requires a new focus on the relationship between research and innovation activities and technologies’ competitiveness which will enable to reach the EU Green Deal objectives. The better understanding of the role of technology evolution, within the transition period, allows to identify potential technology gaps and resource constraints in order to fully reap the competitive advantage of the energy transition.

The speed and the effectiveness of the European innovation cycle in delivering the solutions required by the transformation will steer the competitiveness of the EU industrial system and its place in the world, as well as the EU’s economic recovery from the Covid-19 pandemic. The European Commission’s Communication “A Clean Planet For All” 11 , strongly calls for putting in place a “forward-looking research and innovation strategy” with R&I addressing longer time perspectives.

The section below includes the macroeconomic indicators not covered by the CPR 12 , followed by an analysis of 18 clean and low carbon energy technologies, solutions and cross cutting topics.

2.1.Macroeconomic competitiveness analysis

The greenhouse gas (GHG) intensity of the EU economy has been decreasing by nearly 30% since 2005, while the EU economy has continued to grow. In 2018, this indicator was just under 300 tonnes of CO2 equivalents per million Euro of GDP, which is half of the value recorded for 1990.

Figure 1 DE4-GHG intensity of the economy

Source 1 EC, EEA

Similarly, the relative decrease in the GHG intensity for the power and heat generation sector in the 2005-2018 period was 26%. The 2018 intensity for the sector, of near 270 tons CO2 per GWh, is 44% lower than the 1990 reference value.

Figure 2 DE4-A2-GHG intensity of power & heat generation

Source 2 EEA/UNFCCC, ESTAT

Greenhouse gas emissions continue to decrease in absolute terms, per capita and per Euro generated in the economy. Most sectors, and particularly energy supply, industry and residential, reduced emissions; transportation is a notable exception where demand outpaces climate‑policy benefits. Emissions have decreased in parallel with increasing GDP, confirming that attempts to mitigate climate change do not necessarily conflict with a growing economy, but much faster emission reductions will be needed to achieve climate neutrality by 2050 13 .

2.2.Share of EU energy sector in EU GDP

Overall, in 2017, in the EU economy the biggest sectors in terms of turnover were wholesale and retail trade (EUR 8.7 trillion), manufacturing (EUR 7.2 trillion), and construction (EUR 1.4 trillion) 14 . In this context, energy represented EUR 1.8 trillion in 2018. Turnover from renewable energy sources in EU27 was EUR 0.146 trillion in 2018, up from EUR 0.127 trillion in 2011 15 .

EU27 value added in the energy utilities sector 16 , 17 was the highest in the world at EUR 221 billion in 2014, with US second at EUR 212 billion. Average annual growth at 4.4% (2000-2014) in value added of the energy utilities sector 18 falls behind Brazil (8.7%), UK (7.6%), and US (5.6%). However, when looking at value added per employee (growth of 5.8%) or per hour worked (5.2%), EU27 has improved the most from 2000 to 2014, second only to Brazil (9.2% and 9.7%).

Figure 3 Value added, value added per employed person, value added per hour worked

Source 3 JRC

Productivity had increased while labour intensity has decreased in the period between 2000 and 2014. This can be explained by capital investments improved productivity 19 . Labour-intensity has decreased also in Brazil, in Japan and in the US. In China, India, South Korea and UK it has increased. In absolute terms, EU27 value added per employee has increased from EUR 109 706 to EUR 198 231. In absolute terms US had the highest value added per employee in 2014 standing at EUR 401 257. EU27 value added per hour worked has increased from EUR 64 to EUR 110 (2000-2014), with US having highest level at EUR 202 per hour in 2014.

Labour productivity has increased in clean energy sector. However, productivity (turnover per employee) varies significantly among EU27 MSs between technologies, from EUR 155 000 in wind energy to EUR 59 000 in biofuels 20 . Main contributors to total RES turnover are wind (28.5%), biomass (20.1%) and heat pumps (16.9%), while highest turnover per employee is wind, waste and solar PV, in 2017-2018.

Figure 4 Turnover per employee and share of total RES turnover

Source 4 JRC based on EurObserv'ER data

As outlined in the Price and Cost report 21 , following an increase between 2005 and 2012, real unit energy costs in the EU have stabilised towards 2016 at about 18% of the value added in the manufacturing sector 22 . Even though this is a considerable change relative to 2005 (58% increase), with the exception of the US, the share remains lower than in other major economies. Real unit energy costs are mostly influenced by two main drivers: energy prices and energy efficiency measures implemented. Electricity and gas prices for industrial consumers vary within the EU.

Figure 5 RIC3-Real unit energy costs (% of value added) in the manufacturing sector (excl. refining)

Source 5 DG ECFIN and DG JRC, based on WIOD. Note: EU27_2020 has the same figures as EU28 (due to lack of data)

Figure 6 RIC3-A1: Electricity and gas prices for industrial customers

Source 6 EUROSTAT, IEA

Electricity and gas prices for industrial consumers vary within the EU and, on average, the EU seems to have an advantage versus some major economies and a disadvantage compared to others.

Figure 7 SoS1 – net import dependency

Source 7 EUROSTAT

Despite a short-term improvement and reduction of energy import dependency between 2008 and 2013, there has since been an increase for the EU27 23 . In 2018 net import dependency was 58.2%, just over the 2005 level, and almost equalling the highest values over the period. Although the fossil fuel extraction in the UK has kept net import dependency lower for the EU28, in absolute terms, it has not meaningfully changed the increasing trend recorded since 2013.

While clean energy technologies reduce fossil fuel dependence, and associated economic and environmental impacts, they are not free from similar issues related to the resources (raw materials) needed for their deployment. However, unlike fossil fuels, raw materials have the potential to stay in the economy through extended value chains and recycling, impacting the capital expenditures but not the operational expenditures of a project.

The EU depends strongly on other countries for raw and processed materials, and often also for components and final products. It is however an important producer of high technology components. While the market for base materials is well diversified specific, often high-tech materials are only available from a handful of countries (e.g. China produces over 80% of the available rare earths for permanent magnet generators) 24 . This risks replacing fossil fuel dependence with dependence on raw materials. To address this risk, diversification of raw materials supply through sourcing from both in- and outside the EU, as well as resource efficiency and circular economy considerations will be key going forward. R&I can provide additional measures to decrease supply risks through e.g. substitution and increase resource efficiency and circularity.

Figure 8 Recycling potential of materials for wind turbines, solar PV panels and batteries 25

Source 8 JRC 26

2.3.Human capital 

Direct employment in the clean energy sector has grown more than in the rest of the economy since 2000, despite slowing down and stagnating after the previous economic crisis. Particularly solar PV jobs experienced downturn as installation rates fell in the EU due to changes in the support scheme and manufacturing capacity concentrated to Asia. In the recent years jobs in solar PV have started to pick up again, growing 42% between 2015 and 2018. Employment in the wind sector has remained largely at similar levels between 2015 and 2018, although in recent years there have been weak signals of contraction in Germany, which is the biggest employer in the wind sector 27 . Employment has grown the most in biomass and biofuels. Overall, the biggest renewable energy sectors in EU27 in 2018 were biomass (344 100), wind (242 500), biofuels (239 600), and heat pumps (222 400).

Figure 9 Renewable energy employment, 2015-2018 28

Source 9 JRC based on EurObserv’

Labour productivity (gross value added per employee) has improved significantly in the renewable energy sector. As a result of technological improvement, automation, and other innovation in the supply chain, more capacity can be added with fewer jobs. For example, in the US job intensity of solar PV has dropped from 101 jobs/MW in 2010 to 23 jobs/MW in 2017 29 . Decreasing trend is observable in EU as well for wind and solar PV 30 .

Direct jobs in fossil fuel extraction and manufacturing activities have decreased from 410 000 to 328 000 in the period from 2011 to 2018 31 . Jobs in mining coal and lignite have decreased the most dramatically, falling from 215 935 in 2011 to 135 698 in 2018, and in extraction of crude petroleum and natural gas from 65 548 to 35 440 in EU27 during the same period. Decrease has been to some extent balanced by growth in manufacture of coke and refined petroleum products, and support activities. In the US jobs in mining of energy products have decreased from 246 000 to 195 000 (2010-2018), whereas jobs in manufacture of coke and refined petroleum products have remained at same levels at 113 000 in 2018 32 .

EU27 utilities sector employed 1 116 000 in 2014 33 , decreasing annually by 10.7% since 2000. In contrast in China (12.4%), India (94.8%) and South Korea (62.1%), employment in utilities sector has increased during this period. In the US (-10.7%), Brazil (-34.3%) and Japan (-27.0%) employment has decreased. In China and India the sector employs almost 3 million and 2 million people respectively.

Figure 10 Employment in Electricity, gas, steam and air conditioning supply, 2000-2014

Source 10 JRC based on WIOD Database

The green and digital transitions in the context of recovery from the COVID-19 pandemic is also impacting the EU energy sector in terms of availability of skilled workers. While the provision of education and training responses is ongoing, the greening energy sector continues to face challenges in terms of having enough workers with the required skill sets at the locations where they are in demand. Engineering and technical occupations, IT skills and ability to utilize new digital technologies, knowledge of health and safety aspects, specialised skills for carrying out work in extreme physical locations (e.g. at height or at depth), soft skills like team work and communication, as well as English language (due to having to work in international teams) are in high demand 34 .

From a gender point of view, on average in 2018, women were found to represent 46% of the administrative workforce, 28% of the technical staff, and 32% of senior management positions in clean energy companies 35 . Women represented only 28% of STEM jobs in renewables.

For comparison, broad energy and energy efficiency sectors in the US employ 8.3 million people in 2019, comprising 5.4% of the US workforce. Production, transmission and distribution of fuels and electricity employed 3.3 million people, with 1.2 million working in traditional coal, oil and gas, while almost 740 000 36 workers were employed in low-carbon sector. Employment in the broad energy sector has grown 12.4% between 2015 and 2019, outpacing the general economy's employment growth rate of 6%. In total, these sectors added nearly 915 000 jobs over the 2015-2019 period 37 .

Recent figures showed slightly decreased gap compared to 2005 38 and there are signs that more women are entering as professionals in technical functions within the RE sector, although in the occupational trades there are still barriers often linked to stereotypes 39 . Given the slow progress to date in removing barriers to entry and career advancement, there is a risk that the clean energy sector will be deprived of a large share of its talent pool, unless effective, proactive gender-equity policies and programs are put in place 40 . Globally, women represent only 6% of ministerial positions responsible for national energy policies and programs, and account for less than a third of employees across fields within scientific research and development 41 . Better gender balance in male-dominated professions has been shown to improve well-being, work culture and productivity 42 .

In terms of gender balance, in the US women represent about 31% across all fuel types, which is lower than the national workforce average 47% 43 .

2.4.Research and innovation investments

Figure 11 High-value patents in clean energy technologies (cumulative)

Source 11 JRC 44 based on EPO Patstat

Patenting activity in clean energy technologies 45 peaked in 2012, but has been in decline since 46 . Within this trend, certain technologies of increasing importance for the clean energy transition (e.g. batteries) have maintained or even increased levels of activity. Clean energy patents account for 6% of all high-value inventions in the EU27. The share is similar for Japan, but higher than China (4%), the US and rest of the world (5%), and second only to Korea (7%) in terms of competing economies. The EU27 and Japan lead among international competitors in high-value 47 patents in clean energy technologies. However, the EU’s global positioning varies by technology. The EU27 has the highest share of high-value inventions, 60% seeking protection in more than one market; the US follows with 56% and Japan with 35%. In contrast, China’s exponential patent growth is almost exclusively domestic, with only 3% seeking international protection. In terms of specialisation, revealed as a higher share of inventions than the global equivalent, the EU performs better than the rest of the world in three of the Energy Union R&I priorities45. Namely, the EU maintains an – albeit shrinking – advantage in renewable technologies and CCUS, while increasing overall specialisation in sustainable transport technologies.

Figure 12 EU specialisation index in the Energy Union R&I priorities

Source 12 JRC44 based on EPO Patstat

The majority of inventions from multinational firms headquartered in the EU are produced in Europe and, for the most part, with subsidiaries located in the same country. Incentives, language & geographical proximity, explain major exceptions. Disruptions in the EU industry (e.g. in funding or personnel) will be the ones most affecting inventive capacity. Existing funding patterns could inform corporate R&I incentives and support measures.

One in five clean energy inventors in the EU are patenting for a company not headquartered in their country of origin. Even though, in around half of these cases both inventor and company are within the EU, this is the highest share among major economies. While this displays the EU’s strength as an attractive destination for highly skilled personnel, mobility restrictions and personal responses to the pandemic could affect the availability of skills and the research output.

Figure 13 Flow of financing, production and protection of EU clean energy innovation

Source 13 JRC44 based on EPO Patstat

The EU27 contributed 17% of scientific articles related to the low-carbon energy sector 48 , 49  published in 2019. Publications per GDP have only marginally increased for the EU27 between 2015 and 2019, in contrast to the global trend of a 6% annual increase driven by countries such as China, Brazil and India. The EU27 specialisation in clean energy has been decreasing between 2015 and 2019 50 , specialising instead in fields such as psychology and cognitive sciences, economics and business, and clinical medicine, at the expense of e.g. information and communication technologies, and engineering where much of clean energy research would come from. However, the EU27 did show specialisation in the areas of new materials & technologies for buildings, and in energy efficiency in industry. In terms of impact, the EU27 is slightly below the world average in terms of highly cited publications overall. However, it has a substantially better impact in the fields of new technologies & services for consumers, new materials and technologies for buildings, and nuclear safety. The EU27 scores above the world average in international scientific collaborations, and has a high share of open access publications (41% compared to a 29% world average). In contrast, other large economies collaborate much less proportionally, and tend to publish less through open access. Collaboration between public and private actors has been increasing and accounts for 14% of publications for the EU27, a score above the world average.

3.Focus on key clean energy technologies and solutions

3.1.Introduction - Energy system trajectories to the time horizons 2030 and 2050

The European Green Deal aims at transforming the European economy by decoupling the growth and the use of resources, and reaching carbon neutrality by 2050 51 . This context requires a new focus on the relationship between research and innovation activities and technologies’ competitiveness which will enable to reach the EU Green Deal objectives. The better understanding of the role of technology evolution, within the transition period, allows to identify potential technology gaps and resource constraints. Energy scenarios, projecting the trajectories that energy systems will possibly take to the relevant time horizons, represent a very useful instrument to reason on these themes and inform policy choices.

A recent study analyses a number of selected energy scenarios, modelling the energy system to the time horizons 2030 and 2050 52 . The scenarios selected in the study are the following:

I)European Commission – Long-Term Strategy 1.5 °C scenario (EC LTS 1.5TECH), as a technology-oriented decarbonisation scenario, which leads to carbon-neutrality by 2050. This scenario reaches net-zero GHG emissions also through the development of negative emission technologies and includes development of carbon-neutral hydrogen and hydrocarbons based on a zero or negative emissions power system.

II)European Commission – Long-Term Strategy 1.5°C scenario (EC LTS 1.5LIFE), based on lifestyle changes, also leads to carbon-neutrality by 2050.

III)The IEA WEO Sustainable Development Scenario (IEA WEO SDS), which in addition to tackling climate change, addresses other energy-related Sustainable Development Goals (SDG).

IV)JRC Global Energy and Climate Outlook (GECO) 2 °C medium scenario (JRC GECO 2C_M), which is based on a global GHG trajectory for keeping global temperature rise below 2°C by 2100. v) IRENA Global Energy Transformation, Transforming Energy Scenario (IRENA GRO TES), is IRENA’s main decarbonisation scenario, based largely on renewable energy sources and steadily improving energy efficiency, to keep the rise in global temperatures to well below 2 oC by 2100. IRENA GRO TES leads to the lowest reduction in emissions across all scenarios, and is the most ambitious global reduction scenario providing detailed results for the EU, very useful for this comparison. vi) BNEF New Energy Outlook (BNEF NEO) focuses on the power sector only and partly on the demand side. The regional scope is Europe (EU28, Iceland, Norway, and Switzerland). The BNEF NEO scenario is interesting because it bases the projection of high shares of renewable energy supply on the competitiveness of renewable energy technologies rather than on a policy push.

V)Greenpeace’s Energy Revolution scenario (GP ER), developed in 2015, pursues a target of reducing global CO2 from energy use down to around 4 GtCO2 by 2050, to limit the increase in global temperature under 2°C. The scenario also includes the objective of phasing-out nuclear energy.

It is remarked that the above scenarios have differences in their scope, which makes their direct comparison not always legible on one indicator or another. For example, GP ER regional scope is Europe as defined by OECD, and as such different from EU, BNEF NEO covers mainly the power sector and is not a climate change scenario, or e.g. IRENA GRO TES leads to the lowest reduction in emissions across all scenarios, and is the most ambitious reduction scenario after the EC LTS scenarios. Recognising these differences, it was opted to compare studies leading to ambitious decarbonisation but different storylines to derive commonalities and differences.

The European Commission has analysed the Long-Term Strategy scenarios in the new context of the EU Green Deal and the accelerated emission reduction ambitions for 2030 (i.e. minus 50-55%) 53 . New scenarios, derived from the EC LTS 1.5TECH scenario have been constructed, updating the assumptions and minor modelling 54 . While the updates cause changes to the shorter-term projections up to 2030, due to the changed assumption on the 2030 accelerated emission reduction, the technological options for the longer term remain unchanged. The updated scenarios may show the requirement of an earlier uptake of technologies in order to meet the higher 2030 ambitions, remarking the urgency of the adequate technological adoption.

The discussion on the results of these different scenarios is useful to derive common ideas and guidance regarding key technologies and policies to underpin the Competitiveness Progress Report.

Figure 14 Projected energy system losses from gross inland consumption to final energy consumption according to the indicated scenarios, EU28 year 2050

Source 14 Study commissioned by the DG ENER, European Commission “ASSET Study commissioned by DG ENERGY - Energy Outlook Analysis (Draft, 2020) 55 ”

The scenarios, in spite of their significant differences, show a similar trend in the medium-term which points to a reduction of primary energy demand. The outlooks project a range of EU28 gross inland consumption from 1300 Mtoe to 1400 Mtoe in 2030. For the time horizon 2050, the range of the projections is wider, going from 980 Mtoe to 1475 Mtoe (in 2018, the EU gross inland consumption was 1664 Mtoe). The wider consumptions range in 2050 is associated with the EC LTS scenarios achieving carbon neutrality, which includes the use of hydrogen and synthetic fuels. Energy system losses are lower than today in scenarios that include high amounts of renewables in power generation and high electrification in final demand and no or limited amount of hydrogen and synthetic fuels. Scenarios that involve production of hydrogen and synthetic fuels from electricity increase the system losses, due to the additional energy conversion steps in electrolysis and e-fuel processes. The EC LTS (1.5 TECH and LIFE) scenarios project that hydrogen and e-fuels will be required in the system in order to be able to achieve carbon neutrality. This reduces the overall system efficiency increasing the gross inland consumption ( Figure 14 ). The other scenarios such as IEA WEO SDS and IRENA GRO TES continue to consume fossil fuels and do not achieve climate neutrality. These scenarios have higher system efficiency but also remaining emissions in 2050.

Although the wide variation in gross inland consumption, the scenarios project final energy consumptions located in a narrower range, from 630 Mtoe to 780 Mtoe, in 2050. This also means that the reduction of the final energy demand, in all sectors, represents a key driver to achieve the emission reduction target. The gross electricity generation in the EU was about 3270 TWh in 2018, 33% produced from renewable sources. All selected scenarios project a considerable increase in electricity generation already in 2030, and a much higher increase by 2050. This growth is primarily due to direct electrification of demand sectors (especially the electrification of private passenger road transport and highly efficient heating by heat pumps). Moreover, also the production of hydrogen and synthetic hydrocarbons through electrolysis, which is projected in some scenarios, further increases the demand for electricity. According to the scenarios, the size of the power sector expands to at least 20% by 2030-2040, and up to 70% by 2050, compared to current size.

Another common element resulting from the scenarios is the deployment of hydrogen and e-fuels in the energy sector, which ranges from 6% to 23% in 2050, while such consumption is currently negligible. To note that the two EC LTS scenarios, achieving net-zero emissions in 2050, project that electrification, primarily in the Light Duty Vehicles segment, hydrogen and e-fuels, along technology improvements, behavioural changes and coordinated investments in infrastructure along high shares of hydrogen and e-fuels of the range. As previously stated, the use of electricity to hydrogen and e-fuels may increase the total system conversion losses, compared to today. It is worth to note that the deployment of hydrogen and e-fuels in the energy sector by the time horizon 2050 is also reported elsewhere 56 .

Figure 15 RES share in gross power generation in decarbonisation scenarios in the EU28

Source 15 Study commissioned by DG ENER, the European Commission “ASSET Study commissioned by DG ENERGY - Energy Outlook Analysis (Draft, 2020)”

All scenarios project a similar increase in the share of RES in power generation. This ranges from 51% to 66% in 2030 and from 75% to 95% in 2050 ( Figure 15 ), compared to about 33% today. BNEF NEO represents the upper bound with RES power supply reaching high shares earlier in the time horizon. It is already 72% in 2030 and 86% by 2040, driven by the faster cost reduction in renewable power supply technologies compared to other scenarios. The increase in generation from renewables is based on the significant increase in power production from wind and solar. Comparably, hydropower and bioelectricity only increase slightly from today’s levels over the projection horizon.

The deployment until 2030 is comparable across the scenarios. Differences emerge mainly after the year 2040, again linked with the production of hydrogen and synthetic fuels Figure 16 ).

Figure 16 Installed capacity of wind and solar in the selected scenarios in the EU28, year 2030 and 2050 (GW)

Source 16 ASSET Study commissioned by DG ENERGY - Energy Outlook Analysis (Draft, 2020)

All the scenarios project a continuous and remarkable expansion of both wind and solar deployment, although at different absolute levels. For instance, the deployment of wind and solar in 2050 in EC LTS 1.5TECH reaches 2240 GW while in IRENA GRO TES it is 1405 GW. The relevant differences in the absolute capacity levels projected by the scenarios is not evident observing the share of penetration of renewables ( Figure 17 ). However, this should be more clear recalling that the outlooks project also range of gross inland consumption quite different in size, especially at the time horizon 2050.

There are several interesting implications coming from the projected expanded deployment of wind and solar. The first is that with high absolute deployment levels within the EU (e.g. in the EC LTS 1.5TECH scenario), the EU industry may count on a strong internal market. Lower deployment levels (e.g. as in the IRENA GET TES scenario), instead, suggest that to maintain and expand its competitive position, the EU wind and solar industry need to exploit and develop also extra-EU markets given their projected large size. For instance, it has been reported that photovoltaic production in Europe and Germany across the entire value chain would be competitive, against a fab in China, if the production fab in Europe has the appropriate size. According to the study, an annual manufacturing production capacity of at least 5 GW is required 57 .

A second implication is that the high deployment levels of renewables require that the network and infrastructure develop at the same pace to support the transition of the power supply system 58 . It can be envisaged that communication and control systems as well as protocols and architectures to integrate PV and wind in the smart grid will be in high demand. Similarly, high shares of variable renewable energy imply high demand for storage and system flexibility 59 . Finally, to support the deployment of such volumes of wind and solar, a broad range of skills will need to be developed, in terms of skill types and size of the workforce, in a timely manner.

As stated above, a significant part of the increase in electricity consumption derives from the road transport sector. In the selected scenarios, systems based on direct renewable use (biofuels) and EV deployment are the main decarbonisation option for the transport sector. The buildings sector sees its demand rather constant to 2030, which entails efforts on energy efficiency and renovation. Electricity consumption in buildings increases significantly post-2030, with heat pumps being a key technology deployed widely across the scenarios Industry is a very diverse sector, which needs detailed analysis on a process-by-process level to carefully evaluate the decarbonisation options (electrification, energy efficiency, fuel switching). The level of detail of coverage of the industrial sectors varies significantly across the scenarios. The sector’s demand for electricity increases because of expansion of the large-scale industrial heat pumps and further use of electrical motors. However, there are hard-to-electrify functions in the industry, due to chemical processes and the temperatures required (although high temperature heat pumps are being developed). The scenarios show that fuel switching to biomass and hydrogen/e-gas will be used to further reduce emissions. To note that industry is the main source for process related CO2 emissions, not directly related to combustion, but to chemical processes within industry (iron and steel production, cement industry and chemical sector).

Another recent study 60 presents a comparison of eight scenarios achieving more than 50% reduction of greenhouse gas emissions by 2030 compared to 1990, and sixteen scenarios aiming at climate neutrality by 2050.

The comparisons shows specific elements charactering the energy system in terms of uptake of clean and low carbon energy technologies, for the period up to 2030. First in the period it is projected a growth of wind and solar power generation (a factor from 1.5 to 3.5 for wind and from 1.5 to 4.5 for solar). A second emerging element is the replacement of the fossil heating mainly by heat pumps and district heating in 10% to 35% of the buildings. In the transport sector, it is projected an uptake of a vehicle stock that consists of 30% to 50% of zero-emission or plug-in hybrid EV. At the time horizon 2050, the scenarios project an undisputed growth of wind and solar, varying between a factor 3 and 13, heavily linked to the level of hydrogen/e-fuel production. In 2050, the consumption of electricity for hydrogen production can reach up to 3 600 TWh which is comparable to the current size of the sector. At the same time horizon 2050, the scenarios project a level of carbon removal that can reach up to 260 MtCO2 per year, of which around 200 MtCO2 through direct air capture or almost entirely through Bio-energy with carbon capture and storage (BECCS). Finally, it is projected an uptake of 65% to 90% zero emission vehicles and a passenger Battery EV fleet numbering between 100 and 220 million.

Figure 17 Gross electricity generation by technology, year 2050

Source 17 JRC study JRC118592 on energy scenario comparison. Data behind the graph available on the JRC ta catalogue

3.2.Offshore renewables - Wind

During the last decade, the focus in the wind sector shifted towards offshore wind technologies due to higher capacity factors achievable, much larger sites availability and a remarkable cost reduction, supported by important technological advances, such as in wind turbine reliability. Also, offshore could build on some lessons learned in the onshore wind sector and competitive tendering. Offshore wind is expected to play a significant role in reaching Europe’s carbon-neutrality target, with an estimated installed capacity need between 240 and 450 GW by 2050. By that time, 30% of the future electricity demand will be supplied by offshore wind. Starting as a first mover in the offshore sector, with the first offshore wind farm installed in Denmark in 1991, the EU currently is a global leader in offshore wind manufacturing 61 .

3.2.1.State of play of the selected technology and outlook

Capacity installed, generation

Figure 18 Cumulative installed capacity of offshore wind energy in the EU27

Source 18 JRC, Low Carbon Energy Observatory, 2020

By the end of 2019, the global offshore wind capacity installed was 29.1 GW 62 , representing 0.3% of global electricity generation 63 . Of this 29.1 GW, 75.1% is located in Europe (21.9 GW in EU28; 12.2 in EU27), 7.2 GW in Asia and 0.03 GW in North America 64 . In 2019, a record of 6.2 GW new offshore wind was installed globally, of which 3.6 GW in EU28 and 1.8 GW EU27 65 .

Social opposition against onshore wind energy, high setback distances to settlements and depletion of onshore wind sites with the best wind resources in selected countries might accelerate the uptake of the offshore wind sector. Against this backdrop, offshore renewable energies offer an opportunity for sustained growth to EU Member States. Analysing the JRC ENSPRESO dataset 66 per sea basin shows that technical potentials for offshore wind in EU27 EEZ 67 zones are highest in the Atlantic Ocean (1 447 GW) followed by the Mediterranean Sea (1 445 GW), Baltic Sea (1 183 GW), North Sea (437 GW) and the Black Sea (160 GW) ( Figure 18 ). Areas with sea depths necessitating the deployment of floating offshore wind are vast (2 468 GW) and promising for countries with steeper coastlines (Atlantic Ocean (1 066 GW) and Mediterranean Sea (819 GW)). The floating offshore potential of the EU27 in the North Sea is limited to 30 GW. Still the North Sea (284 GW) and the Baltic Sea (225 GW) offer most of the technical potential for projects in shallower waters (up to 60m depth and outside the 12 nautical miles zone).

Figure 19 JRC ENSPRESO technical potentials for offshore wind in sea basins accessible to EU27 countries

Source 19 JRC 2020, Wind Energy Technology Development Report 2020, European Commission, 2020, JRC120709; 2019, JRC: ENSPRESO - WIND - ONSHORE and OFFSHORE. European Commission, Joint Research Centre (JRC) 68 69

According to the LTS, 80% of electricity should come from renewable energy sources by 2050. The EU LTS full decarbonisation scenarios (1.5 TECH and 1.5 LIFE) see offshore wind ranging from 390 – 451 GW (EU28). Notably, scenario results on offshore wind show a strong connection on a country’s exploitation of its onshore wind potentials 70 , 71 .

Global estimates see offshore wind capacity at about 234 GW by 2030, of which 6.2 GW will use floating offshore technology. Global long term estimates range from 562 GW in 2040 72 by the IEA SDS scenario to up to 1 400 GW in 2050 by the industry-led Ocean Renewable Energy Action Coalition (OREAC) 73 .

Other technology outlooks striving for deep carbonisation at EU level (aiming for only the 2℃ temperature increase target, instead of 1.5℃) report a wide range of future wind energy deployment depending on the overall transformation of the EU energy system. By 2050, these studies show a wind capacity (both onshore and offshore) in the EU between 465 GW and 1 700 GW generating 1 200 TWh to 4 800 TWh. This would translate into 28% to 68% of the European electricity needs 74 , 75 .

Cost, LCOE

Costs decreased from over EUR 200/MWh in 2014 to a range of 45-79 EUR/MWh at the end of 2019, based on country data from Belgium, Denmark, Germany, the Netherlands and the United Kingdom 76 , 77 . The turbine represents up to 45% of total installed costs 78 (other cost factors include the foundations, the grid connection to shore and the installation). The cost of offshore wind installations is therewith reaching the one of onshore installations.

Figure 20 LCOE range for offshore wind in the main EU offshore wind countries with operational plants

Source 20 JRC 2020 79

Drivers for this cost decline are the upscaling of turbine size, projects size (economies of scale), weight reduction due to innovative materials (benefitting from about EUR 76 million in the period 2009-2019 stemming from FP7 and H2020 wind related projects – Figure 20 ) and favourable financing.

Offshore wind turbines have been growing in size and rated power capacity, with a capacity increase of 70% between 2015 and 2018 (from 3,7 MW to 6.3 MW) in the EU 80 . Recent offshore wind projects have observed capacity factors of up to 40-50%. The upscaling of rated capacity (e.g. towards > 10 MW) of the single wind turbines allows to deploy fewer turbines within one wind park, which means large savings on steel and foundations 81 and embedded CO2 emissions; as well as reduced flexibility demand (longer production hours). The demonstration of a new offshore wind turbine 12 MW GE Haliade-X Maasvlakte with an expected capacity factor above 60% is under way in the Netherlands, with a planned commercial exploitation as of 2021 82 . SGRE is testing its 10.0MW model in Denmark. Potential upgrades to rated capacities of 14 MW and 11 MW are announced for both turbines from GE and SGRE, respectively 83 . The largest commercial turbine is the MHI Vestas V164 with a rated capacity of 9.5 MW. It is expected that this turbine will be commissioned in offshore projects until 2022 84 , 85 .

CAPEX for offshore wind projects are declining rapidly and depend on the rated turbine capacity, depth of the site (and the foundation technology pursued) and the size of a project. IEA estimates CAPEX in 2018 of EU projects averaging around 3400 EUR/kW 86 , 87 .

In the run up to 2050, decrease in estimated CAPEX for offshore wind is expected to range between 2050 EUR/kW and 2730 EUR/kW for an average offshore wind project 88 . This CAPEX reduction is mainly driven by the increase in average turbine sizes (e.g. from about 4 MW in 2016 and 8 MW in 2022 to about 12-15 MW in 2025) and the increase in offshore wind project size resulting in scaling effects 89 .

Operation & maintenance costs 90 (O&M) are also decreasing. Global average annual O&M costs for offshore wind were about USD 90 91 /kW in 2018, and are projected to go down by one-third by 2030 and further decline towards USD 50 92 /kW in 2040 (a decrease of 40% compared to 2018). These reductions will be mainly due to economies of scale, industry synergies, along with digitalisation and technology development, including optimised maintenance concepts  93 .

R&I

R&I in offshore wind revolves mainly around increased turbine size, floating applications (particularly substructure design), infrastructure developments and digitalisation.

In 2018 the EC-funded SET plan Implementation Working Group (IWG) for Offshore Wind developed specific targets and R&I priority actions to maintain European leadership in offshore wind (to be revised in November 2020 following the adoption of the offshore renewables strategy). The SET plan mentions two priority actions: (1) Reduce the LCOE at final investment decision (FID) for fixed offshore wind by improvement of the performance of the entire value chain striving towards zero subsidy cost level for EU on the long term; (2) Develop cost competitive integrated wind energy systems including substructures which can be used in the deeper waters (>50 m) at a maximum distance of 50 km from shore with an LCOE of <12ct EUR/kWh by 2025 and < 9ct EUR/kWh by 2030.

Cost reduction through increased performance and reliability, development of floating substructures for deeper waters and the added value of offshore wind energy (system value of wind) were pivotal elements of the SET plan Implementation Plan (IP). In order to achieve this targets, the IP proposes to focus R&I activities on system integration, offshore wind energy – Balance of Plant, floating offshore wind, wind energy O&M, wind energy industrialisation, wind turbine technology, basic wind energy sciences, ecosystem and social impact and the human capital agenda. The IWG estimated that projects addressing these priorities need a combined investment of EUR 1090 million until 2030 with a split in contributions of Member States 34%, EU 25% and Industry 41%.

Apart from EC-funded projects, the IWG reported in 2019 a significant number of nationally funded projects (17 out of 24, with single project budgets up to EUR 35 million) with a main focus on the R&I priorities ‘Wind Energy Offshore Balance of Plant’, ‘Floating Offshore Wind’ and ‘Wind Turbine Technology’ 94 , 95 . Other joint industry programmes not covered so far within the SET-Plan include projects from the Dutch GROW programme, the UK Offshore Wind Accelerator programme, the Offshore Renewables Joint Industry Programme (ORJIP Offshore Wind) (UK), the Floating Wind Joint Industry Project (Floating Wind JIP) (UK) and DNV GL’s Joint Industry Projects (JIP) on Wind Energy. An update of the IP is envisaged until the end of 2020 and aiming for incorporating and further developing the R&I priorities identified by the main research and industry bodies (ETIP Wind 2019, EERA 2019 strategy, IEA TCP Grand Challenges) 96 .

This is in line with the EC strategic planning towards the Horizon Europe research and innovation programme, which stresses the importance of achieving global leadership in affordable, secure and sustainable renewable energy technologies 97 .

Figure 21 EU Public RD&D Investments in the Wind Value Chain

Source 21 ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

Figure 22 Top 10 Countries - Public RD&D Investments (Total 2016-2018)

Source 22 ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

Overall Investments

Innovators in the overall wind value chain have managed to attract considerable levels of early stage and late stage investments. However, the vast majority of early stage and late stage investments in the wind energy sector were made outside of Europe with the US and India benefiting from large investment volume. Only for wind rotors, 69% of the total amount of early investments and 63% of late stage private investments occurred in the EU 98 .

Commercial banks have increased their financing of offshore wind projects, helped by the stable policy frameworks in some countries and the participation of public finance institutions such as the EIB. Also, competitive tender schemes and EC State Aid Guidelines play a role in investment: the shift from feed-in–tariffs to tender-based support schemes promoted by the EEAG has resulted in highly competitive price bidding from mid-2016 onwards. So far, more than 3.1 GW of offshore capacities have been allocated under zero-subsidy bids in Germany and the Netherlands, and bid prices have decreased in tenders held in Denmark and in the United Kingdom. Across all EU countries a cumulative offshore wind capacity of about 13 GW has been allocated through competitive tendering procedures, which are expected to be commissioned until 2025 99 , 100 . Given the small number of large wind farms that reach final investment decision each year and the heterogeneity of the national investment frameworks, investment figures can be volatile year on year. 

Figure 23 New offshore wind investments and capacity financed 2010 – 2019 (EUR billion)

Source 23 WindEurope

Globally, investment in offshore wind would need to grow substantially over the next three decades, with overall cumulative investment of over USD 2750 billion 101 from now until 2050. Annually, average investment would need to increase more than three-fold from now until 2030 and five-fold until 2050. Major investments are required for rapid installation of new OW power capacities 102 .

As mentioned in section 3.1, an assessment of modelling works show that offshore wind is important in decarbonisation scenarios.

Figure 24 Investment needs until 2050 for both offshore and onshore

Source 24 JRC-TIMES ‘Zero Carbon’ scenario

 
According to the JRC-TIMES ‘Zero Carbon’ scenario, investment in wind energy clearly dominates among the different low carbon energy technologies with about EUR 3 170 billion until 2050 of which EUR 995 billion are deployed offshore (EUR 789 billion excluding the UK).

Figure 25 Investment needs in EU28 until 2050 for both offshore and onshore according to the LTS 103

Source 25 JRC-TIMES ‘Zero Carbon’ scenario

According to the main LTS decarbonisation scenarios, cumulative investments in offshore wind range between EUR 660 and EUR 770 B from 2030 onwards.

Public R&I funding

EU public R&D investments have grown from EUR 133 million in 2009 to EUR 186 million in 2018). Comparing the last three years of EU public R&D spending with its global competitors only Japan shows similar numbers.

As illustrated above, R&D funding in wind energy has been growing considerably in Japan over the last decade with strong governmental support to the Japanese floating wind energy industry 104 . However, when plotting investments in R&I vs deployment, it appears that biggest capacity installed in the US, followed by EU.

Figure 26 Capacity additions of these countries in the same period 2016-2018

Source 26 JRC based on GWEC 2020

Figure 27 Cumulative capacity installed in 2019

Source 27 JRC based on GWEC 2020

At the EU level, the R&I priorities include all aspects aimed to provide secure, cost-effective, clean and competitive energy supply, such as new turbine materials and components, resource assessment, grid integration, offshore technology, floating offshore wind, logistics, assembly, testing and installation, maintenance and condition-monitoring systems and airborne wind energy systems, among others (see  Figure 28 ).

Figure 28 Evolution of EC R&I funding categorised by R&I priorities for wind energy under FP7 and H2020 programs and number of projects funded in the period 2009-2019

Source 28 JRC 2020 105

In the period 2009 – 2019, Horizon 2020 and its predecessor FP7 have granted funds of about EUR 496 million to these aspects, putting the strongest emphasis in terms of funds on research in offshore technology (EUR 150 million) followed by floating offshore wind, new materials & components and maintenance & monitoring.

Private R&I funding

In general, in Europe around 90% of the R&I funding in (onshore and offshore) wind energy comes from the private sector 106 . R&I investments in Europe are highly concentrated in Germany, Denmark and Spain, accounting for 77% and 69% of EU corporate and total R&D funding respectively 107 .

Private investment into wind rotors is responsible for 1% of total investment in wind in RoW markets but ~ 20% in European markets over the 5-year period 108 .

Patenting trends 109

Europe has the highest specialisation index (indicating the patenting intensity) in wind energy compared to the rest of the world 110 . The EU wind rotors accounted for 67% of the high value patent application between 2014 and 2016 111 (see Figure 29 ).

Figure 29 International comparison of the inventions filed and high value inventions in wind energy technologies 112

Source 29 JRC 2020112

With its annual growth rate of 50% in 2000-2016, China ranks first in wind energy inventions after overtaking from the EU in 2009, which had been world leader since 2006110. However, Chinese patenting activity is aimed for protection in its national market. Of the more than 70% of patenting inventions filed on wind energy technologies, about 2% were high value inventions 113 (vs around 60% of high value inventions for Europe and the United States).

Figure 30 Patent applications (left) and top 10 countries for patent applications (total 2014-2016) (right)

Source 30 ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

Publications / bibliometrics

The leading EU organisations in offshore wind publications in the period 2010 -2019 come from the leading countries in offshore wind deployment (Denmark, Germany, the Netherlands and the United Kingdom) but also from countries expected to be future offshore wind markets (Spain) or which are engaging in emerging offshore wind technologies such as floating offshore wind (Norway and Portugal). Research is predominantly published as conference papers or scientific articles with the latter increasing steadily their share from about 27% in 2010 to 48% in 2016, which might be an indication that offshore wind research matured ( Figure 31 ). Yet preferred collaborations between organisations seem to be affected by geographical or historical reasons as they can build already on a strong national cooperation. Among others a focus on research in monopiles, steel constructions and grouted joints, numerical modelling and dynamic analysis of floating offshore wind turbines can be identified from bibliometrics. Co-publication activity among the different research organisations is found to be rather limited indicating that there is an untapped potential for cross-border research collaboration 114 .

Figure 31 Evolution of publication activity in offshore wind in Europe (2010 – 2019)  115

Source 31 JRC 2019

Comparing publication activity on a global level unveils that EU is leading in publishing activity in the area of wind turbine blades and offshore support structures, followed by the United States and China (see Figure 32 )

3.2.2.Value chain analysis

Since the value chains of offshore and onshore wind largely overlap, this section addresses both of them. For the onshore-specific part of the value chain, please refer to Value chain analysis in the chapter on onshore wind.

Europe is a recognized market leader in the wind energy and wind rotor sectors: 48% of active companies in the wind sector are headquartered in the EU compared to the RoW 118 . European manufacturers capture around 35% to 40% of the global wind turbine value chain (China almost 50%). The European OEMs in the wind energy sector have held a leading position in the last few years although their market share has decreased in 2018 mainly in favour of the Chinese OEMs. Within the next decade, Europe will maintain its leadership position in annual growth, yet China, Asia Pacific and North America are expected develop a significant market size (i.e. installed capacity) of more than 50% 119 . Among the top 10 OEMs in 2018, European OEMs led with 43 % of market share, followed by the Chinese (32 %) and North American (10 %) companies (see Figure 33 ).

The (onshore and offshore) wind energy sector is globalising, which brought an increasing number of mergers and acquisitions (M&A) over the last few years. Of the 58 M&A since 2010, 26 operations were between European companies 120 .

Figure 33 Share of EU Market Size to Global Market, Value Chain Segment: 2020

Source 33 ASSET Study commissioned by DG ENERGY - Gathering data on EU competitiveness on selected clean energy technologies (Draft, 2020)

Figure 34 Evolution of global Top10 wind Original Equipment Manufacturers (OEM)

Source 34 JRC (2019), Wind Energy Technology Market Report

Figure 35 Top Key Market Players and Market Share, Global, 2020

Source 35 Guidehouse Insights (2019)

The main components of offshore wind comprise foundations; substations (transforming generated power); electric offshore wind cables; and installation vessels. Europe’s offshore wind industry is driven by a strong home market that accounts for about 91% of worldwide offshore capacity fully commissioned by mid-2016.

Components of (offshore and onshore) wind turbines are manufactured either in-house of by independent suppliers. For most critical wind turbine components, leading OEMs have in-house manufacturing capability, except for the gearbox component, which is outsourced by almost all turbine vendors121.

Most European manufacturing facilities are located in the country of the company’s headquarter or countries with increased wind energy deployment. 48% of active companies in the wind sector are headquartered in the EU. Specifically for wind rotors, the share of EU companies is 58%, with most headquartered in Germany, Denmark and France. Europe is leading in all parts of the value chain for sensing and monitoring systems for onshore wind turbines, including research and production 121 .

OEMs also locate their manufacturing facilities in countries where they supply wind turbine components and services, except for Gamesa (ES) and Senvion SE (DE), whose manufacturing facilities are only placed in their country of origin. Smaller OEMs tend to locate their facilities around their headquarters 122 .    

The EU wind sector has shown its ability to innovate: the EU is leading in the parts of the value chain dealing with sensing and monitoring systems for onshore wind turbines, including research and production. Also, the EU wind industry has high manufacturing capabilities in components with a high value in wind turbine cost (towers, gearboxes and blades), as well as in components with synergies to other industrial sectors (generators, power converters and control systems).     

Figure 36 Onshore and offshore wind Energy value chain

Source 36 EUs Global Leadership in Renewables: Progress Report (2020)

In the context of the potential impact of Covid-19 on the value chain, the forecasts for offshore wind remain unchanged 123 given that many European projects are already at a late stage of construction. Moreover, offshore wind has longer lead times than onshore wind. Many projects are expected to be commissioned from 2021/22 onwards.

Number of companies in the supply chain, incl. EU market leaders

48% of active companies in the wind sector are headquartered in the EU. 7 out of the top 10 countries where these companies are located are within the EU, with the UK and Germany standing out 124 .

Figure 37 Share of EU companies (Left) and Top 10 countries (number of companies)

Source 37 ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

In 2019 the European market consisted of four offshore wind turbine manufacturers 125 . The squeeze on revenue streams from auctions is reflected in rapid supply-side consolidation. Siemens Gamesa Renewable Energy (SGRE) supplied 62% of all the new grid-connected capacity in the EU (which are 323 turbines in 2019). MHI Vestas Offshore wind supplied 28% in 2019; GE Renewable Energy 7%; and Senvion 3% 126 . European offshore wind projects coming online in the period 2020-2024 suggest that Siemens Gamesa Renewable Energy (SGRE) will maintain its leadership position (56%), yet GE Renewable Energy (26%) will surpass MHI Vestas Offshore Wind (18%) due significant deployments in the UK and Portugal 127 . The share of EU companies in the wind rotors sector is 58%, with most headquartered in Germany, Denmark, the UK and France 128 .

Monopile foundations dominate the European market (74% of total capacity installed), followed by other concepts such as tripods and jacket structures. Leading EU foundation suppliers are located in the North Sea and Baltic Sea countries. They anticipate to the on-going trend towards next generation turbines by providing XL monopiles. With regards to the suppliers, Sif Netherlands (NL) supplied half of all foundations in 2019, followed by Lamprell (Saudi Arabia - 19%), Navantia-Windar Consortium (ES - 11%), Bladt Industries (DK - 10%) and EEW Group (DE - 9%). Since 2015 the European market is led by EEW Group and Sif Netherlands. Other European companies capable to manufacture offshore foundations include Smulders (Eiffage Group) (FR) and Steelwind Nordenham (Dillinger Group) (DE) -. Due to the increased number of projects being installed in deeper waters and further away from shore, jacket foundations and gravity base foundations are becoming more popular. In addition to the aforementioned monopile suppliers (Bladt Industries, Smulders (Eiffage Group)) Navantia (ES), Lamprell (VAE) and Burntisland Fabrications Ltd (UK) have a track record in supplying jacket foundations for offshore wind projects in deeper waters.

In offshore wind, only a limited number of tower manufacturers exist, due to high technological requirements. The component is usually sourced locally, with manufacturers based in Europe’s main offshore wind markets (Denmark and Germany).

The offshore wind substations, transforming the power generated to grid voltage, mainly use High Voltage Alternating Current (HVAC) as the benefits of current High Voltage Direct Current (HVDC) technology (i.e. minimized losses) are displaced by higher costs and system complexity, such as construction of substation topsides. European manufacturers (CG Power Systems (BE), Siemens AG (DE), ABB, GE Grid Solutions (FR), Chantiers de l'Atlantique (FR), Aibel AS (NO)) lead the worldwide market of the main electrical components of HVAC and HVDC (see section on smart grids) and the design and engineering of electrical offshore substations for offshore wind farms. Shortage in supply might only come from unforeseen increased demand from other sectors. About 55 % of offshore wind substations use jacket foundations. Manufacturing of substation foundations is outsourced to the aforementioned foundation suppliers.

The demand for offshore wind cables includes array cabling connecting wind turbines, as well as export cables connecting wind parks to the shore. For both sub-technologies more than multiple European cable manufacturers supply products and have recently increased their capacities to meet EU demand. However, the last years brought a stronger concentration in the European offshore cable market (e.g. with ABB selling its cable branch to NKT or Prysmian Group acquiring NSW). European offshore cable manufacturers locate their facilities all over Europe (IT, ES, DE, EL, RO, SE, UK, NO, FI). Outside Europe, Asian suppliers from China, South Korea and Japan show capabilities in offshore wind cabling. With respect to HV export cables the European manufacturers Nexans (FR), NKT (DK) and Prysmian Group (IT) are the global market leaders. Array cabling currently undergoes a shift from 33 kV towards 66 kV cabling. Most companies (such as Prysmian Group (IT), JDR Cables (UK) or Cablel Hellenic Cables Group (EL)) seem capable to undertake this shift; however, lengthy processes towards product commercialisation might result in bottlenecks. Notably, some of the Asian manufacturers also entered other markets such as LS Cable & System (KR) providing the array cabling to the Kriegers Flak OWF (DK) and the Block Island OWF (US).

Figure 38 Manufacturing facilities of onshore and offshore wind energy components in Europe

Source 38 July 2020 update based on JRC 2019 Technology Market Report 129

The offshore wind industry uses jack-up vessels and heavy-lift vessels to install wind turbines, foundations, transition pieces and substations. The move towards wind turbines with higher capacity, longer blades, higher towers, and XL foundations capable to operate at deeper waters, resulted in a significant increase of the vessels' weight and size, a trend that is expected to continue in the mid-term. The decisive figures of a vessel are its size and crane capacity, with the latter being currently upgraded at more and more vessels. Compared to crane capacities in 2010 of about 800 t, current crane standard capacities range between 900 t to 1 500 t. In the short term industry expects crane sizes of 1 800 t to be the norm. At the same time, the downturn of the oil industry made more vessels available for the offshore wind market, which led to disinvestments of first-generation vessels. The market for installation vessels is clearly dominated by European companies covering the broadest crane capacity range. This includes the heavy-lift vessels with the highest crane capacity Saipem 7000 (14 000 t) and Heerema's Thialf (15 652 t). Notably, the first move of the fossil-fuel player Saipem into the offshore wind turbine installation market was at the Hywind floating offshore wind project in Scotland for Equinor. In Europe, but also globally, increased crane capabilities will especially be needed in the area of foundations, where current monopiles (ranging at about 1 200 t) are already reaching the limits of most vessels. Future XL monopiles weighing 2 000 t are already in the pipeline, and could lead to bottlenecks in vessel availability. Similarly, the installation of weighty offshore substations (foundations and topsides) requires heavy-lift vessels with significant crane capacity 130 129. With together more than 50% since 2010, the EU market for turbine and foundation installers is led by DEME Offshore (BE) and Van Oord (NL), yet the sector sees multiple other players with significant market share over the last years (e.g. Fred Olsen (NO), Jan de Nul (BE), Swire Blue Ocean (DK), Subsea 7 (UK), Boskalis (NL), OHT Management (NO), Saipem (IT)). Boskalis is leading the market for the installation of cables, however also major cable manufacturers are among the strongest competitors (Prysmian Group and NKT) 131 . An increased future deployment of floating offshore concepts necessitates substantial investments in port infrastructure and crane capacity for lifting at the quayside as most floating offshore wind concepts will be fully assembled at the port before towed-out to the power plant site.

Figure 39 Leading market players in the offshore wind industry, 2018

Source 39 IEA analysis based on BNEF (2019)

Turnover

Overall, the wind energy sector generates a turnover of EUR 48 billion (2017) 132 . Turnover in the sector has grown 19% between 2015 and 2017. The Member States that generate the most are Germany, Denmark and Spain.

Employment figures 133  

Overall, the wind energy sector employs 357 000 Europeans directly and indirectly (2017) 134 . Employment in the sector has grown 13% between 2015 and 2017. The Member States that employ the most are Germany, Spain and Denmark 135 .

The current number of jobs in the European offshore wind sector is 77 000 (38 000 direct jobs and 39 000 indirect jobs) 136 . Due to the globalisation of the wind energy sector (both onshore and offshore), the number of mergers and acquisitions increased over the last years. These transactions have consolidated the market, with wind players increasing their market share and economies of scale. Although this restructuring led to stable operating profits, the industry also witnessed significant job cuts in recent years, which were mainly limited to the onshore wind sector 137 .

Figure 40 Evolution of specific employment (Direct employment / cumulative installed capacity) in onshore and offshore wind in Europe

Source 40 JRC based on WindEurope and GWEC

Figure 41 Employment in Wind Power (top 10 EU countries, 2017)

Source 41 ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

Case studies estimating the workforce needed to build an offshore wind farm see employment factors declining over the latest years as the learning effect improves with more capacity installed in the sector. Direct job estimates on single projects (given in full time equivalent years) range from 16.3 – 15.8 FTE/MWproject for projects in the period 2013-2016 138 , 139 . Due to productivity improvements, some studies estimate a further decrease in specific direct labour requirements to 9.5 FTE/MWproject by 2022 140 . Although these numbers show the expected learning effect they cannot directly be used to estimate the number of total jobs in the entire industry as the extrapolation from project-level capacity to installed capacity in the market would lead to double counting and thus an overestimation. Current econometric models estimating the number of jobs using employment factors, trade data and/or contribution to the GDP of the sectors involved shows direct and indirect figures ranging from 2.2 to 5.1 FTE/MWInstalled 141 , 142 , 143 , 144 , 145 .

ProdCom statistics

During 2009-2018, the annual production value of wind rotors in the EU remained stable between EUR 6.3 billion (2010) and EUR 10.3 billion (2016). Denmark accounts for around half of the EU production and Germany is the second largest producer.  146

3.2.3.Global market analysis

In the wind sector, Europe has both industrial and technological leadership (Europe showing manufacturing overcapacities in all key wind turbine components 147 ) and strong leadership in foundations and cables industry. Even though the European offshore wind industry is competitive and represents the largest part of global installed capacity, other global players are steadily coming up.

Today, seventeen countries worldwide host offshore wind projects, with an increasing number of new non-European countries entering the market (including Japan, South Korea, Taiwan, Vietnam and the United States) 148 . Within Asia (including China), offshore wind capacity are expected to reach around 95 GW by 2030 (out of almost 233 GW projected global capacity by 2030) 149 . Nearly half of the global offshore wind investment in 2018 took place in China 150 . The total installed costs are higher in Europe than in China because Chinese deployment so far has been largely in shallow coastal waters. Offshore wind in Asia is different from Europe from a technical perspective, since the Asian industry must adapt to more challenging water depths, less robust grids, extreme weather events and increased seismic activity.

Trade (imports, exports)

Between 2009 and 2018, EU28 exports in the wind sector (both on- and offshore) to the RoW have increased steadily, reaching EUR 2.32 billion in 2018 151 . Conversely, imports have remained constant between EUR 0.03 billion and EUR 0.17 billion. The EU28 share of global exports increased from 28% in 2016 to 47% in 2018. Between 2009 and 2018, the EU28 trade balance has remained positive and with a rising trend. Between 2016 and 2018, 8 out of the top 10 global exporters were EU countries. Key RoW competitors are China and India.

Figure 42 Exports - Global, EU28 Total and EU Share

Source 42 ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

Figure 43 Top 10 Global Exporters (Total 2016-2018)

Source 43 ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

About 93% of the total offshore capacity installed in Europe in 2019 is produced locally by European manufacturers (Siemens Gamesa Renewable Energy, MHI Vestas and Senvion). A global trade analysis by OECD (2020) shows that while installed capacity of wind power is increasing globally, most of the annually added installations (global) are wind turbines made by foreign manufacturers ( Figure 44 ). Imports of wind turbines accounted for approximately 70% of the globally added capacity in 2015 152 .

Figure 44 Installed capacity (onshore & offshore) – local versus imports

Source 44 OECD 2020

Comparing this global data with data from the JRC wind database on project location and turbine models used, unveils that similar findings on European level can only be derived when assuming intra-European trade (an export of a German turbine to Spain is treated as an import in Spain). In this case 75% of the European added capacity in 2018 is imported, yet 5 to 9 percentage points less than in the period 2010-2012 ( Figure 45 ).

Figure 45 Newly installed wind capacity (onshore & offshore) in Europe - local vs imported assuming intra-European trade (distinction based on country level)

Source 45 JRC 2020 153

The picture changes significantly when assuming that the EU28 as a single market. In this case, the share of local European production is found at 92% in 2018, a similar value as in the previous years153.

Figure 46 Newly installed wind capacity (onshore & offshore) in Europe - local vs imported assuming an European single market

Source 46 JRC 2020153

Global market leaders VS EU market leaders

While parts of the EU market are maturing, there are still important development opportunities across Europe, notably in South and Eastern Europe.

Figure 47 Global market share of offshore turbine manufacturers in 2019

Source 47 JRC 2020, Facts and figures on Offshore Renewable Energy Sources in Europe, JRC121366 (upcoming)

Critical raw material dependence

A potential risk of offshore wind energy concerns the supply of raw materials. This paragraph considers the critical raw material dependence of both offshore and onshore wind energy since their raw material usage is similar to a large extent. EU companies are ahead of their competitors in providing offshore generators of all power ranges, due to a well-established European offshore market and the increasing size of newly installed turbines 154 . Wind turbine blades are often made up of composite materials, which are difficult to recycle/re-manufacture. 2.5 million tonnes of composite material are in use in the wind sector globally. 14 000 wind turbine blades will be decommissioned in Europe the next five years. This is a major challenge, both environmentally and economically. On the one hand, there is a need to reduce polluting extraction of raw materials. On the other hand, the European economy may be dependent on raw materials produced in third countries. Applying circular economy approaches, along the life-cycle of installations, is therefore key.

Currently, there is no European production of the four main materials used for the production of wind rotors (i.e. boron, molybdenum, niobium and REEs). For other raw materials, the EU share of global production is below 1% 155 . China is the largest global supplier for about half of the raw materials needed for wind generators. The EU import reliance for processed REEs (especially neodymium, dysprosium, and praseodymium) used for permanent magnets, is 100%, with 98% being supplied by China ( Figure 48 ). Future materials shortage or supply disruptions could prove to be a risk, given the low substitutability for many raw materials, especially those in high-tech applications 156 . The European Commission proposes an action plan in its communication on critical raw materials 157 to address the issues of overdependence on single supplier countries. 

Figure 48 Market statistics of raw materials contained in wind turbines

Source 48 JRC 2019 158

3.2.4.Future challenges to fill technology gap

Social opposition against onshore wind energy, coupled with the depletion of onshore wind sites in selected countries and Western Europe’s relatively high acceptance of new technology for rotors and environmental pressures should create opportunities for more innovation and start-up growth in the offshore wind sector. In order for offshore wind energy to play its expected role in the energy transition, further innovations and actions are needed in specific areas.

The technology for floating offshore wind in deep waters and harsh environments is progressing steadily towards commercial viability 159 . Floating applications seem to become a viable option for EU countries and regions lacking shallower waters (floating offshore wind for depths between 50-1000 metres) and could open up new markets such as the Atlantic Ocean, the Mediterranean Sea and potentially the Black Sea. Therefore, floating offshore wind is one of the EU’s R&I priorities; increased R&I could foster EU competitiveness.

The first multi-turbine floating project was Hywind Scotland with a capacity of 30 MW, commissioned in 2017 by Equinor, followed by the Floatgen project in France and the WindFloat Atlantic in Portugal. There is a pipeline of projects that will lead to the installation of 350 MW of floating capacity in European waters by 2024 which would need to accelerate afterwards 160 , 161 . Moreover, the EU wind industry targets 150 GW of floating offshore by 2050 in European waters in order to become climate-neutral 162 . The global market for market for floating offshore wind represents a considerable market opportunity for EU companies. In total about 6.6 GW of floating is expected until 2030, with significant capacities in selected Asian countries (South Korea and Japan) besides the European markets (France, Norway, Italy, Greece, Spain). Due to good wind resources in shallow waters, no significant floating offshore capacity is expected in China in the mid-term 163 .

Harvesting renewable energy where there is abundance such as in the seas and oceans is key priority, but it is not enough to reach the 2050 targets. Infrastructure to bring offshore energy onshore is key for the development of offshore wind energy since the renewable energy generated needs to be delivered to the consumers on land. High Voltage Direct Current (HVDC) has been identified as the most efficient and cost effective grid technology enabling to convey high amounts of energy over long distances and allowing the integration of increasing shares of renewables in the energy system.

Ports could play an essential role in manufacturing and assembly of foundations, production of large components (e.g. blades, towers), electrical infrastructure such as the substations, installation, operation and maintenance of wind farms. Accommodating floating offshore wind development will however require significant investments in upgrading port infrastructure (e.g. quays, dry-docks). Moreover, ports can also serve as hubs where sector coupling of wind energy and power-to-x takes place, efficiently converting and storing excess energy. According to WindEurope at least fourteen European ports have dedicated wind activities and are located mainly in the Northern Sea, Atlantic and Baltic Sea. Greening of ports and related operations are considered a priority, as well as in the opportunities arising from floating offshore wind, storage and hydrogen production 164 .

Shipping is also a key enabler of the development of cost-competitive, efficient and sustainable offshore wind solutions: it could encourage the use of energy-efficient and environmentally friendly vessel serving functions across the full offshore project lifecycle, rewarding the use of vessels with limited to no GHG emissions. However, the transportation in the future of larger, heavier blades will require more planning at the design phase, and potentially difficult transportation logistics.

Optimisation of wind turbine design (turbine size and generators) is another important factor to address: next generation turbines are expected to increase the penetration of configurations with Permanent Magnet Synchronous Generators (PMSGs), because more and more powerful generators with a reduced size and weight will be demanded. Optimisation can also go hand in hand with digitalisation, including automated solutions in manufacturing, better weather and output forecasting, and predictive maintenance. Innovations around blade design (computational fluid dynamics), asset monitoring (drones, robotics) and predictive maintenance (Artificial Intelligence) can improve performance and contribute to LCOE savings. Edge computing is also expected to be a future growth area 165 .

Circularity encompassing the production, operation and removal of offshore wind farms are important to consider as well. It includes, among other activities, the need for solutions on lifetime extension, decommissioning and recycling of materials such as wind turbine blades. Planning for blade recycling relies heavily on visual inspection, which does not offer accurate assessment of the sub-surface materials. Additionally, much of the composite materials used in blades is made of a thermosetting matrix, which cannot be remolded for later use 166 . However, the fiberglass and composites recycling capability is evolving. Improving both the lifetime and circularity of offshore wind farms is important for reducing societal costs, but also relevant in the context of dependencies on critical raw materials, especially since the EU is not self-sufficient in any of the relevant raw materials and thus highly dependent on imports. New composite technology (thermoplastics/thermoplastic-behaving materials) increases recycling options 167 .

Environmental considerations are also important to address in the development of offshore wind energy, including am increased understanding of the ecological impacts of large-scale offshore wind. Maritime Spatial Planning (MSP) can be considered an instrument for balancing sea uses and the marine ecosystem sustainably 168 . What is unique about the European roll-out of offshore wind is the division of European waters are divided into different zones, with the potential to develop cross-border and interconnected projects. This highlights the convenience of coordinating grid integration and connection internationally (ultimately working towards a trans-European energy network), including further research into innovative grid elements. The upcoming Offshore Renewable Energy Strategy addresses long-term offshore grid planning taking into account aspects related to maritime spatial planning and potential H2/P2X facilities and smart sector integration. This could ensure vital co-existence with maritime transport routes, traffic separation schemes, anchorage areas, and port development and synergies support the decarbonisation of the maritime transport and logistic industry.

Lastly, it remains to be seen how the UK’s departure from the EU will affect value chains, particularly given the strong emphasis on local supply chain development and UK sourcing as a precondition for award of a Contract for Difference in the UK market 169 .

(1)  The first annual report from the Commission to the European Parliament and the Council on progress of clean energy competitiveness (COM(2020)953) has been drawn up in accordance with the requirements of Article 35 (m) of Regulation (EU) 2018/1999 (Governance Regulation)

(2) https://setis.ec.europa.eu/newsroom/news/low-carbon-energy-observatorys-2018-reports-technology-development-and-technology

(3)

Batteries; Buildings (incl. heating and cooling); CCS; Citizens and communities engagement; Geothermal; High Voltage Direct Current and Power Electronics; Hydropower; Industrial heat recovery; Nuclear; Onshore wind; Offshore wind; Renewable fuels; Renewable hydrogen, Smart cities and communities; Smart Grids – Digital infrastructure; Solar thermal power; Solar photovoltaics.

(4) …ability to, in free and equal market conditions, produce goods and services that previously pass the test of international markets, ensuring retention and long-term increase in the real income of the population (OECD, 1995); … a country’s share of world markets for its products. This makes competitiveness a zero-sum game, because one country’s gain comes at the expense of others (Porter et al., 2008); …capacity to “do what no one else can do”, i.e. the capacity to innovate (Ovans, 2015); “The set of institutions, policies and factors that determine the level of productivity of a country." (World Economic Forum, 2020) from: JRC116838, Asensio Bermejo, J.M., Georgakaki, A, Competitiveness indicators for the low-carbon energy industries - definitions, indices and data sources, 2020.

(5) Competitiveness Council Conclusions (28.07.20) 

(6)  In this year edition, data on specific indicators are still missing for specific technologies/topics. The missing indicators have been removed from each technology/topic section and summarized in a table at the end of the document

(7)  This indicator is only considered at macro level (see section 2).

(8) This abbreviation means Production Communautaire (PRODCOM dataset)

(9)  JRC116838, Asensio Bermejo, J.M., Georgakaki, A, Competitiveness indicators for the low-carbon energy industries - definitions, indices and data sources, 2020

(10) COM(2019) 640 final. https://eur-lex.europa.eu/resource.html?uri=cellar:b828d165-1c22-11ea-8c1f-01aa75ed71a1.0002.02/DOC_1&format=PDF

(11) Communication from the Commission, A Clean Planet for all - A European strategic long-term vision for a prosperous, modern, competitive and climate neutral economy. COM (2018) 773 final

(12)

 Report from the Commission to the European Parliament and the Council on progress of clean energy competitiveness - COM(2020)953

(13) EEA Report No 03/2020: Trends and drivers of EU greenhouse gas emissions

(14) Eurostat, Structural Business Statistics Survey [sbs_na_sca_r2].

(15) EurObserv’ER.

(16) World Input-Output Database: NACE D35: Electricity, gas, steam and air conditioning supply.

(17) Value added at factor cost of energy utilities (D35) sector was EUR 200 billion in 2017 (current prices) (Eurostat, SBS). Value added at factor cost of broad energy sector in 2017 was EUR 253 billion. For international comparison World Input-Output Database was used, because Eurostat only covers EU countries.

(18) Based on World Input-Output Database data for NACE-code D35: Electricity, gas, steam and air conditioning.

(19) Data for capital intensity not available. Future reports may include “Multi-Factor-Productivity” data, which would include labour, capital and the residual to showcase where the productivity has come from.

(20)

EurObserv’ER includes whole value chain approach. Socio-economic indicators for the bioenergy sectors (biofuels, biomass and biogas) include the upstream activities in the agricultural, farming and forestry sectors as well.

(21)  Report from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on energy prices and costs in Europe (COM(2020)951)

(22)  These data sets have not been updated since 2016.

(23)  Plausible reasons include the exhaustion of EU gas sources, weather variability, the economic crises and fuel shift.

(24) European Commission. (2020). European Commission, Critical materials for strategic technologies and sectors in the EU - a foresight study. Luxembourg: Publications Office of the European Union.

(25) Percentage in the pie charts per technology refers to the share of material component used based on their EoL recycling rate in the chart below. So e.g. wind turbines use 13% of material components with EoL of more than 50%, that is, lead, cadmium, copper and silver.

(26)

 Mathieux, F., Ardente, F., Bobba, S., Nuss, P., Blengini, G. A., Alves Dias, P., Blagoeva, D., Torres De Matos, C., Wittmer, D., Pavel, C., Hamor, T., Saveyn, H., Gawlik, B., Orveillon, G., Huygens, D., Garbarino, E., Tzimas, E., Bouraoui, F., & Solar, S. (2017). Critical raw materials and the circular economy - Background report (Issue December).

(27)

 Based on EurObserv’ER. Assessment based on modelling is highly sensitive to assumptions used, such as installation rate, which results in high yearly variation, particularly in the wind jobs.

(28)

 Others include solar thermal, waste and geothermal energy. 

(29) Bloomberg NEF, available at: https://www.bnef.com/shorts/2165?query=eyJxdWVyeSI6InNvbGFyIHB2IGpvYnMgcGVyIE1XIiwicGFnZSI6MSwib3JkZXIiOiJyZWxldmFuY2UifQ%3D%3D&query=eyJxdWVyeSI6InNvbGFyIHB2IGpvYnMgcGVyIE1XIiwicGFnZSI6MSwib3JkZXIiOiJyZWxldmFuY2UifQ%3D%3D

(30)  Based on EurObserv’ER data in 2015-2018 period.

(31)

 Eurostat SBS.

(32) Based on OECD STAN Database for Structural Analysis (ISIC Rev. 4 SNA08) 2020 ed.

(33)  Based on World Input-Output Database.

(34)  Alves Dias et al. 2018. EU Coal regions: opportunities and challenges ahead. https://ec.europa.eu/jrc/en/publi cation/eur-scientific-and-technical-research-reports/eu-coal-regions-opportunities-and-challenges-ahead. Strategy baseline to bridge the skills gap between training offers and industry demands of the Maritime Technologies value chain, September 2019 - MATES Project. https://www.projectmates.eu/wp-content/uploads/2019/07/MATES-Strategy-Report-September-2019.pdf

(35)  IRENA. 2019. Renewable Energy: A Gender Perspective.

(36)  This is defined as low-carbon emission generation technologies, including renewables, nuclear, and advanced/low emission natural gas.

(37) US Energy and Employment Report, 2020

(38) EIGE, 2017

(39) WGE&ET_EU, 2019

(40)  Baruah, B., ‘Renewable inequity? Women’s employment in clean energy in industrialized, emerging and developing economies’, Natural Resources Forum, 41(1), 2017, pp. 18‑29.

(41)  EIGE, 2016

(42) WISE (Women in Solar Energy) (2017), Women employment in urban public sector, http://www.wiseproject.net/downl/final_ wise_project_report.pdf

(43) US Energy and Employment Report, 2020

(44)

JRC SETIS https://setis.ec.europa.eu/publications/setis-research-innovation-data ;

JRC112127 Pasimeni, F.; Fiorini, A.; Georgakaki, A.; Marmier, A.; Jimenez Navarro, J. P.; Asensio Bermejo, J. M. (2018): SETIS Research & Innovation country dashboards. European Commission, Joint Research Centre (JRC) [Dataset] PID: http://data.europa.eu/89h/jrc-10115-10001 , according to
JRC Fiorini, A., Georgakaki, A., Pasimeni, F. and Tzimas, E., Monitoring R&I in Low-Carbon Energy Technologies, EUR 28446 EN, Publications Office of the European Union, Luxembourg, 2017
JRC117092 Pasimeni, F., Letout, S., Fiorini, A., Georgakaki, A., Monitoring R&I in Low-Carbon Energy Technologies, Revised methodology and additional indicators, 2020 (forthcoming)

(45) COM(2015)80 Low-carbon energy technologies under the Energy Union R&I priorities; renewables, smart system, efficient systems, sustainable transport, CCUS and nuclear safety

(46) With the exception of China, where local applications keep increasing, without seeking international protection.(see also Are Patents Indicative of Chinese Innovation? https://chinapower.csis.org/patents/ )

(47) High value patent families (inventions) are those containing applications to more than one office i.e. seek protection in more than one country / market.

(48) European Commission (2020), Publications as a measure of innovation performance: Selection and assessment of publication indicators. Report in progress under tendered study 2018/RTD/g1/OP/PP-07481-2018 authored by Provencal, S; Khayat, P., and Campbell, D., Science Metrix.

(49)  The study focused on SET Plan key actions: No 1 in Renewables, Smart Solutions for Consumers, Smart, Resilient and Secure Energy System, Energy Efficiency in Buildings, Energy Efficiency in Industry, Batteries and e-Mobility, Renewable Fuels and Bioenergy, Carbon Capture Utilisation and Storage, Nuclear Safety

(50) Specialisation is expressed as the share of publications in the field contrasted with that observed globally

(51) COM(2019) 640 final. https://eur-lex.europa.eu/resource.html?uri=cellar:b828d165-1c22-11ea-8c1f-01aa75ed71a1.0002.02/DOC_1&format=PDF

(52)  ASSET Study commissioned by DG ENERGY - Energy Outlook Analysis (Draft, 2020)

(53)

The 2030 Climate target plan, COM(2020) 562 final 

https://ec.europa.eu/clima/sites/clima/files/eu-climate-action/docs/com_2030_ctp_en.pdf

(54) The changes include some updates of techno-economic assumptions based on a review of the data both within the EC and through a stakeholder consultation (Autumn 2019). The changes also include an update of the policy context (cut-off date for policies December 2019, therefore including coal phase out policies in a number of countries) and the update of the macro-economic context (based on the ageing report of autumn 2019). Finally, the changes concern the statistical database of the model (the LTS included preliminary statistical data until 2015, whereas the new scenarios include statistical data up to the year 2017).

(55) not taking into account conversion losses of direct fuel consumption at the end use. Results of GP ER are for OECD Europe. Results of IEA WEA SDS are for 2040. Data for 2018 are based no Eurostat.

(56) JRC116452: “Hydrogen use in EU decarbonisation scenarios”

(57)

 This is the result of a survey by Fraunhofer ISE commissioned by VDMA, comparing the cost ratios of production in Europe and China. VDMA Press Release, August 14, 2019

(58) For example, the IRENA GRO TES scenario projects that in the EU, USD 56 billion/year will be required for power grids and system flexibility, compared to the USD 78 billion/year required for RES technology deployment.

(59) Study on energy storage - Contribution to the security of the electricity supply in Europe (2020): : https://op.europa.eu/en/publication-detail/-/publication/a6eba083-932e-11ea-aac4-01aa75ed71a1

(60) Tsiropoulos I., Nijs W., Tarvydas D., Ruiz Castello P., Towards net-zero emissions in the EU energy system by 2050 – Insights from scenarios in line with the 2030 and 2050 ambitions of the European Green Deal, EUR 29981 EN, Publications Office of the European Union, Luxembourg, 2020, ISBN 978-92-76-13096-3, doi:10.2760/081488, JRC118592.

(61)

     EC, Onshore and offshore wind, https://ec.europa.eu/energy/topics/renewable-energy/onshore-and-offshore-wind_en , 2020.

(62) IRENA, Renewable Capacity Statistics, 2020.

(63)

 IEA, Offshore Wind Outlook 2019 - World Energy Outlook Special Report, 2019.

(64) GWEC, Global Wind Energy Report 2019, 2020.

(65) GWEC, Global Wind Energy Report 2019, 2020.

(66) JRC, ENSPRESO - WIND - ONSHORE and OFFSHORE. European Commission, Joint Research Centre (JRC) [Dataset] PID: http://data.europa.eu/89h/6d0774ec-4fe5-4ca3-8564-626f4927744e, 2019.

(67) Exclusive Economic Zone. Technical potentials include the territorial waters (12nm-zone) and areas with a water depth down to 1000m. For detailed restrictions on the technical potentials please refer to the JRC ENSPRESO dataset

(68)

 JRC, Low Carbon Energy Observatory, Wind Energy Technology Development Report 2020, European Commission, 2020, JRC120709.

(69) JRC, ENSPRESO - WIND - ONSHORE and OFFSHORE. European Commission, Joint Research Centre (JRC) [Dataset] PID: http://data.europa.eu/89h/6d0774ec-4fe5-4ca3-8564-626f4927744e, 2019.

(70) JRC, Deployment Scenarios for Low Carbon Energy Technologies. Deliverable D4.7 for the Low Carbon Energy Observatory (LCEO), 2018. JRC11291.

(71) JRC, Low Carbon Energy Observatory, Wind Energy Technology Development Report 2020, European Commission, 2020, JRC120709.

(72) IEA, Offshore Wind Outlook 2019 - World Energy Outlook Special Report, 2019.

(73) WRI, High Level Panel for Sustainable Ocean Economy, https://www.oceanpanel.org/news/oreac-1400-gw-offshore-wind-possible-2050-and-will-be-key-green-recovery, 2020.

(74) JRC, Low Carbon Energy Observatory, Wind Energy Technology Development Report 2020, European Commission, 2020, JRC120709.

(75) JRC, Low carbon energy technologies in deep decarbonisation scenarios - Deliverable D 440 for the Low Carbon Energy Observatory, European Union, Petten, 2019, JRC118354.

(76)

BNEF 2020 Interactive Datasets

(77)

 JRC, Facts and figures on Offshore Renewable Energy Sources in Europe, 2020, JRC121366 (upcoming).

(78) IRENA, Future of wind: Deployment, investment, technology, grid integration and socio-economic aspects (A Global Energy Transformation paper), International Renewable Energy Agency, Abu Dhabi, 2019.

(79)

JRC, Facts and figures on Offshore Renewable Energy Sources in Europe, 2020, JRC121366 (upcoming).

(80)

JRC, Low Carbon Energy Observatory, Wind Energy Technology Development Report 2020, European Commission, 2020, JRC120709.

(81) Eurobserv’ER, Wind Energy Barometer, 2020.

(82) Retrieved from https://www.portofrotterdam.com/en/news-and-press-releases/prototype-most-powerful-wind-turbine-in-the-world-haliade-x-12-mw-installed

(83)

JRC, Low Carbon Energy Observatory, Wind Energy Technology Development Report 2020, European Commission, 2020, JRC120709.

(84) UNEP & BloombergNEF, Global trends in renewable energy investment, 2019.

(85)

JRC, Low Carbon Energy Observatory, Wind Energy Technology Development Report 2020, European Commission, 2020, JRC120709.

(86) IEA, Offshore Wind Outlook 2019 - World Energy Outlook Special Report, 2019.

(87) Excluding transmission costs

(88) Excluding offshore wind floating technology.

(89)

JRC, Low Carbon Energy Observatory, Wind Energy Technology Development Report 2020, European Commission, 2020, JRC120709.

(90) These usually represent about 25 to 30% of total lifecycle costs for offshore wind farms (source: Röckmann C., Lagerveld S., Stavenuiter J. (2017) Operation and Maintenance Costs of Offshore Wind Farms and Potential Multi-use Platforms in the Dutch North Sea. In: Buck B., Langan R. (eds) Aquaculture Perspective of Multi-Use Sites in the Open Ocean. Springer, Cham)

(91) EUR 75.83 (1 USD = 0.84 EUR)

(92) EUR 42.13 (1 USD = 0.84 EUR)

(93) IEA, Offshore Wind Outlook 2019 - World Energy Outlook Special Report, 2019.

(94) https://setis.ec.europa.eu/system/files/setplan_wind_implementationplan_0.pdf

(95) JRC, Implementing the SET Plan - Progress from the Implementation working groups, 2020, JRC118272.

(96) JRC, Low Carbon Energy Observatory, Wind Energy Technology Development Report 2020, European Commission, 2020, JRC120709.

(97) EC, DG RTD Orientations towards the first Strategic Plan for Horizon Europe, 2019.

(98) ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

(99) JRC, JRC C.7 contribution to the SETWind Annual progress report, European Commission, 2020, JRC120592.

(100) JRC, Low Carbon Energy Observatory, Wind Energy Technology Market Report, European Commission, 2019, JRC118314.

(101) EUR 2310 billion (1 USD = 0.84 EUR)

(102) IRENA, Future of wind: Deployment, investment, technology, grid integration and socio-economic aspects (A Global Energy Transformation paper), International Renewable Energy Agency, Abu Dhabi, 2019.

(103)

 European Commission (2018). IN-DEPTH ANALYSIS IN SUPPORT OF THE COMMISSION COMMUNICATION COM(2018) 773 A Clean Planet for all A European long-term strategic vision for a prosperous, modern, competitive and climate neutral economy; and Capros et al. 2019, https://doi.org/10.1016/j.enpol.2019.110960.

(104) ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

(105) JRC, Low Carbon Energy Observatory, Wind Energy Technology Development Report 2020, European Commission, 2020, JRC120709.

(106) JRC, Low Carbon Energy Observatory, Wind Energy Technology Market Report, European Commission, 2019, JRC118314.

(107) JRC, Low Carbon Energy Observatory, Wind Energy Technology Market Report, European Commission, 2019, JRC118314.

(108) ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

(109) This section looks as both onshore and offshore wind patents, as much of the technology is similar.

(110) JRC, Low Carbon Energy Observatory, Wind Energy Technology Market Report, European Commission, 2019, JRC118314.

(111) ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

(112) JRC, Low Carbon Energy Observatory, Wind Energy Technology Market Report, European Commission, 2019, JRC118314.

(113) This means that the patents are protected in other patent offices outside of issuing country and refer to patent families that include patent applications in more than one patent office.

(114) JRC, JRC C.7 contribution to the SETWind report on Mapping R&I policies and priorities for offshore wind, European Commission, 2019, JRC118148.

(115) *Potentially incomplete data from 2017 onwards due to publishing delay and update process in SCOPUS

(116) JRC, Monitoring scientific collaboration trends in wind energy components: Bibliometric analysis of scientific articles based on TIM, 2018, JRC111622.

(117) A count of publication means that the country is represented by one or more organisations on the publication (e.g. three organisations from the same country on a publication are counted as one publication from that country)

(118) ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

(119) GWEC, Global Offshore Wind Report 2020, 2020.

(120) JRC, Low Carbon Energy Observatory, Wind Energy Technology Market Report, European Commission, 2019, JRC118314.

(121)  ASSET Study commissioned by DG ENERGY - Gathering data on EU competitiveness on selected clean energy technologies (Draft, 2020)

(122) WindEurope

(123)  BloombergNEF, 1Q 2020 Global Wind Market Outlook – Covid-19 wreaks havoc

(124) ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

(125) The fourth manufacturer (Senvion) went into insolvency in 2019, leading to further market consolidation.

(126)

An even stronger market concentration can be expected following the insolvency of Senvion and the closure of its Bremerhaven turbine manufacturing plant at the end of 2019

(127) Uihlein, A., Telsnig, T. & Vazquez Hernandez, C. JRC Wind Energy Database, Joint Research Centre, 2019.

(128) ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

(129) JRC, Low Carbon Energy Observatory, Wind Energy Technology Market Report, European Commission, 2019, JRC118314.

(130) JRC, Low Carbon Energy Observatory, Wind Energy Technology Market Report, European Commission, 2019, JRC118314.

(131) 4C Offshore, Global Market Overview Market Share Analysis Q1 2020, 2020.

(132) ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

(133) This section looks as both onshore and offshore wind patents, as much of the technology is similar.

(134) ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

(135)  EuObserver

(136)  Offshore renewable energy in the EU – Interservice meeting (updated with information from WindEurope in August 2020)

(137) JRC, Low Carbon Energy Observatory, Wind Energy Technology Market Report, European Commission, 2019, JRC118314.

(138) QBIS, Socio-economic impact study of offshore wind, 2020.

(139) IRENA, Renewable Energy Benefits: Leveraging Local Capacity for Offshore Wind, IRENA, Abu Dhabi, 2018.

(140) QBIS, Socio-economic impact study of offshore wind, 2020.

(141) WindEurope, Briefing note on Wind Energy Jobs: Onshore and Offshore Wind, August 2019.

(142) Deloitte/WindEurope, Local impact, global leadership – The impact of wind energy on jobs and the EU economy, 2017.

(143) WindEurope, The EU Offshore Renewable Energy strategy, June 2020. Updated figures on employment using the Deloitte/WindEurope model.

(144) Ortega et al. (2020), Analysing the influence of trade, technology learning and policy on the employment prospects of wind and solar energy deployment: The EU case. Renewable and Sustainable Energy Reviews 122 (2020) 109657, Available https://doi.org/10.1016/j.rser.2019.109657

(145) JRC, Facts and figures on Offshore Renewable Energy Sources in Europe, 2020, JRC121366 (upcoming).

(146) ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

(147)  The global market share of European offshore wind turbine manufacturers is more than 50%.

(148) JRC, Low Carbon Energy Observatory, Wind Energy Technology Market Report, European Commission, 2019, JRC118314, p. 14.

(149)

GWEC, Global Offshore Wind Report 2020, 2020.

(150) IRENA, Future of wind: Deployment, investment, technology, grid integration and socio-economic aspects (A Global Energy Transformation paper), International Renewable Energy Agency, Abu Dhabi, 2019, p.52.

(151) ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

(152) OECD, Trade as a channel for environmental technologies diffusion: the case of the wind turbines manufacturing industry, JT03461863 (draft), 2020.

(153) JRC, Facts and figures on Offshore Renewable Energy Sources in Europe, 2020, JRC121366 (upcoming).

(154) JRC, Low Carbon Energy Observatory, Wind Energy Technology Market Report, European Commission, 2019, JRC118314.

(155) JRC, China – Challenges and Prospects from an Industrial and Innovation Powerhouse, 2018, JRC116516.

(156)  JRC, interactive tool: Materials that are critical to our green future

(157) COM(2020) 474 final

(158) JRC, China – Challenges and Prospects from an Industrial and Innovation Powerhouse, 2018, JRC116516.

(159) UNEP & BloombergNEF, Global trends in renewable energy investment, 2019.

(160) JRC, Low Carbon Energy Observatory, Wind Energy Technology Development Report 2020, European Commission, 2020, JRC120709.

(161) Communication from the Commission, A Clean Planet for all - A European strategic long-term vision for a prosperous, modern, competitive and climate neutral economy. COM (2018) 773 final

(162) ETIPWind, Floating Offshore Wind. Delivering climate neutrality, 2020.

(163) GWEC, Global Offshore Wind Report 2020, 2020.

(164) WindEurope, Offshore Wind Ports Platform, https://windeurope.org/policy/topics/offshore-wind-ports/, 2020.

(165) ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

(166) ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

(167) ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

(168) North Seas Energy Cooperation – Work Programme 2020-2023, 2019.

(169) ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

EUROPEAN COMMISSION

Brussels, 14.10.2020

SWD(2020) 953 final

COMMISSION STAFF WORKING DOCUMENT

Clean Energy Transition – Technologies and Innovations

Accompanying the document

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL

on progress of clean energy competitiveness

{COM(2020) 953 final}

1.

2.

3.

3.1.

3.2.

3.3.Offshore renewables – Ocean

3.3.1.State of play of the selected technology and outlook

Ocean energy is a largely untapped renewable energy source, although it has significant potential to unlock further decarbonisation of the EU energy system. Tidal and wave energy technologies are the most advanced among the ocean energy technologies, with significant potential located in different Member States and regions. Tidal technologies can be considered at pre-commercial stage, benefitting from design convergence, significant electricity generation (over 30 GWh since 2016 1 ) and a number of projects and prototypes deployed across Europe and worldwide. Instead, most of the wave energy technological approaches are at R&D stage. Many positive results on wave energy are stemming from ongoing European and national projects. Over the past 5 years significant technology progress has been achieved thanks to the successful deployment of demonstration and first-of-a-kind farms; with the sector showing particular resilience in overcoming the setbacks 2 that have hindered the industry in 2014/15 3 .

The variety in ocean resource and location requires different technological concepts and solutions. Therefore, several methods exist to turn ocean energy into electricity:

·Wave energy converters have not reached yet the consensus on the optimal conceptual design of the converters. A range of full-scale prototypes, conceptually different, have been deployed. Further technology development, testing and demonstration are required prior to commercialisation and industrial roll-out. Most advanced technology can be considered at TRL 8-9, with Manufacturing Readiness Level of 1. Most of technology are at TRL 6-7. A convergence towards a common conceptual design to extract the energy from the waves and transform it into electricity, would help the industrialisation of the sector. The fact that the industry is not there yet means that a higher R&D effort is still necessary;

·Tidal stream turbines harness the flow of the currents to produce electricity. Tidal turbines can be fixed directly to and mounted on the seabed, or tethered/moored to the seabed and buoyant, floating on surface or in mid water. About 10 different converters designs are at an advantaged TRL stage [TRL 9], and are feeding electricity into the grid in real operational environments – both individually and as arrays. The Manufacturing Readiness Level is at 2, with some companies expanding manufacturing capabilities and consolidating supply chains;

·Tidal range is the more established ocean energy technology, with several projects generating power around the world, especially in France and in Korea. Such systems let the tide fill a natural or artificial basin, then blocking the “opening.” Once the tide has retreated, the barrage is opened and the resulting flow is used to drive a turbine. At low tide, the system works in reverse, with the flow running in the opposite direction; Environmental considerations and high upfront capital required have slowed the development of new projects in Europe. Most advanced technology can be considered at TRL8-9, with Manufacturing Readiness Level of 2 (supply chain forming);

·Ocean Thermal Energy Conversion (OTEC) exploits the temperature difference between deep cold ocean water and warmer surface waters to produce electricity via heat exchangers. OTEC is suited to oceans where high temperature differences will yield the most electricity. A number of demonstration plants are being developed in EU overseas territories opening up export opportunities. TRL is at 5;

·Salinity gradient power generation. Fresh water and salt water are channelled into different chambers, separated by a membrane. The salt draws the fresh water through the membrane by osmosis, causing the pressure on the seawater side to increase. This pressure can be used in a turbine to make electricity. Such systems have a significant deployment potential around Europe, (e.g., the estuary of the river Rhine alone is associated with a potential capacity of 1.75 GW 4 ). However, a limited industrial involvement is observed. Further technology development is required to bring salinity gradient closer to maturity. More recently, the possibility of coupling salinity gradient with heat generation and hydrogen production. (TRL below 5 at this stage) has been considered.

Given the resources available in the EU, and the advancement of the technologies, it is expected that in the short-to-medium term (up to 2030), ocean energy development in the EU will be largely dependent on the deployment of tidal and wave energy converters. The deployment of OTEC in continental waters is very limited, whilst it is not clear how salinity gradient technologies could develop both in terms of technology and market. For tidal energy, there is significant potential in France, Ireland and Spain, and localised potential in other Member States. For wave energy, high potential is to be found in the Atlantic, localised potential in North Sea, Baltic, Mediterranean, and Black Sea.

Capacity installed, generation

At the beginning of 2020, the total installed capacity of ocean energy worldwide was of 528 MW, including 494 MW of tidal range projects (240 MW in France and 254 MWin the republic of Korea). Excluding tidal range, the total installed capacity of ocean energy worldwide 5  reached 34MW. 78% of the global capacity is installed in European waters, equally split between deployments in EU27 and in the UK (13.3 and 13.7 MW respectively), as shown in Figure 49 6 , 7 .

Figure 49 Global installed capacity post-Brexit (excluding tidal range)

Source 49 JRC

Wave. At the start of 2020, the global installed capacity of wave energy was of 12 MW, with 8MW (66%) installed in EU27. In 2019, 600 kW of new wave energy capacity was deployed in the EU 8 .

Tidal. At the start of 2020, the global installed capacity of tidal energy was of 22.4 MW, 76% of the installed capacity is deployed in Europe, of which 24% in EU waters. In the UK there are 12 MW of operational tidal energy capacity. EU developers have largely benefitted from successful collaboration and interlinkage between EU support and the availability of ad-hoc infrastructure especially in Scotland and in Northern Ireland. As a matter of fact, 65% of the global tidal energy installed capacity comes from EU developers.

The project pipeline of wave and tidal energy is of about 2.4 GW until for the next 7 years. This pipeline comprises projects currently under development, and of industrial ambitions stated by some technology developers 9 . This pipeline is in line with the market projections released by DG MARE 10 and with the IEA 11 modelling scenario in the most optimistic development scenarios for ocean energy. It shall be noted that in the pessimistic 12 scenario DG MARE and IEA expect between 0.25 GW and 0.6 GW of installed capacity by 2025 and around 1GW by 2030.

Future expectations on capacity installed based on different scenarios

Different energy system models have been used to model the future uptake of ocean energy in Europe and globally, providing a wide range spectrum of capacity that could be expected. The differences between models results is understandable and can be related to different assumptions such as:

·Global modelling assumptions: e.g. is the model designed to model a transition to zero-net emission or other policy ambitions;

·Role of R&I: is the model accounting for a strong role of R&I stimulating investments in new energy sources?

·Capacity of ocean energy to unlock cost-reductions: does the model foresee the availability for ocean energy to reduce its cost so that the technologies become cost-competitive?

Overall it can be expected that the continuous development of the ocean energy technologies and the reduction in technology costs are expected to lead to a significant increase of the deployed ocean energy capacity in the near future. On the other hand, when this assumption is not embedded in the model, the modelled contribution of ocean energy is minimised.

This is the case of the LTS: it indicates a low contribution of the technology in the total electricity generation with a maximum of 0.7 % in 2040 and 0.6% in 2050. Market scenario assessments from the International Energy Agency (IEA) 13 indicate that depending on the cost-reduction and policy design, by 2030 the total European ocean energy installed capacity could range between 0.5 GW and 2.6 GW by 2030, depending on the policy initiative. WEO expects a modest breakthrough of ocean energy technology, resulting in installed capacities of 20 GW worldwide and 12 GW in Europe by 2040. Higher ocean energy deployment is linked with policy accelerating the transition towards climate neutrality. JRC-EU-TIMES 14 simulations of the EU energy system indicate that a total capacity ranging from 28 GW to 46 GW could be expected by the sector by 2050, under the assumption of that wave and tidal energy devices meet the cost reduction of the SET plan. Tidal energy could be cost-competitive by 2030, accounting for most of the sector installed capacity (28 GW). Wave energy could reach 18 GW by 2050 15 .

So far, all the modelling outputs are below the industrial target that the ocean energy sector has set itself. The ocean energy industry estimates that 100 GW of wave and tidal energy capacity can be deployed in Europe by 2050, meeting 10% of Europe’s current electricity needs; while IEA-OES estimates a global potential installed capacity of wave, tidal stream and range, OTEC and salinity gradient of 337 GW by 2050 16 .

Meeting these targets requires that ocean energy costs are reduced through sustained R&D and the design of policies that recognise the potential and role of ocean energy in the transition to a climate-neutral economy and support large scale deployment of ocean energy possible like this has been done in the past for wind and PV.

Cost, LCOE

A critical aspect hindering the uptake of ocean energy technology is the high capital cost of the technology and the associated risk for project developers to deploy expensive technology. Thus, the development of ocean energy sector requires that significant cost reductions are achieved in order for wave and tidal energy technologies to become competitive with other renewable energy sources.

Data from the EU funded projects indicate that the LCOE of tidal energy technology ranges between 0.34 and 0.38 EUR/kWh ( Figure 50 ), down from 0.60 EUR/kWh in 2015. This corresponds to reduction of more than 40% in three years. The current value is below the 2015 reference cost-reduction curve, which indicated that LCOE would reach 0.40 EUR/kWh with the cur-rent deployed capacity. In 2015, the LCOE of wave energy ranged between 0.47 EUR/kWh and 1.40 EUR/kWh, with a reference value of 0.72 EUR/kWh. In 2018, with addition of 8 MW of capacity, the LCOE is expect to have decreased to 0.56 EUR/kWh 17 .

Figure 50 Cost-reduction curves for tidal energy and LCOE estimates from ongoing projects. Solid dots represent data from ongoing demo projects, while hollow dots indicate developers' estimates on the basis of technology improvements and increased deployment.

The SET plan targets set for wave and tidal energy technologies imply that the costs of generating electricity from the ocean need to be further reduced. According to the targets, the LCOE for tidal energy should reach 0.15 EUR/kWh by 2025 and 0.10EUR/kWh by 2030, while the LCOE for wave energy should reach 0.2 EUR/kWh by 2025 and 0.15 EUR/kWh by 2030, finally reaching 0.1 EUR/kWh in 2035.

For tidal energy, meeting the 2030 target of 0.1 EUR/kWh would require about deploying between 300 MW and 800 MW in the next 10 years, and a similar capacity would also be required for wave energy: albeit a step change in R&I and technology development 18 .

R&I

Between 2007 19 and 2019, total EU R&D expenditure on wave and tidal energy amounted to EUR 3.84 billion with the majority of it (EUR 2.74 billion) coming from private sources ( Figure 51 ) 20 . In the same period, national R&D programmes have contributed EUR 463 million to the development of wave and tidal energy. EU funds, including the European Regional Development Fund (ERDF) and Interreg projects, amounting to EUR 493 million. A further EUR 148 million had been made available through the NER300 Programme. On average, for the reporting period EUR 1 of public funding (EU 21 +National) has leveraged EUR 2.9 of private investments.

Figure 51 EU R&D expenditure on ocean energy, EUR million

Source 50 JRC

European, ERDF and National programmes have contributed to fund ocean energy projects for EUR 1.727 billion for a total worth of the projects equal to EUR 2.162 billion. It shall be noted however that the termination of a number of IA projects has a strong effect on the funds made available and used by the consortium. The total project costs leveraged by EU-awarded Horizon 2020 projects has fallen from EUR 328 million to EUR 108 million, with the EU contribution being reduced from EUR 163 to 90 million. This is a significant blow to the ambition of the sector, but also highlights the difficulties that project developers are having. A breakdown of the funds and project cost is provided in Table 2 .

Table 2 Breakdown of funds for ocean energy through European, ERDF and national programmes 2017-2019.

Source 51 JRC

Patenting trends

Patents for ocean energy technologies are classified in 6 CPC classes as follows 22 :

·Y02E-10/28 - Tidal stream or damless hydropower, e.g. sea flood and ebb, river, stream;

·Y02E-10/30 - Tidal stream;

·Y02E-10/32 - Oscillating water column [OWC];

·Y02E-10/34 - Ocean thermal energy conversion [OTEC];

·Y02E-10/36 - Salinity gradient;

·Y02E-10/38 - Wave energy or tidal swell, e.g. Pelamis-type.

R&D activity in ocean energy involves over 838 EU companies and research institutions in 26 Member States 23 . In the EU28, 51% of the ocean energy inventions patented are for wave energy technology, 43% for tidal energy, 2.7% on Oscillating Water Column (OWC, this represent a subset of wave energy technology), and 3% for Ocean Thermal Energy Conversion (OTEC). The EU28 is a leader in the filing of patents in international markets, seeking protection in all key markets such as the United States, South Korea, and China as well as Canada and Australia (included in ROW). Nevertheless, the EU receives only a small number of incoming patents applications from outside, primarily from the United States ( Figure 52 ). The patent filings indicate that the EU is a net exporter of Ocean energy technology and innovation, and that European Ocean energy developers are well positioned to exploit the growth of the sector globally.

Figure 52 Global patents flow, number of patents (for the years 2007-2016). The left side present the information of where invention have been generated, whilst the right side indicates where companies are seeking protection. (Intra-market patents are not included. 2016 is the latest full and validated year on Patstat).

Source 52 JRC

The information presented in Figure 51 and Figure 52 indicate that companies in the EU are investing considerably in the development of ocean energy technology.

The EU has been the leader in ocean energy R&D in ocean energy until 2010. From 2010 Chinese patenting has increased significantly and has overtaken the EU ( Figure 53 ). Nevertheless, only a limited part of the inventions patented in China have also sought international protection in other markets. High-value inventions (or high-value patent families) refer to patent families that include patent applications filed in more than one patent office, thus offering IP protection of the technology in multiple markets. Figure 54 presents the global patent trends for the period 2000-2016, taking into account those High-value inventions, highlighting the role of EU R&D in ocean sector.

Figure 53 Global ocean energy patents trend from 2000 to 2016

Source 53 JRC, Patstat

Figure 54 Global High-value inventions ocean energy patents trend, from 2000 to 2016

Source 54 JRC, Patstat

From Figure 54 , one can see that only a few Chinese patents have sought international protection; whilst many EU inventors have sought protections in multiple potential markets.

Private R&I funding

Figure 55 presents the historical trend in private R&D Investments in the EU, showing a stead decrease from the period 2008-2010 where annual investments were estimated around EUR 300 million to about half of it in 2016 (EUR 158 million). In total since 2003 EUR 2.7 billion of private investments have been directed to ocean energy R&D. Companies based in the UK (EUR 900 million) and in Germany (EUR 475 million) have invested the most in R&D 24 .

Figure 55 Private R&D Investment trend in the EU, based on patents information

Source 55 Source and Methodology JRC

In some countries, both national and private funds are used to support R&D in ocean energy technologies, while in other countries such as Germany, Finland, and the Netherlands the initiative is mainly private. The potential of ocean energy in these countries is limited, however the development of the ocean energy sector may have a positive effect on the countries’ manufacturing supply chain 25 .

3.3.2.Value chain analysis

The technology status of ocean energy converters has affected the consolidation of the supply and value chain of the sector. In fact, for technologies that are not yet market-ready, such as ocean energy technology, the consolidation of the supply chain is dependent on the ability or reliability of the technology and its progress to a higher TRL 26 (Figure 8), and is reflected in low Manufacturing Readiness Level for the sector.

Figure 56 Supply chain consolidation based on market development.

Source 56 JRC

Figure 57 shows the ocean energy supply chain, emphasising the manufacturing of ocean energy converters and key components.

Figure 57 Ocean energy supply chain accounting for component and subcomponents manufacturing

Source 57 JRC 27  

Given the localised nature of wave and tidal energy resources, it is expected that ancillary activities such as project development, operations and maintenance, will be carried out by local companies. The manufacturing of ocean energy converters, as in the case of wind, will then play a fundamental role in shaping the technology market and in defining the positioning of European companies in the global market. Technology developers are already investigating markets where to expand their business plans in location that offer growth both in terms of manufacturing capabilities and deployment of their technologies.

The supply chain spans 28 across 16 EU countries, with a significant presence also in landlocked countries and regions, who provide valuable expertise for the production of components and sub-components ( Figure 58 ). The European ocean energy industry is making significant steps forward, and plans now to expand manufacturing facilities.

Figure 58 Ocean energy supply chain in Europe (to be updated)

Source 58 JRC

Turnover

Given the current status of the sector, where very limited number of projects operates thanks to commercial revenues and to Power Purchase Agreements (PPAs) with utilities. Furthermore, with many companies still being SMEs and focussing on R&I it is not possible to estimate the turnover of the sector. The challenge facing the ocean energy sector is identifying ways to support the deployment of wave and tidal energy farms through innovative support schemes, until revenues are available most of the companies are going forwards thanks to a mix of grant, public funds, private equity and VC. An increasing number of developers are exploring the use of crowdfunding either for the fabrication of their new device, to support R&D activities, or to reach the required capital for deployment. Such efforts have mobilised over EUR 20.5 million (or about USD 23 million) over the past three years. The impact of crowdfunding is comparable with public funding for projects, and it is likely to have limited impact, especially in terms of deployment of projects 29 . Nevertheless it is telling of the difficulties being encountered by technology developers.

Gross value added growth

An indication of the Gross Value Added of ocean energy can be derived from the different deployment scenarios provided by DG MARE 30 . The cumulative GVA generated from deployed Ocean energy by 2030 would range between EUR 500 million and EUR 5.8 billion ( Figure 59 ). The expected growth of the sector could lead to a significant increase in employment. It is projected that if under the optimistic deployment scenario, with the sector reaching 2.6 GW of installed capacity by 2030 up to 25000 yearly FTEs could be generated in Europe (EU27 and UK) and between 50 000 and 200 000 distributed in the next 10 years  ( Figure 59 ). Nevertheless, it shall be noted that the current development trajectory and current employment level is lower that modelled in the DG MARE pessimistic scenario.

Figure 59 Project GVA for ocean energy in the pessimistic and optimistic scenario.

Source 59 JRC, Innosea

Number of companies in the supply chain, incl. EU market leaders

At the end of 2019, over 590 (2020 updates) companies in the EU28 were in involved in the different steps of ocean energy supply chain, including wave and tidal energy developers; project developers, component manufactures, research centre and local authorities.

The landscape of the ocean energy supply chain is rapidly changing thanks to the technology validation projects currently ongoing in European test centres. The necessity of reducing the cost of ocean energy technology, also through economies of scale, implies that the presence of Original Equipment Manufacturers (OEMs) with access to large manufacturing facilities could be seen as an indicator of the consolidation of the supply chain.

In the period between 2012 and 2015 many OEMs have reduced their involvement in the sector, an inversion of tendency has been seen in the past years: new industrial players such as Enel Green Power, ENI, Fincantieri, Saipem, SBM Offshore, Total and Warstila have entered the market; bringing with them experience from the oil and gas and shipping sectors.

The increased presence of OEMs that adds on from the ones already presented in the sector such as AndritzHydro Hammerfest, Lockheed Martin, Engie, Schottel can be seen as a sign of the progress and confidence in the sector moving forward. Furthermore, the sector can also rely on the experience of key intermediate components and sub-components companies, such as Bosch Rexroth, AVV, SKF, Schaeffler and Siemens to mention a few that are actively supporting R&D and demonstration projects. These companies are currently engaged on at ad-hoc base, but their involvement in the sector could grow once the market and supply chain consolidated.

It is important to notice, that as witnessed in the wind energy sector, a strong project pipeline ensures that there is sufficient demand for OEMs, and as a result ensures demand for the manufacturing of components and subcomponents and for the supply of raw materials 31 32 . The landscape for ocean energy is rapidly changing thanks to the technology validation projects currently ongoing in European and international test centres.

The development of ocean energy has seen already almost 300 different concepts being proposed 33 . About half of them have progressed to higher TRL and even fewer tested in operational environment. 49.4% of the ocean energy developers in the EU27, when considering technology at TRL6 or higher 34 . 13.6% of ocean energy developers at TRL6 or more are located in the UK, with the remaining 37% located in the rest of the world.

In terms of tidal energy 41% of the tidal energy technology developers are based in the EU27, and 18% in the UK ( Figure 60 ). The Members State with the highest number of developers are Netherlands and France. Major non-EU players are Canada, the US, the UK and Norway 35 .

For wave energy, 52% of active wave energy developers at TRL6 or higher are located in the EU ( Figure 60 ). The UK (14%) has the highest number of developers, followed by the US, Denmark, Italy and Sweden. Other key players in the sector are Australia, and Norway. A number of developers of technology at low TRL are not included in this analysis.

Whilst the highest concentration of wave and tidal energy developers occurs within the EU and Europe many developers are looking to deploy their technologies outside of Europe thanks availability of market instruments available elsewhere, such has the high feed-in-tariffs in Canada. Developing a strong internal market will be fundamental for the EU in order to build on and maintain its current leadership position in the market. As seen for other renewable energy sources first-mover advantage and strong internal markets are key to maintain a competitive position.

Figure 60 Distribution of tidal and wave energy developers

Tidal                 Wave

Source 60 JRC

Employment figures

At the end of 2019, it was estimated that the ocean energy sector generated 2 250 36 jobs generated across Europe, a significant increase from 2013 when ocean energy jobs were estimated to be between 800-1000 37 . The breakdown of jobs per country can be see in Figure 61 .

Figure 61 Jobs in the ocean energy sector, thousand employees (Updated 2019)

Source 61 JRC, Innosea

The expected growth of the sector could lead to a significant increase in employment. It it in fact projected that if under the optimistic deployment scenario, with the sector reaching 2.6 GW of installed capacity by 2030 up to 25 000 yearly FTEs could be generated in Europe (EU27 and UK).

Figure 62 Yearly jobs associated to the optimistic deployment scenario (2.6 GW)

Source 62 JRC, Innosea

3.3.3.Global market analysis

Global market leaders versus EU market leaders

European leadership spans across the whole ocean energy supply chain 38 and innovation system 39 . The European cluster formed by specialised research institutes, developers and the availability of research infrastructures has allowed Europe to develop and maintain its current competitive position.

The EU maintains global leadership despite the UK’s withdrawal from the EU and changes in the market for wave and tidal energy technologies. 70% of the global ocean energy capacity has been developed by EU27 based companies ( Figure 63 ) 40 .

Figure 63 Installed capacity by Origin of technology

Source 63 JRC 2020 41

The ocean energy market is slowly forming. The next decade will be fundamental for EU developers to maintain their competitiveness with the global ocean energy capacity of 3.5 expected to reach 2.5 GW by 2025 and to 10 GW by 2030 42 . With significant investments in ocean energy outside of Europe (Canada, US, Japan), dedicated support for is needed to ensure that a strong EU market can take off, allowing for the consolidation of the EU supply chain.

Critical raw material dependence

At the current stage, it is not possible to determine the extent of the dependency of the ocean energy sector on critical raw materials; however, it has to be noted that rare earth materials (REEs) are employed and likely to be employed in the production of power-take-off systems and for wave and tidal energy converters. The industry has an opportunity to already identify and act upon this potential bottlenecks by including aspects of circularity and sustainability in the design of the converters on the path to commercialisation.

3.3.4.Future challenges to fill technology gap

Ocean energy technologies have the potential to contribute significantly to the decarbonisation of Europe’s energy system. Predictable and reliable production of wave and tidal energy would complement well wind and solar generation, supporting grid stability. With the sector having showing good progress in the past years, the next is to build and achieve further cost reduction and market consolidation.

2.2 GW of tidal stream and about 0.4 GW of wave energy could be already deployed in Europe by 2030 43 , 44 . The sector has much higher ambitions for the time horizon 2050, aiming to install 100 GW in the European waters 45 . To get there and meet the expectations, significant cost reduction is still needed for tidal and wave energy technologies to exploit their potential in the energy mix. With a clear development and deployment strategy and by creating the right policy conditions, Europe can secure leadership in a market worth up to EUR 53 billion annually by 2050 46 .

Despite the steps forwards in technology development and demonstration, the sector faces struggles in the creation of a viable market. National support appears low, reflected by the limited commitment to ocean energy capacity in the NECPs compared to 2010 and the lack of clear dedicated support for demonstration projects and the development of innovative remuneration schemes for emerging renewable technologies.

This limits the possibility of developing a business case, and of identifying viable ways to develop and deploy the technology. Therefore, investigating specific business cases for ocean energy should be given more focus, such as valorising its flexibility as a highly predictable source, and valorising its potential in the decarbonisation of small communities and EU islands 47 .

The offshore renewable energy strategy 48  offers the opportunity to support the development of ocean energy and to help EU exploit fully the resources available across the EU.

In this overall context, R&I will play a key role in unlocking further reduction in ocean energy cost; and the further development of wave and tidal energy devices rests on demonstrating the reliability and survivability of the devices with relatively low maintenance cost for long operation periods and further advances such as foundation, connection, mooring, logistics and marine operation, integration in the energy system. In this sense R&I on advanced and hybrid materials such as advanced concrete and flexible blades 49 and on new manufacturing processes such as rotational moulding and additive manufacturing that employ innovative 3D technologies could enable further costs reduction, together with lower energy consumption, shortened lead times and improving quality associated with the production of large cast components. 

Important lessons have been learnt from H2020 projects that should be shared as widely as possible among the developers, policy makers and other stakeholders to stimulate technology convergence and build on the knowledge and expertise already available in the EU.

3.4.Solar Photovoltaics 

3.4.1.State of play of the selected technology and outlook

Solar photovoltaics (PV) has become the world’s fastest-growing energy technology, with demand spreading and expanding as it becomes the most competitive option for electricity generation in a growing number of markets and applications. The global compound annual growth rate of PV installations was about 37% between the years 2010 and 2019. This growth is supported by the declining cost of PV systems (EUR/W) and increasingly competing cost of electricity generated (EUR/MWh). All future scenarios for the energy system point to an ever-larger role of PV, with demand continuing and probably accelerating. According to the IEA sustainable development scenario, worldwide electricity generation from PV systems will increase from 720 TWh in 2019 to 3 268 TWh 50 in 2030. In terms of capacity, this would correspond to almost 2.9 TW, requiring of investments of USD 1.8 trillion 51 according to the BNEF NEO 2019 52 . More ambitious scenarios give even higher values. The Commission’s LTS analysis for 2050 shows wind and solar 53 (PV) power providing over 60% of electricity. The solar generation capacity values range from 770 GW (EC LTS1.5LIFE) to 1 030 GW 54 (EC LTS1.5TECH).

Amongst the renewables technologies, PV is unique in its scalability, with systems ranging from utility scale power plants of several hundred MW, to small kW-scale installations for buildings and other consumer uses. PV systems comprise the modules themselves, mounting structures, cabling and the power control and conversion equipment (inverters). This latter part is becoming increasingly digitized and sophisticated, capable of supporting a range of ancillary functions and grid services. Concerning the core PV technology, solar cells bases on silicon wafer is by far the dominant photovoltaic technology on the global market, with a share of over 95% in 2019. This has been by a major shift to passive emitter rear contact (PERC) architectures, bringing power conversion efficiency to the 20% level and above, together with an operational lifetime of 30 years. Passivated contact and heterojunction cells offer a further increases efficiency towards 25% and are already moving to mass production.

Other commercial PV technologies include the thin-film technologies of copper indium/gallium disulfide/diselenide (CIGS) and cadmium telluride (CdTe). Thin-film silicon (amorphous and microcrystalline silicon) and concentrating photovoltaics have lost market shares. Some organic and dye-sensitized solar PV devices have been commercialised, but for the most part this technology remains at niche or research level. Hybrid organic-inorganic perovskite materials recently emerged as a promising option, in particular combined with wafer-based silicon to offer high efficiency and attractive manufacturing costs, although long-term stability remains a challenge. Tandem devices with thin film layers on silicon wafers offer a concrete possibility to reach 30% and beyond for commercial products

The world average carbon footprint of PV electricity generation is approximately as 55 g CO2-eq/kWh. In the EU, treatment of end-of-life PV modules must comply the WEEE Directive since 2012. Several organisations have developed recycling processes, but so far waste volumes are too low for these to be economically viable.

Capacity installed, generation

The cumulative worldwide capacity was 635 GW at the end of 2019 and is expected to increase by more than one order of magnitude in 2030 and two orders of magnitude in 2050 55 . Figure 64 shows the development of the global market over the last ten years. In 2019 the EU28 accounted for 21%, while installations in China accounted for 36% of the total.

Figure 66 shows how the annual PV market in the EU28 has developed from 2020 to the present. From the introduction of the first Renewable Energy Directive in 2009, the PV power capacity in EU28 increased more than 10-fold from 11.3 GW at the end of 2008 to over 134 GW at the end of 2019. This capacity can generate approximately 150 TWh of electricity or about 5.2% of final demand.

The upturn of the EU market in 2018 and 2019 is very positive sign. However, achieving the European Green Deal targets will require considerable additional growth. The impact assessment 56 for the proposed European Climate Law implies a solar PV capacity of approximately 460 GWDC in 2030 (and over 1 000 GW by 2050) to achieve a 55% GHG emissions reduction. Previously a JRC study estimated that the cumulative PV capacity in the EU and the UK would need to rise to 455–605 GWDC by 2030, depending on strategic choices 57 . As things stand, the Member States’ National Energy and Climate Plans (NECPs) foresee PV capacity only in the range 260 to 341 GWDC by 2030.

PV deployment at a large scale may face certain obstacles related to land availability and policies on the use of land, in addition to those regarding the integration of variable power. However, the technical potential is large: over 2 000 GW for ground-mounted systems 58 and 540 GW for systems on buildings 59 in the EU27.

A large increase in module demand coupled with recent rapid cost reductions in PV manufacturing strengthens the case for bringing PV factories back to Europe. CAPEX costs for polysilicon, wafer, solar cell and module manufacturing plants have decreased by 75 to 90% between 2010 and 2018 60 . Economies of scale are critical, and a recent study has shown that a European manufacturing chain would be competitive with global PV factories, should an annual production volume between 5 and 10 GW be reached 61 . Chinese and American industrial experiences illustrate the benefits cutting-edge automation solutions (digital transformation) would bring, compensating the often-cited obstacle of EU high labour costs.

Figure 64 Cumulative Photovoltaic Installations from 2010 to 2020

Source 64 Jaeger-Waldau et al, How photovoltaics can contribute to GHG emission reductions of 55% in the EU by 2030, Renewable and Sustainable Energy Reviews, Volume 126, 2020, 109836

Figure 65 Annual photovoltaic installations in EU and the UK from 2010 to 2020. Values for 2020 are based on pre-Covid estimations.

Source 65 Jäger-Waldau et al, How photovoltaics can contribute to GHG emission reductions of 55% in the EU by 2030, Renewable and Sustainable Energy Reviews, Volume 126, July 2020, 109836

Cost, LCOE

The cost of PV electricity depends on several elements: the capital investment for the system, its location and the associated solar resource, its design, permitting and installation, the operational costs, the useful operation lifetime, end of life management costs and, last but not least, financing costs. Here the focus is on the investment needed for a PV system and for the modules, as the main energy conversion component.

PV modules are the largest single cost component of a system, currently accounting for approximately 40% of the total capital investment needed for utility systems, and somewhat less for residential systems where economies of scale for installation are less and soft costs are higher. The cost of PV modules has decreased dramatically in recent years. The experience or learning curve shows that the price of the photovoltaic modules decreased by 24% with each doubling of the cumulative module production. The “learning rate” of 24% has been observed over the last 40 years 62 . This due to both economies of scale and technological improvements. Current spot market prices at the level of 0.20 EUR/W.

The total installation cost of solar PV will continue to decline in the future, making solar PV highly competitive in most markets and locations with adequate solar resource. Figure 66 shows projected CAPEX trends for utility PV systems from a study performed in the framework of the European Technology Innovation Platform for PV 63 . This foresees a halving by 2030 and a threefold reduction by 2050. IRENA indicates that the average cost for utility-scale PV will fall to at the range of 340 to 834 USD/kW by 2030 and to 165 to 481 USD/kW by 2050 (the average cost was 1 210 USD/kW in 2018 64 ).

Rooftop systems for residential or small commercial buildings have traditionally been an important market segment, particularly in Europe. Prices have seen a significant decline, and are now approximately 1 000 EUR/kW (approximately 200 EUR/m2 ) in the well-developed and competitive German market. However, across Europe prices vary considerably and can be more than double this value. Building integrated roofing systems range from 200 to 500 EUR/m2 for standardised products and increase to 500 to 800 EUR/m2 for customised solution 65 . Costs for PV facades are in the upper part of this range.

In terms of cost per MWh, PV emerges as highly competitive for utility scale PV in favourable locations. In the first half of 2020 the global LCOE benchmarks for PV are reported with 39 to 50 USD/MWh 66 . In IRENA’s 2019 analysis, the LCOE for PV will decrease to 10 to 50 USD/MWh depending on location, due to continuing reduction of PV installation costs 67 . The previously mentioned study for ETIP-PV indicates an LCOE for utility scale systems (>10 MW) ranging from 24 EUR/MWh in Malaga to 42 EUR/MWh in Helsinki (see Figure 67 ) based on 2019 CAPEX and OPEX values, and with a weighted average cost of capital (WACC) of 7%. By 2030, this range would drop to 14‐24 EUR/MWh and by 2050 to 9‐15 EUR/MWh. Their sensitivity study showed that varying WACC from 2 to 10% doubles the LCOE.

Figure 66 Utility‐scale PV capital expenditure (CAPEX) in Europe for the years 2018 to 2050 in three different scenarios (EUR/W)

Source 66 E. Vartiainen et al, Impact of weighted average cost of capital, capital expenditure, and other parameters on future utility‐scale PV levelised cost of electricity, Prog Photovolt Res Appl. 2019; 1–15

Figure 67 PV LCOE for utility systems in six European locations, years 2019 to 2050 ( EUR 2019/MWh), taxes not included

Source 67 E. Vartiainen et al, Impact of weighted average cost of capital, capital expenditure, and other parameters on future utility‐scale PV levelised cost of electricity, Prog Photovolt Res Appl. 2019; 1–15

Auctions for PV power supply provide a further indicator of cost level. Over the last few years, the number of EU Member States conducting such auctions has continuously increased. Prices have come down to the current average level of EUR 35 and 70/MWh. A Portuguese auction in August 2020 reached EUR 11.14/MWh, although this price is considered to reflect more the value of the grid connection to the bidder than the cost of PV electricity.

A recent Commission study 68 on the present and future competiveness of solar PV and wind power shows that both can be cost-competitive in almost all EU markets by 2030. It underlines the importance of flexibility in power systems, e.g. grid interconnections, storage and demand management, to mitigate negative price trends at peak production times, which could occur when variable renewables reach a high market share.

The rooftop PV market is of particular importance in view of its role in decarbonising energy consumption in the building sector and the socio-economic benefits to communities of small-scale installations. For PV rooftop systems there is still a wide spread in LCOE (61,9 to 321,5 EUR/MWh) across the EU 69 . This is due in part to geographic variations in the actual solar radiation reaching the system, and significantly to local regulations and market conditions. Depending on the actual retail prices, electricity generated from PV rooftop systems can be cheaper for a large part of the European population. Even in a less sunny locations, the electricity cost is only bettered by onshore wind, again providing the location has a favourable wind resource.

It should be said that very high penetration rates of variable renewable technologies (mostly PV and wind) will need storage, enforced grids and demand side management. The mix and intensity of renewables will determine the requirements of those elements and the total system costs.

R&I

Public R&I funding

IEA data has been analysed to assess public funding at EU level for PV, with the caveat that is subject to several limitations both in terms of coverage, disaggregation and completeness Figure 68 shows the data for R&D investment by EU28 member states. The annual total has fluctuated in a range of EUR 190 million to EUR 210 million. If the EU is to continue its role as a PV technology leader, it will need to maintain or increase this level going forward, together with R&D investments for closely related technologies (e.g. for power systems, grid integration and for battery storage).

The EU’s Strategic Energy Technology Plan (SET plan) aims to accelerate the development and deployment of low-carbon technologies. The implementation plan for PV identifies six main areas:

·PV for BIPV and similar applications;

·Technologies for silicon solar cells and modules with higher quality;

·New Technologies & Materials;

·Operation and diagnosis of photovoltaic plants;

·Manufacturing technologies;

·Cross-sectoral research at lower TRL.

At EU level, the Horizon 2020 supports the SET plan and PV technology development up to the technology readiness level 7 (system prototype demonstration in the operational environment). A total EU financial contribution of about EUR 196,8 million has been invested on activities related to PV 70 . This contribution has been mostly spent for research and innovation actions (30%), innovation actions (28%) and grants to researchers provided by the European Research Council (16%). Fellowships, under the Marie Skłodowska-Curie programme, absorb 5% while actions for SME are at 11% of the overall investment. Coordination actions, like ERA-NET, represent 10% of the budget.

Actions to support further development of PV technologies to commercialisation have been limited. A positive example is the AMPERE project (Automated photovoltaic cell and Module industrial Production to regain and secure European Renewable Energy market). This has lead an industrial scale (200 MW) production line for high efficiency heterojunction modules, representing the culmination of over ten years of R&D by a cluster of European labs. No PV projects were ultimately funded under the NER 300 demonstration programme. For the period 2021-2030 the Commission has launched a new programme called the ETS Innovation Fund.

The European Investment Bank provided EUR 20 million of quasi-equity under the InnovFin Mid Cap Growth Finance program to Heliatek (based in Germany) to help boost production capacity of its HeliaFilm product (an organic photovoltaic solar film for integration into building facades) and EUR 15 million to Oxford PV Germany GmbH under the InnovFin Energy Demonstration Projects scheme to support the transfer of its perovskite on silicon tandem solar cell technology.

Excellent technology and rapid innovation are essential for the EU industry to be and remain successful in the competitive global context 71 . The European research institutions are still amongst the leaders in the activities related to the photovoltaic field worldwide 72 .

Figure 68 Public investment by EU28 member states in PV

Source 68 ICF, Climate neutral market opportunities and EU competitiveness – Draft Final Report, September 2020

Private R&I funding

Global R&D spending in renewable energy edged up 1% to USD 13.4 billion in 2019. Half of that went to solar and a fifth to wind, and corporate R&D significantly outstripped government spending for the third year running 73 .

Patenting Trends

The PATSTAT database 2019 autumn version has been analysed for the CPC classification codes relevant to PV modules and systems and considering for three categories: all patent families, the so-called "high-value" patent families 74 i.e. application made to two or more patent offices and lastly granted patent families. In terms of global regional breakdown for 2016, China took the largest share of all patent family applications, followed by Japan and Korea. However, there is a significant difference between US, Japanese and Chinese patents, where an idea can be patented, and European patents where proof of concept is required.

If just the "high-value" patent families are considered, a different picture emerges, with Japan as leader, and the EU second positon 75 .

In the technology breakdown for European patents applications, the “energy generation” category is predominant, but there were also significant levels of activity for power conversion technologies, for PV with concentrators and PV in building. Encouragingly, the manufacturing category also maintained a 10% share, perhaps reflecting the continued market strength of the European PV manufacturing equipment sector.

Publications/Bibliometrics

In 2019 the scientific output on photovoltaics reached over 13 000 journal articles (Scopus, Clarivate) Figure 69 shows countries with the highest share number of author affiliations. China is clear leader, followed by the US and then England. Europe is well represented in the top-20 by Germany, UK, France, Italy and Switzerland. The EU28 as whole is second only to China, underlining the high-level scientific excellence in photovoltaics in Europe. Compared to a decade ago, Asian countries account for a very significant fraction of scientific output. The category of high cited articles can be used a measure of quality. In this case the overall ranking is relatively unchanged, although the leading countries or regions tend to have a larger share of these highly cited articles. A number of countries, in particular US, UK and Switzerland, appear to influence research much more than the simple volume of articles would suggest, whereas India had considerable output but with proportionally less impact up to now.

Figure 69 Top countries/regions for author affiliations in 2019 journal articles on photovoltaics and/or solar cells

Source: analysis of Clarivate data in N. Taylor, A. Jäger-Waldau, Photovoltaics technology development report 2020 - Deliverable D2.3.2 for the Low Carbon Energy Observatory, European Commission, Ispra, 2020, JRC120954.

3.4.2.Value chain analysis

Over the last 20 years, the PV industry has grown from a small group of companies and key players into a global business where information gathering is becoming increasingly complex. There is a long value chain from raw materials to PV system installation and maintenance ( Figure 70 ). Often, there is a strong focus on solar cell and module manufacturers, but there are also the so-called upstream and downstream industries. The former include materials, polysilicon production, wafer production and equipment manufacturing, glass, laminate and contact material manufacturers, while the latter encompasses inverters, balance of system (BOS) components, system development, project development, financing, installations and integration into existing or future electricity infrastructure, plant operators, operation and maintenance, etc. In the near future, it will be necessary to add (super)-capacitor and battery manufacturers as well as power electronics and IT providers to manage supply and demand and meteorological forecasts.

Figure 70 The extended PV value chain

Source 69 Assessment of Photovoltaics (PV), Trinomics, 2017, European Commission EUR 27985 EN

The added value is generally distributed along the production process. This is described, in a simplified way by a “smile” curve ( Figure 71 ). The highest value added is located in both the far upstream (basic and applied R&D, and design) and far downstream (marketing, distribution, and brand management) stages, while the lowest value-added activities occur in the middle of the value chain (manufacturing and assembly). However, an increasing number of installations are realized in harsh climates, e.g. high UV, high temperature differences between day and night, high humidity, floating. Therefore, companies are interested to control the manufacturing process to reduce risks and lower financing costs. Moreover, dominance of cell and module manufacturing, allows companies to move upstream in the PV value chain, towards more profitable segments. Therefore, looking at the added-value of a single segment of the value chain might not be sufficient to have the full insight of the industry and inform policy decision.

Figure 71 “Smile Curve” of the PV Value Chain

Source 70 Adapted from F. Zhang, K.S. Gallagher / Energy Policy 94 (2016) 191–203

Turnover

According to the Global Trends in Renewable Energy Investment 2020 76 , global annual investments in solar PV were USD 126.5 billion in 2019. USD 52.1 billion were investments in small distributed solar capacity. Solar capacity investment in Europe was USD 24.6 billion. The EU28 share of new PV installations was 14% in 2019 with an estimated annual investment level (for installation in EU28) at about USD 18 billion.

A more recent analysis for the Commission puts the market size of the global PV industry at about EUR 132 billion 77 , with the segments of value chain related to polysilicon ingots production, and cells and module manufacturing capturing the lion share (44%). The EU27 market size is about EUR 17,1 billion corresponding to about 13% of the global value.

Gross value added growth

The gross value added in general is similar to the market sizes for the respective value chain segment and region, when adjusted for a trade surplus/deficit and the value of input material. In the graph above, the available trade data on sector level had been disaggregated proportionally, according to market size of the different segments. Therein a potential source for inaccuracies in the GVA calculation may be found because it is likely that an export surplus exists in some segments (equipment for PV manufacturing) whilst a negative trade balance is likely for PV panels. For the solar PV sector, metal products and wafers are considered as input material, which are used mainly for cells and modules manufacturing. The largest share of the GVA is captured by the panel manufacturing.

Figure 72 Breakdown of GVA throughout solar PV value chain

Source 71 Guidehouse Insights (2019)

Number of companies in the supply chain, incl. EU market leaders

EU performs differently across the segments of the PV value chain ( Figure 73 ). Europe, along with the US state of California and Japan, jump started the large-scale solar PV market in the mid-2000s. This early start positioned EU companies – mostly German, Spanish and Italian as the leaders in the industry. Since then, the market has moved to other regions and with that, some of the leaders in the industry. Nonetheless, European companies still maintain a strong presence in the industry ( Figure 74 )  78 .

Figure 73 Competitive Intensity across Each Value Chain Segment, Global, 2020

Source 72 Guidehouse Insights (2019)

Figure 74 European players across the PV Industry Value Chain

Source 73 ASSET Study commissioned by DG ENERGY - Gathering data on EU competitiveness on selected clean energy technologies (Draft, 2020)

EU27 companies are most competitive in the downstream part of the value chain, and have in particular maintained key roles in i) the monitoring and control (with companies like GreenPower Monitoring, Meteo&Control and Solar-log), ii) balance of system (BOS) segments, hosting some of the leaders in inverter manufacturing, (like SMA, FIMER, Siemens, Gamesa Electric, Ingeteam and Power Electronics), and iii) solar trackers (like Soltec). European companies have also maintained a leading position in the deployment segment, where established players like Enerparc, Engie, Enel Green Power or BayWa.re have been able to move into new solar markets and gain new market share worldwide 79 .

On the other hand, EU has lost its market share in some of the upstream part of the value chain (e.g. solar PV cell and module manufacturing). Figure 75 shows the situation in 2019. The EU still hosts one of the leading polysilicon manufacturers such as Wacker Polysilicon AG), which production alone is sufficient for manufacturing 20 GW of solar cells. However, a significant part of the polysilicon manufactured in Europe is currently exported to China.

Currently, the segment of the value chain which includes the polysilicon ingots production and the PV cells and modules manufacturing has a global value of about EUR 57.8 billion, of which the EU’s share corresponds to EUR 7.4 billion (12.8%). This still relatively high share captured by EU of the whole value of the segment is due to the polysilicon ingot production.

For PV cells and modules manufacturing, the EU positioning has dramatically fallen behind its Asia competitors. The limited access to fresh capital in Europe after the 2008 financial crisis, lead to the situation that European companies were not able to expand their manufacturing capacities in an expanding market. At the same time, China allocated substantial liquidity in the 12th Five-Year Plan to expand the renewable energy industry and renewable power installations. As of today, all the top 10 manufacturers of PV cells 80 and modules are mostly manufacturing in Asia (Table 3). CAPEX costs for polysilicon, solar cell and module manufacturing plants have diminished dramatically between 2010 and 2018. Together with innovations in manufacturing, this should offer an opportunity for the EU to have fresh look at the PV manufacturing industry and reverse the situation 81 .

Figure 75 Companies and production sites in Europe for PV manufacturing

Source 74 J. Rentsch, Competitiveness Of European PV Manufacturers, Presentation to Interso-lar Europe 2019, Fraunhofer ISE web site

Table 3 Leading PV module manufacturers 2018

Source 75 Izumi K., PV Industry in 2019 from IEA PVPS Trends Report, ETIP PV conference “Readying for the TW era, May 2019, Brussels

Example of EU companies now leading in PV technology innovation include:

·The 3Sun factory, (Catania, Italy) produces heterojunction (HJT) bifacial cells, one of the most efficient PV technology that currently exists, based on the H2020 EU Ampere project. The HJT technology reaches higher efficiency and performance compared to other mainstream technologies and is suitable for applications in all the main industrial sectors. Based on the current 200 MW production line that started in 2019 (with an efficiency >22.4% for modules and up to 24.6% for cells) the 3SUN factory will ramp up its cell / module production capacity to 3.3 GW production of HJT solar modules in 2023-2024 (28% efficiency), and 3.8 GW in 2028. The 3SUN factory will progress to follow an industrial ecosystem approach, linked with the European PV components industry 82 ;

·Meyer Burger, located in Europe, developed and patented the leading technology for next generation PV cells and modules. The company’s patent protected Heterojunction/SmartWire technology is more efficient than the current standard Mono-PERC, as well as other heterojunction technologies currently available. Meyer Burger is setting up a GW-scale European solar PV HJT cell and module manufacturing project 83 ;

·The Oxford PV plant in Brandenburg is developing a production line for tandem crystalline silicon and perovskite cells, with the promise of creating a commercial breakthrough for very high efficiency devices.

Even though the EU industry has lost considerable market share in the past decade, there are opportunities for rebuilding the industry. These opportunities exist in parts of the value chain and market segments where differentiation plays a relatively large role, such as equipment and inverter manufacturing and tailored PV products, such as BIPV. Furthermore, the commercialisation of novel PV technologies could offer opportunities to rebuild the industry. The strong knowledge position of the EU research institutions, skilled labour force and industry players offer a sufficiently strong basis for such a strategy to succeed 84 .

Employment figures

IRENA reports that, globally, the PV sector provided 3 265 million jobs in 2017, the largest of all the renewables. Figure 76  shows a breakdown of employment across the value chain, for the EU and the rest of the world. The deployment step had the largest number of employees. Indirect jobs also formed the majority of jobs in all segments. The relative size of the size of the European job count reflects the market share and current low level of manufacturing. The IEA has also noted that the solar PV sector is the most intensive job creator in the energy sector with 12 jobs for each million euro of investment. Similarly, IEA estimates that energy efficiency in buildings and industry together with solar PV create the most jobs per million euro of investment 85 .

Figure 77  looks at the employment trends in Europe for the PV sector, together with the annual volume of installations. The decline from a peak of almost 300 000 in 2011 reflects both a decrease in installation and in manufacturing. The recent upswing is considered to be entirely due to the recovery of the installation market. In particular, the rooftop market can provide significant jobs, also at local level for installations and maintenance. At the end of 2018, about 19% of the installations in Europe were on in the residential sector, about 37% were commercial and industrial systems and about a third were ground-based and typically of utility-scale 86 . The additional PV capacity expected in EU by 2030 and 2050 would likewise be split between large-scale power plants and rooftop installations. Together with a revival of manufacturing of solar cells and modules, the sector could add 150 000 to 225 000 new jobs by 2030 87 .

Figure 76 Solar Employment by value chain

Source 76 ASSET Study commissioned by DG ENERGY - Gathering data on EU competitiveness on selected clean energy technologies (Draft, 2020)

Figure 77 Solar PV employment and annual capacity additions, EU28, 2009-2018

Source 77 JRC 120302 based on EurObserv’ER and IRENA.

3.4.3.Global market analysis

Trade (imports, exports)

EU27 has experienced a negative trade balance in the solar PV sector 88 . The EU trade balance in the solar PV sector is negative, with a rapid decrease, starting from 2007. This imbalance reflects imports rather than exports, which are almost constant over the years. In particular, the total EU solar PV imports are strongly dependent on imports from Chinese and Asian companies. 89

Figure 78 EU28 imports and exports for PV

Source 78 Source 788 ICF, Climate neutral market opportunities and EU competitiveness – Draft Final Report to DG GROW, September 2020

Global market leaders VS EU market leaders

The global world market, dominated by Europe in the last decade, has rapidly changed into an Asia dominated market. The internationalisation of the production industry is mainly due to the rapidly growing PV solar cells and modules manufacturers from China and Taiwan, as well as new market entrants from companies located in India, Malaysia, the Philippines, Singapore, South Korea, UAE. However, the capital investment often comes from China, as well. At the moment, it is hard to predict how the market entrance of new players worldwide will influence future developments in the manufacturing industry and markets 90 .

The downstream sector constitutes a very significant part of PV system investments. It includes project development, engineering, procurement & construction, operations and maintenance and decommissioning. Table 4 shows a listing of leading contractors for EPC and O&M, and includes a significant European presence. As for manufacturing, the majority are not pure solar players. Several EU companies are major international players for PV systems development and operation: EU companies are also at the forefront of PV module re-cycling technology, although the volume of decommissioned products is still insufficient for full commercial viability.

Table 4 Wiki-Solar listing of inverter manufacturers, engineering, procurement and commissioning (EPC) and operation and maintenance (O&M) contractors for utility scale systems at end 2018.

Source 79 Wiki-Solar http://wiki-solar.org/index.html accessed March 2019

Critical raw material dependence

The EU’s list of critical raw materials contains boron, germanium, silicon, gallium and indium as PV relevant materials. To note that indium and gallium are only used in CIGS (and therefore not used in the 95% of the PV produced today). Silicon metal is included due to the current import dependence on Chinese PV products, although silicon oxide feedstock is abundant. Usage of silver for connections is sometimes cited as a cause for concern. The industry in any case works to decrease its use for cost reasons. R&D efforts concentrate on minimising silver use or on substitute materials like copper. The fact that PV offers a very broad range of options for materials and their sources can mitigate concerns that may arise from projections based on current device technologies.

3.4.4.Future challenges to fill technology gap

Europe continues to be a leader in research on PV technologies, but also faces strong competition at global level. The innovation phase continues to pose significant challenges. Scale is a critical factor to achieving cost competiveness. This applies not just to the bulk market for free-standing or roof-applied systems, but also to building integrated products. Relatively few projects have sufficient resources to address this, particularly those requiring further technical development as well as pilot manufacturing. The new EU Green Deal and European Recovery funds could play a role in developing a new generation of PV manufacturing. Also very large-scale demonstration programmes are needed, and the new ETS Innovation Fund could be beneficial in creating such market-pull stimulus for advanced concepts.

Although the EU industry has lost considerable market share in the past decade, new opportunities are now emerging. These opportunities exist in parts of the value chain and market segments where differentiation plays a relatively large role, such as equipment and inverter manufacturing and PV products tailored to respond to the specific needs of the final sectors of use: buildings sector (BIPV), transportation (VIPV) and agriculture (AgriPV). The modularity of the technology in fact simplifies the integration of photovoltaics in a number of applications, especially in the urban environment. Furthermore, the novel PV technologies reaching the commercialization could offer new basis to rebuild the industry. The strong knowledge position of the EU research institutions, the skilled labour force and the existing and emerging industry players are the basis to rebuild a strong European photovoltaic supply chain 91 .

Emerging approaches to solar photovoltaics (for instance heterojunction and perovskite materials) promise higher performances and lower cost together with a reduced use of materials and lower impact. European Institutes and companies are championing some of these new routes. Relevant manufacturing projects include Ampere, a Horizon 2020 project supporting the construction of a pilot line, to produce photovoltaic silicon solar cells and modules based on heterojunction technology 92 ; Oxford PV, which is an initiative for manufacturing photovoltaic solar cells based on perovskite materials. 93

All projections point to a large role for PV in the future energy system, which will result in a significant growth of the global PV manufacturing industry. If the EU manages to build a strong position in this industry, the benefits will not only include economic growth but also increased energy independence and leadership in innovative energy technologies. As such, it would clearly contribute to the goals set in the Energy Union strategy. Moreover, to maintain the competitiveness of the EU industry, extra-EU markets will need to be considered and developed. Building a sizeable EU PV manufacturing industry would then avoid the risk of supply disruptions’ and quality risks in extra-EU markets.

(1) Ofgem Renewable Energy Guarantees Origin Register. https://www.renewablesandchp.ofgem.gov.uk/

(2) European Commission (2017) Study on Lessons for Ocean Energy Development EUR 27984

(3) Magagna & Uihllein (2015) 2014 JRC Ocean Energy Status Report ( https://publications.jrc.ec.europa.eu/repository/bitstream/JRC93521/jrc%20ocean%20energy%20report_v2.pdf )

(4) https://www.h2owaternetwerk.nl/h2o-actueel/redstack-bv-bedrijf-achter-blue-energy-wil-waterstof-op-gaan-wekken

(5)

JRC 2020, Facts and figures on Offshore Renewable Energy Sources in Europe, JRC121366 (upcoming)

(6)  JRC 2020, Facts and figures on Offshore Renewable Energy Sources in Europe, JRC121366 (upcoming)

(7) These figures have been updated based on the JRC internal regisitry of projects and on the OES Annual Report. Given the R&D nature of some projects, it may contains small innacuracy in terms of status of a project such as operational/on pause.

(8) Ocean Energy Europe (2020) Ocean energy key trends and statistics 2019

(9) JRC 2020, Facts and figures on Offshore Renewable Energy Sources in Europe, JRC121366 (upcoming)

(10)  European Commission (2018) Market study on Ocean Energy

(11) IEA (2019) World Energy Outlook 2019.

(12)  Current policy initiatve without specific support for emerging RES such as ocean

(13) IEA (2019) World Energy Outlook 2019.

(14) No support mechanisms are considered within the model.

(15)  JRC (2020) Technology Development Report Ocean Energy 2020 Update,

(16) Seanergy 2016

(17)  JRC (2020) Technology Development Report Ocean Energy 2020 Update,

(18) Corpower (2020) High Efficiency Wave Energy – Presentation at the Stakeholder event in support of the Offshore Renewable Energy Strategy 09/07/2020

(19) Start of the SET plan initiative

(20) Private investments areestimated from the patent data available through Patstat. Sources: Fiorini, A., Georgakaki, A., Pasimeni, F. and Tzimas, E., (2017) Monitoring R&I in Low-Carbon Energy Technologies , JRC105642, EUR 28446 EN and Pasimeni, F., Fiorini, A., and Georgakaki, A. (2019). Assessing private R&D spending in Europe for climate change mitigation technologies via patent data. World Patent Information, 59, 101927.

(21) EU funds awarded up to 2020 included UK recipients

(22) Complete statistics on patent families are available up to 2014; filings in subsequent years are also considered if they belong to a patent family (or invention) that claims priority in this time period. Patent families are collections of documents referring to the same invention (e.g. filings to different IP offices)

(23) JRC (2020) Technology Development Report Ocean Energy 2020 Update

(24) Source and Methodology JRC

(25) JRC and IEA [data updated Feb 2019X

(26) JRC (2017) EU Low Carbon Energy Industry Report

(27)   https://ec.europa.eu/jrc/en/publication/eur-scientific-and-technical-research-reports/supply-chain-renewable-energy-technologies-europe-analysis-wind-geothermal-and-ocean-energy

(28) The supply chain to which it is referred here does not reflect all the companies in the innovation

(29) Hume (2018) The Rise of Crowdfunding for Marine Energy https://www.maritime-executive.com/features/the-rise-of-crowdfunding-for-marine-energy  

(30)  European Commission (2018) Market study on Ocean Energy

(31) FTI-Consulting. (2016). Global Wind Supply Chain Update 2016.

(32)

Magagna, D., Monfardini, R., & Uihlein, A. (2016). JRC Ocean Energy Status Report 2016

(33)

 EMEC. (2020). Marine Energy. http://www.emec.org.uk/marine-energy/  

(34) TRL6 is used as cut-off point for developers receiving sufficient fuds to develop a small scale prototype of the device to be tested at sea.

(35)  JRC 2020, Facts and figures on Offshore Renewable Energy Sources in Europe, JRC121366 (upcoming)

(36) European Commission (2020) 2020 Blue Economy Report

(37) European Commission (2018) The 2018 Annual Economic Report on the EU Blue Economy

(38) JRC (2017) Supply chain of renewable energy technologies in Europe.

(39) JRC (2014) Overview of European innovation activities in marine energy technology.

(40) JRC (2020) - Facts and figures on Offshore Renewable Energy Sources in Europe, JRC121366 (upcoming)

(41) JRC (2020) - Facts and figures on Offshore Renewable Energy Sources in Europe, JRC121366 (upcoming)

(42) EURActive (2020) https://www.euractiv.com/section/energy/interview/irena-chief-europe-is-the-frontrunner-on-tidal-and-wave-energy/  

(43) European Commission (2018) Market study on Ocean Energy

(44)  IEA (2019) World Energy Outlook

(45) Ocean Energy Europe (2019) Powering Homes Today, Powering Nations Tomorrow

(46)  Ocean Energy Europe (2019) Powering Homes Today, Powering Nations Tomorrow

(47) European Commission (2020) The EU Blue Economy Report 2020

(48) European Commssion (2020) Offshore renewable energy strategy (upcoming)

(49) D. Magagna et al (2018) Workshop on Future Emerging technologies for ocean energy

(50)  IEA data and statistics, https://www.iea.org/data-and-statistics/charts/solar-pv-power-generation-in-the-sustainable-development-scenario-2000-2030

(51) EUR 1.5 trillion (1 USD = 0.84 EUR)

(52) Bloomberg New Energy Finance (BNEF) New Energy Outlook (NEO)

(53) The LTS study uses a single “solar” electricity generation category and is effectively PV for cost and deployment reasons.

(54) The LTS results are for AC capacity, while PV systems sizes and market volumes are typically given as DC. For utility systems, the DC capacity is a factor of 1.25 higher than the AC value.

(55) Jaeger-Waldau, A., Snapshot of Photovoltaics-February 2020, Energies, 13, 930

(56) SWD(2020) 176, Accompanying the document “Stepping up Europe’s 2030 climate ambition Investing in a climate-neutral future for the benefit of our people”

(57) Jaeger-Waldau, A, et al, How photovoltaics can contribute to GHG emission reductions of 55% in the EU by 2030, Renewable and Sustainable Energy Reviews, Volume 126, 2020, 109836,

(58) Ruiz, P. et al, ENSPRESO - an open, EU-28 wide, transparent and coherent database of wind, solar and biomass energy potentials, Energy Strategy Reviews, Volume 26, November 2019, 100379

(59) Bódis K, Kougias I, Jäger-Waldau A, Taylor N, Szabó S. A high-resolution geospatial assessment of the rooftop solar photovoltaic potential in the European Union. Renew Sustain Energy Rev 2019;114.

(60) Woodhouse M, Smith B, Ramdas A, Margolis R. Crystalline silicon photovoltaic module manufacturing costs and sustainable pricing: 1H 2018 benchmark and cost reduction roadmap. 2019. Golden, CO

(61) Fraunhofer ISE, Sustainable PV Manufacturing in Europe - An Initiative for a 10 GW GreenFab; 2019

(62) According to the 2020 ITRPV update report, considering the shorter time interval 2006-2019, the learning rate shows a clear acceleration.

(63) E. Vartiainen et al, Impact of weighted average cost of capital, capital expenditure, and other parameters on future utility‐scale PV levelised cost of electricity, Prog Photovolt Res Appl. 2019; 1–15.

(64) With values in EUR: “ 286 to 701 EUR/kW by 2030 and to 139 to 404 EUR/kW by 2050 (it is noted that the average cost was 1016 EUR/kW in 2018” (1 USD = 0.84 EUR)

(65) BIPVBoost H2020 Project, Competitiveness status of BIPV solutions in Europe, January 2020, available on project web site

(66) 33 to 42 EUR/MWh, BNEF 1H LCOE update, 28 April 2020, (1 USD = 0.84 EUR)

(67) 8 to 42 EUR/MWh, IRENA, Future of Solar Photovoltaic, November 2019, (1 USD = 0.84 EUR)

(68) DG ECFIN Note on the Cost-Competitiveness of Renewable Energy in the EU - The Case of Onshore Wind and Solar Photovoltaic Electricity, Note to the Economic Policy Committee Energy and Climate Change Working Group, June 2020

(69) Bódis K, Kougias I, Jäger-Waldau A, Taylor N, Szabó S. A high-resolution geospatial assessment of the rooftop solar photovoltaic potential in the European Union. Renew Sustain Energy Rev 2019;114.

(70) As of 16 January 2020.

(71)

 European Solar Manufacturing Accelerator, Solar Power Europe, ETIP PV, ESMC, and others (2020), see https://www.solarpowereurope.org/campaigns/manufacturing-accelerator/

(72)

CETP-SRIA Input Paper - Thematic Cluster: Renewable Technologies 1 & 2; Challenges 2 - Photovoltaics

(73) Frankfurt School-UNEP Centre/BNEF. 2020, Global Trends in Renewable Energy Investment 2020, http://www.fs-unep-centre.org

(74) Patent documents are grouped in families, with the assumption that one family equals one invention.

(75) N. Taylor, A. Jäger-Waldau, Photovoltaics technology development report 2020 - Deliverable D2.3.2 for the Low Carbon Energy Observatory, European Commission, Ispra, 2020, JRC120954.

(76) https://www.fs-unep-centre.org/wp-content/uploads/2020/06/GTR_2020.pdf

(77)  Asset Study Competitiveness (2020)

(78) See also ICF, Climate neutral market opportunities and EU competitiveness – Draft Final Report to DG GROW, September 2020

(79)  Ongoing ASSET Study on Competitiveness, 2020

(80) List will be provided soon

(81)   https://www.sciencedirect.com/science/article/pii/S1364032120301301?via%3Dihub (equal to 63)

(82) https://www.solarpowereurope.org/wp-content/uploads/2020/07/3sunfactory_lr.pdf

(83) https://www.solarpowereurope.org/wp-content/uploads/2020/07/meyer_burger_lr.pdf

(84) Assessment of Photovoltaic (PV), Final Report, Trinomics B.V 2017 https://trinomics.eu/wp-content/uploads/2017/07/AssessmentofPV.pdf

(85) (IEA, World Energy Outlook, Special Report Sustainable Recovery, June 2020) https://www.iea.org/reports/sustainable-recovery/evaluation-of-possible-recovery-measures

(86)  Ongoing ASSET Study on Competitiveness, 2020

(87) Renewable and Sustainable Energy Reviews, Volume 126, July 2020, 109836, https://doi.org/10.1016/j.rser.2020.109836

(88) Guidehouse Insights Estimates of UN COMTRADE data

(89) JRC Report: EU energy technology trade - https://publications.jrc.ec.europa.eu/repository/handle/JRC107048

(90) PV Status Report 2019 https://publications.jrc.ec.europa.eu/repository/bitstream/JRC118058/kjna29938enn_1.pdf

(91) Assessment of Photovoltaics (PV) Final Report, Trinomics (2017)

(92) www.ampere-h2020.eu

(93)   https://www.eib.org/en/products/blending/innovfin/products/energy-demo-projects.htm

EUROPEAN COMMISSION

Brussels, 14.10.2020

SWD(2020) 953 final

COMMISSION STAFF WORKING DOCUMENT

Clean Energy Transition – Technologies and Innovations

Accompanying the document

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL

on progress of clean energy competitiveness

{COM(2020) 953 final}

1.

2.

3.

3.1.

3.2.

3.3.

3.4.

3.5.Renewable hydrogen through electrolysis 

3.5.1.State of play of the selected technology and R&I landscape

Hydrogen offers the opportunity to be used as both an energy vector and a feedstock molecule, therefore having several potential uses across sectors (industry, transport, power and buildings sectors). Hydrogen does not emit CO2 when used, and offers the option to decarbonise several hydrogen-based applications, provided its production is sustainable and hydrogen production is not associated to a considerable carbon footprint. Currently the most mature and promising hydrogen production technology, which can be coupled with renewable electricity, is electrolysis. Since any hydrogen-based technological chain has to rely on a hydrogen supply, it is sensible to focus first attention to technological solutions able to produce renewable hydrogen at scale and electrolysis is to be the most mature option.

In the strategic vision for a climate-neutral EU published in November 2018, the EC LTS foresees the share of hydrogen in Europe’s energy mix to grow from the current less than 2% to 13-14% by 2050, amounting to 60 to 80 million tonnes of oil equivalent (Mtoe) in 2050. In terms of installed capacity, the LTS foresees up to 511 GW (1.5 TECH scenario 1 ), whilst other studies suggest a 1 000 GW European market by 2050 2 .

The objective of the hydrogen strategy 3 is to install at least 6 GW of renewable hydrogen electrolysers in the EU by 2024 and 40 GW of renewable hydrogen electrolysers by 2030. The Hydrogen strategy sees industry and heavy-duty transport as applications with highest added value for the EU decarbonisation ambitions.

Figure 79 Differences in final energy consumption in Iron & Steel compared to Baseline in 2050 by fuel and scenario

Source 80 EC PRIMES 4

Figure 80 Energy Content of feedstock demand for ethylene, ammonia and methanol production by type of feedstock and scenario in 2050

Source 81 FORECAST 5

Capacity installed, generation

The current hydrogen production is almost completely based on the use of fossil fuels and associated with large industrial processes. The dedicated world production of hydrogen (hydrogen as primary product) can be subdivided according to the following feedstock 6 :

·ca. 71% from natural gas (steam methane reforming), accounting for 6% of global natural gas use, and emitting around 10 tonnes of carbon dioxide per tonne of hydrogen (tCO2/tH2);

·ca. 27% from coal (coal gasification), accounting for 2% of global coal use, emitting around 19 tCO2/tH2;

·about 0.7% from Oil (reforming and partial oxidation) (emitting around 6.12 tCO2/tH2);

·less than 0.7% from renewable sources (water electrolysis powered with renewable electricity in particular)

oAbout 200 MJ (55 kWh) of electricity are needed to produce 1 kg of hydrogen from 9 kg of water by electrolysis. The required water feedstock consumption is always higher than the stoichiometric value and depends on the actual process efficiency.

The total worldwide hydrogen production is mainly associated with its use as chemical feedstock in oil refining (about 33%), ammonia production (about 27%) and methanol synthesis 7 (about 10%); the remaining fractions are linked with other forms of pure hydrogen demand (e.g. chemicals, metals, electronics and glass-making industries) and use of mixtures of hydrogen with other gases (e.g. carbon monoxide) such as for heat generation.

9,9 Mt/y of hydrogen is produced today in the EU28 (9.4 Mt/y in EU27), out of about 70 Mt/y of pure hydrogen 8 globally, producing around 830 Mt of CO2 globally 9 .

In this section, the focus is on renewable hydrogen 10 production and on the competitiveness elements of this first segment of the whole hydrogen value chain. On-site hydrogen production for co-located consumption in industrial applications appears a promising option on the short-medium term to smoothly reach the scale for the larger introduction of the carrier in the energy system, in line with the ambition of a climate-neutral economy and the hydrogen strategy. The current use of hydrogen in the chemical and petrochemical industry is to be added to the future uses as fuel for the transportation sector (various modes), for cogeneration of electricity and heat or electricity alone, as a storage option for electricity and as a feedstock in the chemical industry, for direct use of hydrogen in small scale stationary end-uses. However, transport of hydrogen, its storage and its conversion in end-use applications (e.g. mobility, buildings) are not discussed here.

The recently launched “Hydrogen Strategy for a climate neutral Europe” 11 aims at fostering a significant growth in European electrolyser capacity with the objective of an expected 6 GW (producing up to one million tonne of renewable hydrogen per year) of electrolysers powered by renewable electricity deployed by 2024 and 40 GW (producing up to ten million tonnes of renewable hydrogen) deployed by 2030.

Renewable hydrogen production is still at very low capacity, but a large number of demonstration projects have been announced and it is expected to grow significantly in the coming decade. In 2019, EU27 had around 50 MW of dedicated water electrolysis capacity installed (all technologies) 12 , of which around 30 MW were in Germany in 2018 13 . There are an additional 34 concrete projects already in the pipeline for an additional 1 GW capacity, requiring EUR 1.6 billion of investments 14 under construction or announced, and an additional 22 GW of electrolyser projects and would require further elaboration and confirmation. Between November 2019 and March 2020, market analysts increased the list from 3,2 GW to 8,2 GW of electrolysers by 2030 (of which 57% in Europe).

Figure 81 Hydrogen production

Source 82 Fuel Cell Hydrogen Joint Undertaking (2019 data)

The 2018 worldwide yearly hydrogen use was about 70 Mt as pure gas, in addition 45 Mt of hydrogen were used without prior separation from other gases 15 . European hydrogen use in its pure form (both merchant and captive) accounted for about 9.7 Mt H2 in 2015 16 ; around 47% of which was used in oil refining, 40% in ammonia production, 8% in methanol production and the remaining used mainly in other chemical productions and industrial processes.

Figure 82 Hydrogen Consumption

Source 83 Fuel Cell Hydrogen Joint Undertaking (2019 data)

Cost, LCOE

The cost of hydrogen depends on several factors: (i) capital investment (retrofitting or greenfield); (ii) operating costs, linked with the costs of natural gas or renewable power (50-60% of overall costs for both renewable and low-carbon hydrogen); (iii) load factor 17 ; and (iv) price of carbon emission (expected in the Emission Trading System), and other elements such as availability and cost of storage.

Estimated costs today for fossil-based hydrogen with carbon capture and storage are about 2 EUR/kg, and 2.5-5.5 EUR/kg for renewable hydrogen 18 . Carbon prices in the range of EUR 55-99 per tonne of CO2 would be needed to make fossil-based hydrogen with carbon capture competitive with fossil-based hydrogen today (current cost of about 1.5 EUR/kg) 19 . Today’s price of 1 tonnes of CO2 is around 25 EUR in the Emission Trading Scheme, and historically has not been higher. This means that CO2 price will be a determining factor, together with low price of electricity, in making renewable hydrogen competitive against fossil based energy 20 . The relative impact of these factors will be strongly influenced by the actual natural gas prices, which changes with location, depending on the world region considered, and temporality.

Costs for renewable hydrogen are going down quickly. Electrolyser costs have already been reduced by 60% in the last ten years, and are expected to halve in 2030 compared to today thanks to economies of scale 21 . Other studies 22 indicate that the price of renewable hydrogen will depend on the location of electrolyser (on site, or “centralised” electrolyser). In regions with cost of renewable electricity, electrolysers are expected to produce hydrogen that will compete 23 with fossil-based hydrogen in 2030 24 . These elements will be key drivers of the progressive development of hydrogen across the EU economy 25 .

Based on current electricity prices, the associated cost estimates for EU production range (based on IEA, IRENA, BNEF) are:

·low-carbon fossil-based hydrogen: EUR 2.2/kg;

·Renewable hydrogen: EUR 3-5.5/kg.

For 2030, the cost estimates for EU production range (based on IEA, IRENA, BNEF) are:

·low-carbon fossil-based hydrogen: EUR 2.2-2.5/kg.

For the renewable hydrogen, the cost in the range EUR 1.1-2.4/kg 26 . However, assumptions depend on a number of input factors. In countries relying on gas imports and characterised by good renewable resources, clean hydrogen production from renewable electricity can compete effectively with production that relies on natural gas 27 .

Reducing the price of renewable hydrogen allows an increasing penetration of hydrogen into different sectors and applications. Usually system boundaries for hydrogen production calculations are defined by the production side, but actual competitiveness for hydrogen uses comes from the opportunity offered by business cases outside the production boundaries. Industrial competitiveness could allow certain industrial processes such as the use of hydrogen for clean steel production, to become affordable earlier than other uses which have to face more challenging competition against conventional fossil-based hydrogen (e.g. ammonia). As an additional advantage, renewable hydrogen has a lower price volatility against hydrogen produced from fossil fuels, which follow natural gas prices.

Table 5 State of art on Electrolysis

Source 84 Alexander Buttlera, Hartmut Spliethoff, Renewable and Sustainable Energy Reviews 82 (2018) 2440–245

Costs of electrolysers (2019): Capital expenditure (CAPEX) account for 50% to 60% of total costs of electrolyser 34 .

Figure 83 Specific Hydrogen Production per Cell Area

Source 85 A. Buttler, H. Spliethoff Renewable and Sustainable Energy Reviews 82 (2018) 2440–2454

From now to 2030, investments in electrolysers could range from EUR 24 billion to EUR 42 billion to install 40 GW of electrolysers. In addition, over the same period, from EUR 220 billion to EUR 340 billion would be required to scale up and directly connect 80-120 GW of solar and wind energy production capacity to power them. From now to 2050, investments in production capacities would amount to EUR 180-470 billion in the EU 35 .

Public R&I funding

An analysis of European projects financed under horizon 2020 (2014-2018) focussing on electrolyser’s development highlighted a public support of more than EUR 90 million, complemented by EUR 33.5 million of private money 36 .

Figure 84 Cumulative EU funding contribution for electrolyser technology-related projects

Source 86 JRC 2020 Current status of Chemical Energy Storage Technologies

Between 2008 and 2018, the Fuel Cells and Hydrogen Joint Undertaking (FCH JU) supported 246 projects across several hydrogen-related technological applications, reaching a total investment of EUR 916 million, complemented by EUR 939 million of private and national/regional investments. Under the Horizon 2020 program (2014-2018 period), over EUR 90 million have been allocated to electrolyser’s development, complemented by EUR 33.5 million of private funds 37 , 38 . At national level, Germany has deployed the largest resources with EUR 39 million 39 allocated to projects devoted to electrolyser development (2014-2018) 40 . In Japan, Asahi Kasei received a multimillion dollar grant supporting the development of their alkaline electrolyser 41 .

Figure 85 The funding distribution across years for chemical energy storage projects subdivided according to the methodology as defined in the Technical Report “Current status of Chemical Energy Storage Technologies”, EU funding and private co-funding are separate

Source 87 JRC Technical Report Current status of Chemical Energy Storage Technologies

Patenting trends

Asia (mostly China, Japan and South Korea) dominates the total number of patents filed in the period from 2000 to 2016 for the hydrogen, electrolyser and fuel cell groupings. Nevertheless, the EU performs very well and has filed the most “high value” patent families in the fields of hydrogen and electrolysers. Japan, instead, filed the largest number of “high value” patent families on fuel cells.

3.5.2.Value chain analysis

Main companies

Whilst around 280 companies 42 are active in the production and supply chain of electrolysers in Europe and more than 1 GW of electrolyser projects are in the pipeline, the total European production capacity for electrolysers is currently below 1 GW per year.

The electrolysis market is very dynamic with several fusions and acquisitions recorded in recent years. An overview of the manufacturers of medium to large scale electrolysis systems reports only manufacturers of commercial systems and does not consider manufacturers of laboratory-scale electrolysers 43 . The market analysis shows that electrolysers based on alkaline electrolysis (AEL), are provided by nine EU producers (four in Germany, two in France, two in Italy and one in Denmark), two in Switzerland and one in Norway, two in US, three in China, and three in other countries (Canada, Russia and Japan). Electrolysers based on proton exchange membrane (PEM) electrolysis, are provided by six EU suppliers (four in Germany, one in France and one in Denmark), one supplier from UK and one from Norway, two suppliers from US, and two suppliers from other countries. Electrolysers based on solid oxide electrolysis, are manufactured by three suppliers from EU (two in DE and FR) and one from the US.

Figure 86 Location of the manufacturers of large electrolysers, by technology

Source 88 A. Buttler, H. Spliethoff, Renewable and Sustainable Energy Reviews 82 (2018) 2440–2454

 Gross value added growth

Production equipment is a significant contributor of value added in electrolyser cell production 45 .

Employment figures

Currently, the entire hydrogen industry has about 16 000 employees in Europe. There are 34 concrete electrolyser projects in the pipeline for an additional 1 GW, requiring EUR 1.6 billion of investments and creating 2 000 new additional jobs. Regarding future projections, the results below should be interpreted as the number of jobs that will be created for each billion EUR invested into the hydrogen value chain in that year. Job estimates for renewable hydrogen for 2050, are around 1 milllion, of which 50% of jobs would be in the renewables sector 46 .

Figure 87 Number of jobs (000’s) created per billion EUR invested, breakdown by supply chain (left) and by sector (right)

Source 89 ASSET Study commissioned by DG ENERGY - Hydrogen generation in Europe: Overview of costs and key benefits, 2020

Figure 88 Number of jobs created per billion EUR invested, breakdown by direct vs indirect jobs

Source 90 ASSET Study commissioned by DG ENERGY - Hydrogen generation in Europe: Overview of costs and key benefits, 2020

3.5.3.Global market analysis

Raw materials

Europe is fully dependent on third countries for the supply of 19 of 29 raw materials relevant to fuel cells and electrolyser technologies. For the production of fuel cells alone, 13 critical raw materials namely cobalt, magnesium, REEs, platinum, palladium, borates, silicon metal, rhodium, ruthenium, graphite, lithium, titanium and vanadium are needed. The corrosive acidic regime employed by the proton exchange membrane electrolyser, for instance, requires the use of noble metal catalysts like iridium for the anode and platinum for the cathode, both of which are mainly sourced from South Africa (84%). Hydrogen production also relies on several critical raw materials for various renewable power generation technologies 47 . The biggest supply bottleneck for fuel cells is however not the raw materials, but the final product, of which the EU only produces 1%.

3.5.4.Future challenges to fill technology gap

Even though renewable hydrogen is commercially available, its currently high costs provide limits to its broad uptake. To ensure a full hydrogen supply chain to serve the European economy, further research and innovation efforts are required 48 .

As outlined in the Hydrogen Strategy, upscaling the generation side will entail developing to larger size, more efficient and cost-effective electrolysers in the range of gigawatts that, together with mass manufacturing capabilities and new materials, will be able to supply hydrogen to large consumers. The Green Deal call (under Horizon 2020) for a 100 MW electrolyser will be the first step. Moreover, research can play a role in increasing electrolyser’s performance and reducing its costs e.g.: increasing the durability of membranes for PEM, while reducing their critical raw materials content. Solutions for hydrogen production at lower technology readiness level need also to be incentivised and developed such as, for example, direct solar water splitting, or high-temperature pyrolysis processes, (cracking of methane into hydrogen, with solid carbon-black as side product). In the case of biomass based production (bio generation from bio-methane, bio-gas, vegetable oils) and from marine algae (biochemical conversion), a particular attention is to be paid to sustainability requirements.

In addition to considerations related to hydrogen production, subsequent new hydrogen technological chain should be developed. Infrastructure needs further development to distribute, store and dispense hydrogen in large volumes whether pure or mixed with natural gas should be developed. Points of production of large quantities of hydrogen and points of use (especially of large quantities) are likely not going to be close to each other. Hydrogen will have therefore to be transported over long distances.

Third, large scale end-use applications using renewable hydrogen need to be further developed, notably in industry (e.g. using hydrogen to replace coking coal in steel-making 49 or upscaling renewable hydrogen use in chemical and petrochemical industry) and in transport (e.g. heavy duty road 50 , rail, and waterborne transport and possibly aviation).

Finally, further research is needed to enable improved and harmonised (safety) standards and monitoring and assess social and labour market impacts. Reliable methodologies have to be developed for assessing the environmental impacts of hydrogen technologies and their associated value chains, including their full life-cycle greenhouse gas emissions and sustainability. Importantly, securing the supply of critical raw materials in parallel to their reduction, substitution, reuse, and recycling needs a thorough assessment in the light of the future expected increasing hydrogen technologies deployment, with due account being paid to ensuring security of supply and high levels of sustainability in Europe.

3.6.Batteries

3.6.1.State of play of the selected technology and R&I landscape

According to the LTS, by 2050, the share of electricity in final energy demand will double to at least 53 % 51 . By 2030, it is expected that around 55 % of electricity consumed in the EU will be produced from renewables (up from the current level of 29 %) and by 2050, this figure is expected to be more than 80%.

In a world that is increasingly electrified, batteries will become one of the key technological components of a low-carbon economy as they enable the energy transition from a mostly centralised electricity generation network towards a distributed one with increased penetration of variable renewable energy sources and “intelligent” energy flow management with smart grids and prosumers 52 . In particular, batteries cover close to half of the total need for storage within the EU energy system (more than 100 TWh 53 ), bypassing by far the currently dominating pumped hydro storage technology, and followed closely by hydrogen. Stationary batteries would play a larger role, growing from 29 GW in 2030 (from negligible amounts today) to between 54 GW (1.5 LIFE) and 178 GW (ELEC) 54 , in general having higher deployment in those scenarios without significant development of e-fuels 55 .

Batteries are electrochemical energy storage technologies that can be found in four potential locations: associated to generation, transmission, distribution, and behind the meter (consumer, commercial and industrial). They can be divided into the categories of primary and secondary (rechargeable).

Batteries are based on a wide range of different chemistries. In the past lead acid based batteries were the main used technology, whereas nowadays Li-ion technology plays a central role. Other, more experimental, battery technologies are Lithium-air (Li-Air), Lithium-sulphur, Magnesium-ion, and Zinc-air 56 . Li-Air technologies (also known as metal-air) have a much higher energy density than conventional lithium-ion batteries.

Figure 89 Overview of available battery technologies

Source 91 European Association for Storage of Energy (EASE)

Secondary batteries, from an application point of view, can be broken down into:

·portable batteries (Li-based and primarily used in consumer devices);

·industrial batteries (mostly lead-based and used for industrial devices for stationery and mobile applications);

·starting-lighting ignition batteries (lead based, used in automobiles);

·“Clean Vehicles” batteries (mostly Li-based batteries, for e.g. Electric Vehicles, Plug-in Hybrid Vehicles);

·power grid batteries (different technologies, installed in residential, commercial & industrial, or grid-scale level facilities to provide a wide variety of services: balancing, system services, ancillary services).

Figure 90 Summary of services that can be provided by Energy Storage in the Power System

Source 92 IRENA Utility Scale Batteries 2019

Besides pumped hydro and compressed air with application for large power and long times , Li-ion Batteries currently dominate the rest of the market in Power System Applications. Li-ion batteries that have become a key option for electrifying transport and for lifting the penetration levels of intermittent renewable energy. Given the economies of scale, they are also increasingly used for stationary electricity storage 57 . 

Capacity installed

Battery development and production is largely driven by the roll out of electromobility. The future global annual market for batteries is expected to grow fast and be very substantial, increasing from about 90 GWh in 2016 to about 800 GWh in 2025, exceeding 2 000 GWh by 2030 and could reach up to 4 000 GWh by 2040 in the most optimistic scenario 58 . As the global market size increases, the EU is forecasted to develop a capacity of 207 GWh by 2023, while European demand for electric vehicle batteries alone would be around 400 GWh by 2028 59 . 

With respect to performance, Li-ion energy density has increased significantly in the recent years, tripling since their commercialization in 1991. Further potential for optimization is given with new generation of Li-ion batteries 60 .

Figure 91 Energy density of Li-ion batteries over recent years

Source 93 JRC 2017315

EV demand has tripled global manufacturing capacity for Li-ion since 2013, given that batteries represent around 50% of the cost of an EV. By 2050, the share of battery electric and fuel cell drivetrains would reach 96% in 2050 (around 80% for battery electric and 16% for fuel cells). While only about 17 000 electric cars were on the road in 2010, there are today about 7.2 million electric cars globally 61 . Of the 4.79 million battery electric vehicles worldwide, 1 million are in Europe 62 . In particular, EVs could provide up to 20% of the flexibility to the grid required on a daily basis by 2050 63 given that appropriate interoperability solutions are in place and deployed.

Figure 92 Global Electric Vehicles and Plug in hybrid car stock, 2010-2019

Source 94 IEA, Global electric car stock, 2010-2019, IEA, Paris https://www.iea.org/data-and-statistics/charts/global-electric-car-stock-2010-2019

Currently, there have been announcements for investments in up to 11 battery factories, with a projected capacity of 270 GWh by 2030. Whether these investments will materialise or not will depend on the establishment of a regulatory framework that will ensure fair competition for producers who take into account stricter sustainability standards.

Figure 93 Planned battery factories in EU27 + Norway and UK

Source 95 European Battery Alliance

Cost, LCOE

For batteries, upscaling works differently than for other technologies - at least for Li technology, the cell size and form often change while its performance increases quickly. Li-ion technology is about to take over the leading role from lead-acid batteries, both for mobile and stationary applications. Li-ion batteries are viable in short-duration applications where services can be stacked and adapted to market pricing (e.g. hourly balancing, peak shaving and ancillary services) but are less cost effective for longer duration storage (> 4 hours, > 1 MW) 64 .

Electric vehicle (EV) demand is the main driver of cost reduction in Li-ion batteries. Li-ion battery prices, which were above USD 1 100/kWh in 2010, have fallen 87% in real terms to USD 156/kWh in 2020 65 , 66 . By 2025, average prices will be close to USD 100/kWh. The average battery pack size across electric light-duty vehicles sold (covering both battery electric vehicles and plug-in hybrid electric vehicles) continues to increase from 37 kWh in 2018 to 44 kWh in 2020, and battery electric cars in most countries are in the 50-70 kWh range 67 .

Figure 94 Li-ion battery price survey results: volume-weighted average

Source 96 BNEF

Figure 95 Li-ion battery pack price (real 2019 USD/kWh)

Source 97 BNEF

The prices for stationary Li-ion systems are also impressively coming down, though the cost is not the main factor for stationary systems, if compared to lifecycle. However, the cost reduction has been slower due to the contribution of other major cost components (e.g. inverters, balance of system hardware, soft costs such as engineering, procurement and construction), reduced economies of scale, and many use cases with different requirements. The benchmark costs of Li-ion stationary storage systems in 2017 were about EUR 500/kWh for energy-designed systems, about EUR 800/kWh for power-designed systems, and EUR 750/kWh for residential batteries 68 . Lowering of balance of system and other soft costs can potentially help further cost reduction of stationary energy storage systems, lifting barriers for their widespread deployment. At the same time, alternative technologies, other than Li-ion, are most promising for stationary energy storage and most probably will gain most market share in the future.

R&I

The need for cost reduction leads to innovation around four performance characteristics: energy, power, lifespan and safety 69 . Immediate innovation funding relates to succeeding with Li-ion cell mass production. In the short-term perspective this requires R&I at very high TRL level to bypass at least marginally current state of the art and start production (without waiting for break-through with solid-state technology).

While improving the performance of conventional lithium-ion batteries remains important, R&I efforts should also explore new chemistries for storing electricity at different scales329. The high differentiation of the market and the continuous interest in innovation are driven by multiple factors. Among the chemistries with a lower market share, currently lithium-sulphur and zinc-air batteries may be the most advanced but serious challenges will need to be overcome before commercialisation. Even though they both have significant potential, both Li-air and Mg-ion chemistries face difficulties and are dependent on technological breakthroughs for further development. Since the market for batteries is very competitive and prone to hypes, the long investment cycles, sometimes inflated expectations and reliance of some actors on government funding, can become problematic. Often, venture capital firms are reluctant to invest in projects that do not offer quick returns on investment. In addition, investors can be discouraged when innovations do not live up to the expectations. Consequently, some battery storage firms go bankrupt before reaching commercialisation329.

The wide range of applications of batteries and the various limitations of existing chemistries continue to drive innovation in the sector 70 . Research and Innovation will benchmark the future specifications and characteristics for battery technology as such and, more important, will determine the speed and market uptake rates for mobility and energy sector electrification. The corresponding investments in research have to be substantially increased, following the trend of the last years. High performing batteries are an essential energy storage technology necessary for Europe to succeed in this transition, in particular to be competitive also in the largest Chinese market. Main technological challenges remain improving performances of batteries, at the same time guaranteeing the European-level quality and safety, as well as the availability of raw and processed materials. This can only happen through breakthrough innovations and disruptive inventions; increased digitalisation; pushing the boundaries of technological performance of battery materials and chemistries; increasing the effectiveness of manufacturing processes; ensuring smart integration in applications; interoperability with the rest of the smart energy system components at all levels; and guaranteeing reuse or recycling and sustainability of the whole battery value chain.

Materials play a very important part in the value chain, starting from the right choice of raw material that should be sustainable and easily available, over pre-processed materials, advanced value added materials and materials with low environmental and CO2 footprint up to materials that by nature or by design will be easily recyclable. Thus, EU should consider take up the chance to regain competitiveness by providing modern sustainable and cost competitive battery materials and basic battery components (as anode, cathode, electrolyte, separators, binders, etc.) made in Europe.

The current research trend is to develop advanced materials (e.g. silicon enriched anode, solid state electrolytes) for the currently dominant Li-ion technology rather than developing new chemistries beyond Li-ion, at least until 2025. On the battery’s technical innovation side, areas include use of graphene 71 , silicon anodes, solid state electrolytes, room-temperature polymer electrolytes, and big-data-driven component recycling/repurposing techniques (e.g. Circunomics) 72  paving the way for further efficiency increases. These improved technologies are speculated to transition by 2030 towards post Li-ion technologies (Li-air, Li-S, Na-ion) once their performance is proven in automotive applications. Li-ion technology is therefore expected to remain as the dominant deployed technology at least until 2025-2030 73 .

The continuous pressure of improving Li-ion battery performance, especially in terms of extended life, cyclability and energy and power density as well as safety could affect the market uptake of emerging non-Li battery technology. Nevertheless, a broad range of applications requires a variety of fit-to-purpose batteries to satisfy the requirements for each application hence stimulating development of new types of batteries.

Despite only 3% of global production capacity currently being located within the EU, the sector is a very active investment space, with EU companies receiving around a third of deal volume and total investment over the 2014-2019 period 74 . One should also mention the Business Investment Platform (BIP) set up by InnoEnergy to channel private funding around innovative manufacturing projects in all segments of the batteries value chain. More than EUR 20 billion is in the pipeline.

Innovators in the batteries chain have managed to attract considerable levels of early stage and late stage investments (with EU companies attracting about 40%) as new technology developments emerged 75 . France and Sweden stand out in terms of total size of investments in early stage companies, while Sweden and Germany are the EU’s leading investors in late stage companies. Early and late stage investment peaked across the board in recent years as new technology developments emerged, with the EU holding a considerable share of these investments.

Public R&I funding

Figure 96 EU28 Public RD&D Investments in the Value Chain of grid-connected electrochemical batteries used for energy storage and digital control systems

Source 98 ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

Figure 97 Top 10 Countries - Public RD&D Investments (Total 2016-2018) in grid-connected electrochemical batteries used for energy storage and digital control systems

Source 99 ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020) (IEA data, does not include China)

A number of Member States are strengthening their R&I capacity. One prominent example includes the Frauenhofer (Germany) with its own “battery alliance” 76 , the biggest research production facility consisting of a number of institutes. Other important R&I players include CEA (France), ENEA (Italy), CIC energiGUNE (Spain), etc.

In the UK, the Faraday battery challenge (part of the Industrial Strategy Challenge Fund of the UK) has an investment of EUR 280 million, which addresses the growing automotive battery technology market. There are opportunities for EU-UK cooperation in this sector worth an estimated EUR 57 billion across Europe by 2025.

Private R&I funding

Figure 98 Early Stage Private Investment in grid-connected electrochemical batteries used for energy storage and digital control systems

Source 100 ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

Figure 99 Total Early Stage Private Investment between 2014 and 2019 (top 10 countries) in grid-connected electrochemical batteries used for energy storage and digital control systems

Source 101 ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

Figure 100 Late Stage Private Investment in grid-connected electrochemical batteries used for energy storage and digital control systems

Source 102 ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

Figure 101 Total Late Stage Private Investment between 2014 and 2019 (top 9 countries) in grid-connected electrochemical batteries used for energy storage and digital control systems

Source 103 ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

Patenting trends

Historically, more patent applications have been filed in the RoW than in the EU 77 (EU share of high value patents is of about 18% between 2014 and 2016).

Figure 102 Patent Applications (2007-2016) – EU28 vs RoW in of grid-connected electrochemical batteries used for energy storage and digital control systems

Source 104 ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

Figure 103 Patent Applications - Top 10 Countries (Total 2014-2016) in of grid-connected electrochemical batteries used for energy storage and digital control systems

Source 105 ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

Five of the top ten countries where these patents originated were in the EU. More specifically, Germany and France stand out in terms of the number of high-value patent applications over the same period. Both patenting activity and public spending in R&I have increased over the last decade. However, when comparing with the rest of the world, the EU is still catching up.

3.6.2.Value chain analysis

Li-ion technology currently dominates the landscape as far as e-mobility and energy transition-related storage are concerned. Historically, the European battery segment has a large chemical industry cluster and a large ecosystem around batteries. However, when it comes to modern applications it could be considered a relatively new and growing economic sector.

Figure 104 Batteries value chain

Source 106 ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

Turnover

The overall market size of Li-ion batteries is projected to increase.

Figure 105 Annual Li-ion battery market size

Source 107 BNEF 78

Figure 106 SWOT analysis for the EU on the central segments of the batteries value chain

Source 108 EMIRI technology roadmap 2019

Number of companies in the supply chain, incl. EU market leaders

Around the world, a number of new companies/production installations are established along the whole battery value chain. For safety reasons it makes sense to produce battery cells close to consumer markets. This has led to numerous Li-ion cell and pack production facilities being started in the EU by European (NorthVolt, SAFT, VARTA 79 ), Asian (LG, Samsung CATL) and American producers (Tesla). 21% of active companies in the batteries sector are headquartered in the EU, with Germany and France standing out 80 .

Figure 107 Top 10 Countries - # of companies in grid-connected electrochemical batteries used for energy storage and digital control systems

Source 109 ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

The EU industry has some production base in all segments of the battery value chain, but it is far from being self-sufficient. In the raw and processed materials, cell component and cell manufacturing value chain segments Europe holds a minor share of the market (3% in 2018), whereas in the pack and vehicle manufacturing and recycling segments Europe is among the market leaders 81 . It is characterised by many actors, which represent a mix of corporates and innovators. There is a high potential for non-energy storage focused participants to enter the space.

Figure 108 EU’s position in the batteries value chain in 2016

Source 110 JRC 2016 82

On the basis of the above, the EU recognised the needs and urgency to recover competitiveness in the battery value chain, and the Commission launched the European Battery Alliance in 2017 and in 2019 adopted a Strategic Action Plan for Batteries 83 . It represents a comprehensive policy framework with regulatory and financial instruments to support the complete battery value chain eco-system. A range of actions have already been put in place, including:

a)strengthening of the Horizon 2020 programme through additional battery research funding (more than EUR 250 million, for 2019-2020)

b)creating a specific technology platform, the ETIP “Batteries Europe” tasked with coordination of R&D&I efforts at regional, national and European levels and following up on the work in the Key Action 7 on batteries of the SET-Plan,

c)preparing of specific instruments for the next Research Framework Programme Horizon Europe,

d)preparing of new specific regulation on sustainability and

e)stimulation of investments, both national of the Member States and private, in creation of a modern and competitive EU battery value chain through Important Project of Common European Interest (IPCEI) 84 .

It is still to be seen how economies of scale in Li-ion battery sector will influence viability of other battery technologies and storage technologies in general. In principle, lead-acid battery producers, a well-established industry in the EU, should be able to keep certain role in automotive sector (12V batteries), in motive applications’ sector and re-orient e.g. to stationary storage sector. In stationary storage sector, weight and volume - main disadvantage of lead-acid batteries - do not matter as much as in e-mobility sector. However, it also has to be seen how lead-acid technology will be able to keep its competitiveness vis-à-vis emerging sector of flow batteries and other types of stationary technologies.

Figure 109 Battery production in MWh

Source 111 (CBI) /Avicenne: Consortium for Battery Innovation “Advanced lead batteries the future of energy storage”

There are numerous European start-ups also in the field of flow-batteries focussed on stationary storage sector 85 prompted by their long discharge (> 4 hours) possibilities. However, no big company seems to be entering this segment in the EU yet. Concerning sodium-ion: one FR start-up in this field (+1 in UK), however development may take some years before becoming a significant industrial actor. The EU was involved in the sodium-based (NaNiCl2) technology with FIAMM (Italy) in the past but it seems that there are no more activities. Concerning Lithium Sulphur: despite some start-up announcing it, the technology seems not to be ready for the market, except some niche application. Some development with alkaline rechargeable Zinc batteries is also observed, with at least two start-up in EU proposing this product for stationary applications 86 .

Moreover, in the nascent stationary integration segment, the EU has companies, which advance convincingly: Sonnen (owned by Shell, and rolling out domestic battery storage systems), Fluence (joint venture between Siemens and American AEG is world’s number one as regards stationary storage systems), etc.

The market for Battery Management System currently growing faster than batteries themselves (from a lower baseline) 87 , this technology utilise analytical models and machine learning to predict, simulate and optimise battery operation.

ProdCom statistics

Between 2009 and 2018, the annual production value of batteries in the EU has grown steady at annual rate of 39% a year (2009 to 2018 period). Poland accounts for 21% of the EU production, followed by Germany (18%), France (16%) and Austria (15%) 88 .

Figure 110 Total Production Value in the EU28 and Top Producer Countries in grid-connected electrochemical batteries used for energy storage and digital control systems

Source 112 ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

3.6.3.Global market analysis

Trade (imports, exports)

In Li-ion batteries sector, the EU’s share of global trade is currently limited, even if increasing with new battery factories being set up. Between 2009 and 2018, the EU28 trade balance is negative, even if trade in lead-acid batteries is added. The countries with the highest negative trends are Germany, France and the Netherlands 89 .

Figure 111 Total EU28 Imports & Exports of grid-connected electrochemical batteries used for energy storage and digital control systems

Source 113 ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

Most of the global manufacturing capacity for Li-ion batteries is located in Asia. Key RoW competitors are China, Korea, Japan, US and Hong Kong. Between 2016 and 2018, 3 out of the top 10 global exporters were EU countries (Germany, Poland and Czech Republic). However, not only the industrial capacity but also expertise, processes, skills and supply chain is concentrated around the regions dominating the market 90 .

The manufacturing of electronic appliances in Asia has represented a significant advantage for the Asian battery industry, facilitating the supply of locally manufactured Li batteries. In addition, development and support of the battery industry have been considered a strategic objective for years in Japan, China and Korea, leading to strong support for local investment. China has played a predominant role in recent years.

Figure 112 EU28 Trade Balance in grid-connected electrochemical batteries used for energy storage and digital control systems

Source 114 ICF, commissioned by DG GROW - Climate neutral market opportunities and EU competitiveness study (Draft, 2020)

Between 2009 and 2018, EU28 exports to the RoW have been steadily increasing from EUR 0.4 billion (2009) to EUR 1.1 billion (2018). On the other hand, imports more than tripled from EUR 1.6 in 2013 to EUR 5.1 billion in 2018 91 . This means that for the 2016-2018 period, the EU28 share of global exports was stable at roughly 2%. Top EU exporters were Germany, Netherlands, Hungary and Poland.

Figure 113 Top Countries - Negative Trade Balance in grid-connected electrochemical batteries used for energy storage and digital control systems

Source 115 ICF, commissioned by DG Grow – Climate neutral market opportunities and EU competitiveness study (2020)

However, the recent investments and investments in the pipeline should improve the trade balance. Increased investment in R&I, including through IPCEIs, H2020/HEU, etc. should improve technological leadership, including registered patents. Moreover, demand for new batteries has outpaced supply, creating an opportunity for new entrants as incumbents struggle to meet demand 92 .

Global market leaders VS EU market leaders

Europe's position in the market is at risk, primarily from Asian competition. Although Asian participation in the market is largely around automotive electrochemical batteries for automotive use, their capacity ramp up will enable them to produce Li-ion batteries at lower cost than other participants, allowing them to enter the grid-scale energy markets. Key RoW competitors are China, Korea and Japan, with 70% of global planned manufacturing capacity is in China, but growth may stall when EV subsidies are reduced.

Critical raw material dependence

In the globalised economy, EU is mostly a price taker in this market segment dominated by the Asian producers. China is the major supplier of Critical Raw Materials (CRMs), with a share of ~40%, followed by South Africa, Russia, Democratic Republic of Congo (DRC) and Brazil. Li, nickel, manganese, cobalt and graphite mainly come from South America and Asia 93 . Growth in material demand, such as cobalt, Li and lead, creating dramatic cost increases, supply shortages and efforts to find alternatives. Battery manufacturers accounted for 54% of all cobalt usage (2017) 94 .

Demand for materials to make batteries for electric vehicles will increase exponentially in the period to 2030; cobalt is the most uncertain reflecting various battery chemistries. Battery manufacturers accounted for 54% of all cobalt usage (2017) 95 . The demand for the materials used in electric vehicle batteries will depend on changing battery chemistries. Today, nickel cobalt aluminium oxide (NCA), nickel manganese cobalt oxide (NMC) and Li iron phosphate (LFP) cathodes for Li-ion batteries are the most widely used 96 .

Figure 114 Global annual Li and cobalt demand for electric vehicle batteries, 2019-30

Source 116 IEA 2020357

A key challenge concerns the batteries end of life, which may represent a considerable environmental liability. The lifetime of batteries that are no longer suited for automotive applications can be extended via second use (e.g. for stationary storage applications for services to electricity network operators, electric utilities, and commercial or residential customers 97 ) and/or recycling. Challenges for this new market include the continuously decreasing cost of new batteries, and a lengthy refurbishing process requiring information exchange along the value chain 98 . The current players in this market include OEMs, utilities and specialised start-ups.

Figure 115 Automotive battery capacity available for repurposing or recycling in the SDS, 2019-2030

Source 117 IEA 2020357

The battery-recycling sector is currently struggling to prepare for increased volumes of battery waste expected from the automotive traction sector 99 . Issues associated with access and use 64 of critical materials for cell production can be addressed by (i) tapping new sources of critical materials, (ii) substituting critical materials with less critical ones and (iii) recycling/reuse of critical materials. R&I on alternative Li-ion chemistries, made of more accessible raw materials, could cover development of alternative chemistries to alleviate the need for the critical materials, cobalt and natural graphite 100 . R&I needs also to exist for improving the cost effectiveness of the recycling processes, development of more efficient processes, pre-normative research to develop standards and guidelines for collection and transportation of used batteries as well as standards and guidelines for battery second-use.

The EU Batteries Directive 2006/66/EC contributing to the protection, preservation and improvement of the quality of the environment by minimising the negative impact of batteries and accumulators and waste batteries and accumulators is currently under revision. The objective would be to start with disclosing to customers information on emissions during mining and production phase (before proceeding with introduction of limits), to facilitate re-use and impose new strict norms on collection and recycling. Stakeholder consultations are ongoing.

3.6.4.Future challenges to fill technology gaps

According to most technology pathways, the range of battery applications will significantly expand in the near future. The electrification of certain industrial sectors (vehicles and equipment, from automated loaders to mining or airports equipment) will be one of the drivers. This could represent about 100 GWH in the coming 10 years 101 . The system-scale deployment of batteries faces various challenges: economic (price), technical (energy density, power density, long term quality, safety), as well as other challenges related to the availability of resources and raw material on the one hand and to sustainability, recycling and circular economy on the other hand.

The IT sector is expected to maintain a strong growth rate in EU. Despite a relative market saturation for cell phones and tablets, new consumer products (drones, domestic robots, etc.) are further growing the market (in the range of 5 to 10% per year) of small batteries during the next 10 years 102 . In addition, digitalization remains important, involving computer-aided design of new chemistries, batteries with sensing capabilities and self-healing properties. See for example the Battery 2030+ initiative 103 , which has recently issued a 2040 Roadmap targeting new scientific approaches that make use of technologies such as artificial intelligence, big data, sensors, and computing in order to advance knowledge in electro-chemistry and to explore new battery chemistries targeting in particular the needs of the mobility and energy sectors. Battery management system innovators are leveraging analytics and Artificial Intelligence to improve battery performance.

The global aircraft electrification market is projected to grow from USD 3.4 billion in 2022 to USD 8.6 billion by 2030, at a CAGR of 12.2% 104 . Presence of key manufacturers of electric aircraft in Europe including Rolls-Royce (UK), Safran Group (France), GKN Aerospace (UK), Airbus (Netherlands), Thales Group (France), and Turbomeca (France), among others are driving the growth of the aircraft electrification.

On the waterborne side, greater widespread of pure battery powered solutions in the ferry and short-sea segment is the likely first step, with following greater use of hybrid applications in the deep-sea shipping market in Europe.

While improving the position on Li-ion technology may likely be a core interest stream for the next decades, at the longer term, other major progresses will come from new technologies (e.g. solid state) where the EU has a strong competitive position. It is therefore important to look into other new promising battery technologies (as e.g. all-solid state, post Li-ion and redox flow technology), which can potentially provide electricity storage for sectors whose needs cannot be met by the Li-ion technology. These technologies may surpass the performance of Li-ion batteries at the 2030 horizon in terms of cost, density, cycle life, and critical raw material needs (e.g. lithium-metal solid state battery, lithium-sulphur, sodium-ion or even lithium-air).

Table 6 Status of various Energy Storage Technologies

The scale-up of these new technologies will need time to compete with the well-established Li-ion technology (in terms of large-scale manufacture, investments already made and solid understanding of its long-term durability characteristics) 106 . Even though on the longer term other storage solutions such as renewable hydrogen may take a share of current battery applications, battery energy technology will maintain a large share in the next future due to its extremely high energy efficiency. The European economic competitiveness in this area will depend on the capability of Europe to react quickly to changing demand and to develop innovative technology solutions. EU programmes such as Horizon Europe and the Innovation Fund will strongly support these efforts.

Lastly, other efforts are to be focused on: (i) reducing to the maximum possible extent critical raw materials dependency in batteries production through further material substitution, providing local resources in a circular economy approach and substantial recycling of battery materials, both imported and local improving primary and secondary raw material processing; (ii) very high sustainability levels (approaching 100%) at production, use and the recycling stage, including improved end-of-life management – recycling and reuse, design for recycling; (iii) improvements in anode, cathode, separator, and electrolyte will enable further cost reductions in the near future, as well as improvements on non-battery pack system components (e.g. battery controller, structure around it) and improvements in manufacturing processes; (iii) ensuring safety.

3.7.Buildings (incl. heating and cooling) 

With 40% of energy consumption and 36% of CO2 emissions in the EU originating from buildings, the building sector is a key element in the EU climate and environmental policies 107 and therefore technologies related to buildings and their energy consumption are key to achieve the Green Deal.

For example, the EU environmental obligations to reduce 80-95% greenhouse gas emissions, the Common European Sustainability Building Assessment (CESBA) initiative, the Roadmap to a Resource Efficient Europe 108 and the new Circular Economy Action Plan 109 all promote buildings sustainability, energy efficiency and aim to reduce waste, thus highlighting the efficiency gains of using prefabricated building components. The Renovation Wave initiative 110 also examines and promotes energy efficiency in buildings, and aims to address the related issue of energy poverty.

This section analyses four elements of the buildings market that aim to capture the different dimensions, realising that this assessment is incomplete and needs to be expanded to give a complete picture. With respect to construction this SWD focuses on pre-fabrication, and with respect to energy consumption in buildings this document focuses on lighting as an important source of energy consumption in buildings, next to heating that is by far consuming most energy in buildings, and is therefore addressed in 2 parts, namely district heating and cooling (DHC) and heat pumps. Digital technologies to manage energy consumptions in homes and buildings (Home Energy Management Systems and Building Energy Management Systems) are also addressed in this SWD within the Smart Grids - Digital infrastructure part of this SWD. Considering that buildings solutions are often dependent on local circumstances, some data are difficult to aggregate and therefore not available, such as the cost or the productivity.

3.7.1.Prefabricated building components

3.7.1.1.State of play of the selected technology and outlook

The increasing demand for buildings due to increase in population and urbanisation opens markets for faster and efficient construction. Some of the trends in the building industry include an aging and dwindling construction workforce, increasing cost of labour and skills shortages, which in turn are causing low productivity. On the other hand, prefabrication is safer, often cheaper, and more productive and attracts different skilled workers. In addition, prefabricated buildings can be structurally stronger than traditional builds and so are resilient to natural disasters, especially earthquakes.

It is expected that property technology (the use of IT and data in real-estate, PropTech) and construction technologies are the markets that will drive innovation in modular or prefabricated construction, however, the two are very similar and often overlapping.

Innovation in component design is enabling faster and more efficient logistics and assembly. Recently foldable prefabricated homes have been developed for quick assembly and easy transportation. Design processes like building information modelling (BIM) and Digital Twins demonstrate that designs can be refined, monitored and improved by integrating on-site feedback. Technologies to improve circularity and re-use of materials are driving innovation in the buildings sector, including in pre-fab. This needs to be integrated from the design-phase. A landmark innovation was the creation of a building design utilising exclusively reusable materials and prefabricated methodology in showcasing how the built environment can implement the integration of circular economic thinking. 111

Capacity installed

From 2020 to 2025, the European prefabricated building market was projected (prior to the COVID-19 crisis) to expand at a 5% compound annual growth rate (CAGR) as a result of the maturation of digital tools, changing consumer perception, increased design complexity, quality, and sustainability, and demand for small to midsize housing units. By 2022, it is estimated that 70100 prefabricated units will be built in Northern Europe. However, these numbers could be impacted with a short-term decline due to the crisis and the expected market contraction in the building sector.

Public R&I funding

The data on public investment in R&D is available for a limited group of countries covered by the IEA. Starting from 2009, EU public R&I investment has increased to EUR 5 million by 2012, with a peak of EUR 10 million in 2016 and 2017 and a following downward trend to EUR 5 million in 2018. Out of the countries for which the IEA has data, France was by far the largest investor, followed by Denmark and Austria, while Canada was also very active when it comes to public investments. In addition, nine out of the top ten countries where these investments happened are in the EU.

Figure 116 EU28 Public R&D Investments in the Prefabricated Buildings Value Chain

Source 118 ICF, 2020

Private R&I funding

Over the 2015-2019 period, 40% of the total value of global private investments in early stage companies was in European companies. When assessing the number of investments, this percentage decreases to 32%, suggesting that the average size of investments was higher in Europe. 112  However, the availability of data for investments in European companies is limited. 113 Available data shows that investments in European early stage companies in 2019 was around EUR 108 million. The investment in the selected countries in the rest of the world has increased at a slower pace, from EUR 67 million in 2015 to EUR 75 million in 2019. According to the analysed data, UK, Belgium and Germany stand out in terms of total size of investments in early stage companies over the 2015-2019 period.

Over the same period, 1% of the total value of global private investments was in late stage European companies. When assessing the number of investments, this percentage grows to 6%, suggesting that the average size of investments was larger outside of Europe. In addition, one out of the top three countries where these investments happened is in Europe. The UK stands out in terms of total size of investments in late stage companies over the studied period.

Late stage investments, both in Europe and in the rest of the world remained volatile. In 2018, there was growth in late stage private investments, which was followed by a dip in 2019, especially in Europe.

Private R&I funding

Over the 2015-2019 period, 40% of the total value of global private investments in early stage companies was in European companies. When assessing the number of investments, this percentage decreases to 32%, suggesting that the average size of investments was higher in Europe. 114  However, the availability of data for investments in European companies is limited. 115 Available data shows that investments in European early stage companies in 2019 was around EUR 108 million. The investment in the selected countries in the rest of the world has increased at a slower pace, from EUR 67 million in 2015 to EUR 75 million in 2019. According to the analysed data, UK, Belgium and Germany stand out in terms of total size of investments in early stage companies over the 2015-2019 period.

Over the same period, 1% of the total value of global private investments was in late stage European companies. When assessing the number of investments, this percentage grows to 6%, suggesting that the average size of investments was larger outside of Europe. In addition, one out of the top three countries where these investments happened is in Europe. The UK stands out in terms of total size of investments in late stage companies over the studied period.

Late stage investments, both in Europe and in the rest of the world remained volatile. In 2018, there was growth in late stage private investments, which was followed by a dip in 2019, especially in Europe.

3.7.1.2.Value chain analysis

The prefabricated value chain is represented amongst others by the European Federation of Premanufactured Buildings (EFV) and the European PropTech Association – PropTech House. They aim to create a legal framework in the EU that fosters innovation and adapts to new technologies across the European real estate industry. Other existing building associations also promote the use of prefabrication technologies.

Turnover

Between 2009 and 2018, the production value of prefabricated buildings in the EU increased steadily by 40% – from EUR 31.85 billion to EUR 44.38 billion. France and Italy accounted for around one third of the EU production value of prefabricated buildings.

Until 2018, the UK led the European PropTech market with USD 821 million raised between 771 companies. Germany, Austria and Switzerland, the three countries together, follows in second with 515 PropTech companies and USD 340 million raised so far. Among the top 15 most active investors, eight are based in Germany, with VitoOne (a part of Viessmann) being the most active investor in the region with 15 portfolio PropTech companies.

Some of the factors for growth in this sector included increasing acceptance of alternative methods and materials for prefabricated constructions, alongside environmental, efficiency and cost gains. Advanced assembly technologies like 3D printing reduce labour cost and increase replicability. In addition, 3D printing of concrete structures relies on prefabrication due to the logistics of sending a large and comparatively delicate printer to a construction site.

Number of companies, incl. EU market leaders

There are some prefabricated material such as wood, which make building very well insulated and low in carbon content.

Sweden is the European market leader in this sector with 80% of the housing integrating prefabricated components, 45% of houses and 35% of new build multi-resident structures using prefabricated modules. Other leading countries include Austria, Switzerland as well as Denmark and Norway.

Currently, Europe is home to 44% of the active companies of the industry on prefabricated building components. Considering the top 10 countries in the sector, US has 34 companies active in the prefabricated buildings sector, UK 15, France 6, Switzerland and Germany 5, the Netherlands 4, Canada and Norway 3, Italy and Spain 2. 116

Between 2009 and 2018, EU28 exports to the rest of the world increased from EUR 0.83 billion in 2009 to EUR 1.88 billion in 2018. On the other hand, imports have been relatively stable around EUR 0.18 billion in 2009 to EUR 0.26 billion in 2018 with a low of EUR 0.15 billion in 2012-13.

3.7.1.3.Global market analysis

The global modular construction market size is projected to grow from EUR 85.4 billion in 2020 to EUR 107.9 billion by 2025, at a CAGR of 5.7% from 2020 to 2025. Currently, the Asia-Pacific region has the largest share in the prefabricated building market. In 2018, it accounted for over 30%, which is due to a growing middle class and increasing urbanisation. North America is the second largest market, driven by factors such as consumer preference for green buildings and sustained investments in commercial real estate. Some of the countries around the world also implement policy measures to support this sector and to strengthen the active companies in this domain. For instance, China has a governmental target for 30% of new buildings to be prefabricated by 2026 and has implemented cash bonuses and tax exemptions for prefabricated buildings. The US International Code Council (ICC) building code was modernised to allow the increased height of mass timber building from 6 to 18 stories, enabling high-rise timber frame prefabricated buildings.

Trade (imports, exports) & Global market leaders vs. EU market leaders

The EU28 share of global exports has remained at 17.6% from 2016 to 2018. Top EU exporters are the Netherlands, Germany and the Czech Republic. For the same period, eight out of the top ten global exporters were European countries. For the studied period, key competitors to the EU in this VC were China and the US. For the same period, six out of the top ten global importers were EU countries. Germany was the largest importer followed by Norway, France and the Netherlands. However, some EU countries were importing mainly from within the EU.

Between 2009 and 2018, the EU28 trade balance has remained positive with an increasing trend. The countries with the highest positive trends were the Czech Republic, Estonia and the Netherlands, and the ones with the lowest negative trends were the UK, France and Germany. Poland, Estonia and Latvia had a trade balance with an upwards trend.

The Czech Republic exported mostly to Germany amongst the EU countries and the UK mainly imported from the Netherlands. These trends could be influenced by the ongoing Brexit negotiations.

Figure 117 Total EU28 Imports & Exports

Source 119 ICF, 2020

Critical raw material dependence

Raw materials for buildings tend to be bulk materials sourced within limited distance. Critical raw materials come into play when the devices for the energy management systems for buildings and homes (HEMS and BEMS) are considered.

3.7.1.4.Future challenges to fill the technology gap

Competitiveness and sustainability. The prefabricated buildings technology addresses mostly the new buildings market, touching a limited fraction of the building stock. Moreover, traditional concrete prefabricated buildings recorded, in the past, poor energy performances. The challenge of this industry is the conjugate competitiveness and sustainability.

·High fragmentation. Both the market and its supply chains are fragmented with too many and small players which might represent a difficulty for manufacturing capacity and scalability. For instance, in Germany in 2018, the top five prefabricated housing developers (WeberHaus, SchwörerHaus, Danwood, Equistone, DFH) represented approximately 30% of the market, beyond these top five developers market shares are all below 3%. Mergers, acquisitions and corporate engagement with this market are expected to reduce fragmentation and improve efficiencies via economies of scale.

·Industry knowledge. The lack of familiarity and certainty with the different materials and techniques, difficulties with the planning systems and complying with building regulations can lead the industry to decisions against its use. In addition, the construction industry is notoriously conservative and slow in adapting to changes.

·Skill gap. New skills and expertise will need to be built up and invested in, particularly digital and design skills. As the industry is historically tech adverse this may be a concern. High levels of investment in training and education will be required.

·Lack of data and development of digital tools. There is limited available data on performance and durability of buildings constructed via modern methods of construction. In addition, due to competition and the use of new technologies, companies may be reluctant to share or publish information. At the same time, BIM and Digital Twin software are improving the replicability and learning capacity of prefabricated building design and assembly monitoring. The use of these are being encouraged by the EU via the EU BIM task group, whilst in Germany BIM will become mandatory for public infrastructure projects by 2021. By using these digital tools performance can be tracked throughout the entire lifecycle of the building in a continuous cycle that will provide info back to design, but it is important to share data to develop these tools.

·High capital costs. Upfront factory costs are high, requiring assemblers to benefit from economies of scale to ensure competitive costs. The small size of most construction companies is a further barrier both to technological development and adoption of new techniques.

·Access to finance and risk assurance. Due to lack of data and high market fragmentation, insurers and lenders may deem insolvency risk to be high and so can overprice or refuse support, slowing progress. Difficulties securing mortgages might occur. As the market scales up, insolvency risks are expected to be reduced. In 2012, the European Commission co-launched a digital library for prefabricated building designs as part of its Green Prefab project 117 . This has helped to improve market confidence by aggregating data, and will also improve replicability, enabling economies of scale.

·Logistics. Restrictive transport regulation can increase project costs by 10%, paying for extras like road escorts for wide loads. Particularly difficult with big modules, wider 3D structures, a trade off exists between how much a structure is prefabricated and how easy it is to transport.

·Consumer perception. There are still some negative perceptions due to past failures rather than new technologies delivering quality and more cost-effective buildings from consumers, developers and wider industry. Difficulties related with durability, making adjustments and repairs to the properties also cause some apprehension from the consumers.

3.7.2.Energy efficient lighting

3.7.2.1.State of play of the selected technology and outlook

Technology development and capacity installed

Lighting is the second largest electricity consumer in the EU eco-design programme (after electric motors), responsible for about 12% of the gross electricity generation in the EU28. The 2017 data of the MELISA model scenario projected the electricity consumption of lighting products in scope of eco-design (with effect of current regulations, without any new measure) to 320 TWh in 2020 118 . Technology for light sources keeps evolving, thereby improving energy efficiency. LED technology, has had a rapid uptake on the EU market. Almost absent in 2008, it reached 22% of the market in 2015. The average energy efficiency of LEDs quadrupled between 2009 and 2015, and prices dropped significantly. In 2017, a typical LED lamp for household was 75% cheaper and a typical LED lamp for offices 60% cheaper than in 2010 119 . 

During the last decade, Solid-State Lighting (SSL) based on components like OLEDs, LDs and particularly LEDs have challenged conventional technologies, displaying improved performance in most aspects. It is therefore anticipated that in the short-to-medium term, the new electric lighting installations will be based on SSL. However, this leaves the existing installations, which will be upgraded depending on use and maintenance. With equipment lifetime sometimes exceeding 15 or 20 years, inefficient systems are likely to remain in use unless change is triggered through incentives or requirements.

Figure 118 Variation of electricity savings/losses for lighting till 2030 following different scenarios 120

Source 120 Data from [SCO-17] modified by G. Zissis

Technological advances in 2019 concern both components and lighting systems. All these advances serve at least one of the following objectives: 1. Increasing the efficiency and reliability in all levels from the component to the global system. 2. Reducing the cost of the components and single lamps and using more sustainable materials. 3. Enhancing the quality of light associated to the comfort and more focusing on lighting application efficiency (LAE). 4. Implementing new functionalities and services beyond basic illumination for vision and visibility.

Since mid-2010’s a net increase of proposed technological advances at systems level can be observed, whereas innovations at component/device-level 121 are less common.

Patenting Trends

Regarding the patents on solid-state lighting, as per data from Google Patents 122 website, from 2010-01-01 to 2020-09-30, a number of 135,828 patents have been submitted at the European Patent Office, with Cree and Philips leading the pack in terms of patents filed in the period described.

Figure 119 Patents filed in the EPO since 2010

Source 121 Google Patents

As for the Worldwide submission of patents regarding solid-state lighting, as the figure below shows, Cree is still the leading company submitting patent requests, followed by Sony Corporation and Koninklijke Philips N.V.

Figure 120 Worldwide patents on Solid State Lighting

Source 122 Google Patents

Publications/Bibliometrics

In terms of scientific output, solid state lighting research has been steadily producing journal articles under Scopus 123 publications (2123 articles in 2020, 2991 in 2019, 2902 in 2018 and 2949 in 2017), with China, the United States, Germany and Japan leading as the countries with most publications. As for Web of Science database 124 , the same trend can be seen, with 1978 journal articles published already in 2020 with solid state light as a topic, 2815 in 2019, 2781 in 2018 and 2790 in 2017, with China, the USA, India and Germany being the countries with most publications during this period.

Figure 121Web of Science categories of solid state light publication

Source 123 Web of Science

3.7.2.2.Value chain analysis

Turnover & Gross-value added growth

The European lighting market is expected to grow from EUR 16.3 billion in 2012 to EUR 19.8 billion in 2020 125 . Following the Geography - Global Forecast to 2022 126 , Europe is expected to be the second largest LED lighting market by 2022. LEDs lighting is increasing its market share from 15% in 2012 (or even 9% in 2011) to 72% in 2020.

However, more recent data shown that Europe overall LED penetration rates are estimated in 2016 to be 8% of lamps and 9% of luminaires 127 which lagging back previous predictions. This can be partially understood by the fact that Europe has a population that has a relatively high standard of living. The Ecodesign Law states that the maximum standby power of 0,5 W and a minimum efficacy requirement of 85 lm/W. In addition, the Energy Performance of Buildings’ (EPBD) minimum energy performance requirements at building level provide pressure to use efficient lighting.

CSIL analysts estimated that in 2019, the lighting market for the EU30 would reach around 21 billion (+1.6% increase) distributed as follows:

·Lighting fixtures    EUR 18,1 billion    (+0.9%)

·LED lamps        EUR 1,9 billion    (14%)

·Legacy lamps        EUR 450 million    (-17%)

·Lighting controls    EUR 550 million    (+4.8%)

The slight increase of consumption of lighting fixtures comes from a +2% for professional luminaires and around -1% for consumer lighting.

Number of companies, incl. EU market leaders

The LED lighting ecosystem comprises hardware component manufacturers, prototype designers, and original equipment manufacturers (OEMs) in the EU such as Signify (previously called and still operating under the brand Phillips from the High-Tech Campus in Eindhoven in the Netherlands), OSRAM Licht AG (Germany), Cooper Industries Inc. (Ireland) and the Zumtobel Group AG (Austria). Internationally, the key companies are General Electric Company (US), Cree, Inc. (US), Virtual Extension (Israel), Dialight plc (UK), Samsung (South Korea), and the Sharp Corporation (Japan).

Among the companies that are expanding in the European market during 2019 were Zumtobel, IKEA, Fagerhult, Yankon, Glamox, SLV, Flos, Xal. European leaders include Signify (on all the market segments), Ledvance (mainly on lamps), Eglo (consumer lighting), Flos (design), Trilux (industrial lighting), Glamox (office), Fagerhult (retail), Molto Luce (hospitality), Schréder, AEC (street lighting).

3.7.2.3.Global market analysis

Trade (imports, exports) 

In 2019, the volume of lighting fixtures exports reached EUR 13,4 billion, registering an increase of 0,6% compared to the previous year. Imports of lighting fixtures in Europe reached EUR 17.1 billion in 2019, with an increase of 2,6% compared to 2018 128 . In 2019, the European trade balance recorded a deficit of EUR 3.7 billion, (EUR 3.6 billion the previous year). As the internal EU market accounted for EUR 21 billion revenue in 2019, this means that the difference of EUR 4 billion is supplied by European production 129 .

Global market leaders VS EU market leaders

Table 7 Ranking of the top 10 packaged LED manufacturers

Source 124 Amerlux Innovation Center, LED Energy Market Observer, Energy Observer, August 2018

According to the Amerlux Innovation Center 130 , the Chinese LED package market scale had a size of US$ 10 billion in 2017, representing an increase of 12% year-on-year. Among the top ten manufacturers, four are international firms, two are Taiwanese companies and four are Chinese enterprises. Amongst the top 10 manufacturers, Lumileds and OSRAM are European companies, while 4 are Chinese enterprises and another 2 are Taiwanese companies. The top ten manufacturers took up market share of 48%.

Critical raw material dependence

Metals such as arsenic, gallium, indium, and the rare-earth elements (REEs) cerium, europium, gadolinium, lanthanum, terbium, and yttrium are used in LED semiconductor devices. Most of the world’s supply of these materials is produced as by-products of the production of aluminium, copper, lead, and zinc. Most of the rare-earth elements required for LED production in 2011 came from China, and most LED production facilities were located in Asia.

3.7.2.4.Future challenges to fill the technology gap

The lighting sector is evolving rapidly and changing quite fundamentally. Firstly, the market is moving towards solid state devices that consume a fraction of the energy of the older technology. These devise also create many more possibilities (colour, shape, size) to integrate lighting in the living and working environment that may change the way in which lighting markets are organised and where the added value in the lighting market may be (e.g. lighting as a service).

The high innovative capacity in manufacturing and design in the EU are based on a long tradition in designing and supplying innovative highly efficient lighting systems. But the drive towards large-scale mass production of solid-state lighting, and the fact that most LED manufacturing takes place in Asia, seems to favour Asian suppliers.

3.7.3.District heating and cooling industry

3.7.3.1.State of play of the selected technology and outlook

Technology development and capacity installed

District heating stands out as one of the most effective and economically viable options to reduce the heating and cooling sector’s dependence on fossil fuels and reduce CO2 emissions 131 . A smart energy system, comprising at least 50% district heating and relying on sector integration, is more efficient than a decentralised/conventional system and allows for higher shares of renewable energy at a lower cost. 132 The most important characteristic is the use of an energy source that provides a significant cost differential in generating heat/cool compared with conventional heating/cooling systems (like boilers or direct electric heating).

It is this cost differential that finances the high capital investment in the heating/cooling network. For citywide schemes, such sources typically include combined heat and power production from major power stations or energy from waste incineration plants. For smaller communities, the heat source may be a small-scale Combined Heat-Power (CHP) plant, a biomass-fired boiler or waste heat from a local industry. Also city-wide schemes can be made up of multiple interconnected small-scale heat networks, running on locally available renewables. In both cases, thermal storage may be used to provide additional benefits. The heat is distributed using pre-insulated pipes buried directly into the ground and at each building, there will be a set of control valves and a heat meter to measure the heat supplied. A heat exchanger is typically used to separate the district heating system from the building heating system, although this is not always necessary.

In 2018, just under 6% of global heat consumption was supplied through District Heating and Cooling (DHC) networks, of which Russia and China each accounted for more than one-third 133 . DHC currently meets about 8% of the total EU heating and cooling demand via 6000 DHC networks. The share of DHC varies significantly from one region to another. District heating is by far the most common heating solution in the Nordic and Baltic regions whereas it has historically played a minor role in Southern Europe and other Central and Western European countries (e.g. Netherlands, UK).

In urban areas, the heating and cooling demand assumes the highest density. At the same time, a high amount of low-grade waste heat is available within the urban landscape 134 and could be captured as used a source for DHC systems. The industrial waste heat alone could meet the heat demand of the EU’s building stock. 135  

Currently, approximately 60 million EU citizens are served by district heating, with an additional 140 million living in cities with at least one district heating system. If appropriate investments are made, almost half of Europe’s renewable heat demand could be met by district heating by 2050 136 . The DHC sector has a significant green growth potential. Denmark is one of the front runners with a district heating share of about 50% and substantial exports of technology. 137

Figure 122 DH share in energy sources used to satisfy heat demand (2013-2017)

Source 125 Euroheat & Power Country by Country

Figure 123 The share of renewable energy in DH (2011-2017)

Source 126 Euroheat & Power Country by Country

Patenting trends 138  

[This section also addresses the patenting trends for thermal storage, micro-generation and heat pumps – for further information on heat pumps see the next section.]

This chapter focuses on heat pumps and district heating but most buildings patents are in micro-generation and thermal energy storage.

Figure 124 Patents in the EU by heating and cooling technology category. ThSt = Thermal storage; micro-gen = Micro-generation; HP = Heat pumps; DH = District heating.

Source 127 Joint Research Centre (JRC) based on data from the European Patent Office (EPO)

The relative trends by technology are easier to discern and more robust. Patenting activity in district heating is extremely low, due to the maturity of core technologies and the small number of companies involved. The share of heat pump patents has been steadily rising however.

Figure 125 Share of patents in the EU by heating and cooling technology category. ThSt = Thermal storage; micro-gen = Micro-generation; HP = Heat pumps; DH = District heating

Source 128 Joint Research Centre (JRC) based on data from the European Patent Office (EPO)

Figure 126 Number of heating and cooling patents, by region. CN = China; JP = Japan; KR = Korea; ROW = Rest of the world; US = United States

Source 129 Joint Research Centre (JRC) based on data from the European Patent Office (EPO)

High-value inventions (or high-value patent families) refer to patent families that include patent applications filed in more than one patent office.

Figure 127 Number of high-value heating and cooling patents, by region. CN = China; JP = Japan; KR = Korea; ROW = Rest of the world; US = United States

Source 130 Joint Research Centre (JRC) based on data from the European Patent Office (EPO)

3.7.3.2.Global market analysis

Trade (imports, exports)

Today Europe has the highest standards in the world in terms of energy efficiency, strengthened recently by the introduction of Ecodesign criteria for the sale of heating products. The EU commitment to ambitious energy and climate goals has paved the way for the large presence of energy efficient technologies developed in Europe.

The European heating industry is world leader in highly efficient heating systems. Today the European heating industry covers 90% of the European market and is an important exporter of heating technologies. This includes countries such as Russia, where the European heating industry is market leader, Turkey where it represents half of the market, and even in China where it plays an important role in the development and deployment of efficient heating.

Danish and other European district heating technology is exported globally, especially to China, US and South Korea. Exports to the US have risen by 91% in the period between 2010-2018. Denmark exports of district heating technology and service amounted to DKK 6.77 billion in 2018, with the biggest exports to Germany (close to EUR 140 million), followed by Sweden (close to EUR 80 million) and China (EUR 65 million) 139 . In 2025, it is expected that the sector will achieve annual exports of DKK 11 billion 140 . But Europe’s solar district heating industry suffered losses in 2019, leading to some bankruptcies and restructuring, among others because of high fluctuations in turnover and low margins in contracted projects 141 .

Global market leaders VS EU market leaders

European companies are world leaders in the manufacture of DHC pipes, valves and related IT solutions. Danfoss is the leading pioneer in district heating and cooling equipment. In 2019, Danfoss’ sales amounted to EUR 6.3 billion.

Europe is home to world-leading DHC pipe manufacturers: Logstor is the leading manufacturer of pre-insulated pipe systems in the world, being active in 12 different countries and10 factories in Europe and China. German-based Aquatherm GmbH is the leading global manufacturer of polypropylene pipe systems for industrial applications and building services. Austrian company Austroflex is recognised within the industry as an expert supplier of flexible pre-insulated Pipe Systems, thermal Solar Pipe Systems and Technical Insulation solutions. Swedish company Cetetherm is a leading manufacturer of DHC substations and has manufacturing plants in 6 countries including China and US. Devcco (based in Sweden) offers consulting services across the district energy sector and has completed projects in countries in North and South America, the Middle East and South Asia.

The systems in operation in Europe, particularly in the Nordic countries, are at the forefront of the industry in terms of innovation, efficiency, reliability and environmental benefits, in the form of renewables integration, and a reduction in both local air pollution and primary energy demand, and developing the next generations of DHC systems that require smart components and IT solutions, such as demand-side controllers, sensors, AI platforms and automated systems for heat networks. There are a number of small-scale innovative players from Europe on the market leading the development, such as NODA Intelligent Systems, OPTIT, Gradyent and Leanheat.

Critical raw material dependence

Dependency on raw materials is not an issue for district heating. Pumps may use permanent magnets but alternative technologies exist hence this use should not lead to dependence on materials. Pipes are usually from non-critical raw materials like steel or plastic.

3.7.3.1.Future challenges to fill the technology gap

The key challenge for the DHC sector is to integrate low-grade waste heat into existing high temperature DH systems. New smart networks operate at lower temperatures and are capable of integrating locally available renewable and waste heat sources.

District heating projects, including expansion of existing systems, require a large initial infrastructure investment with long payback times that make the sector vulnerable to changes in the legislative framework and mean that new DHC technologies are slow to be taken up. Replacing existing systems by more climate-neutral DHC technologies can benefit from the minimum standard for a new heating installation that is represented by the very efficient boiler condensing technology, and further measures to support the renovation of the installed stock of heaters would accelerate the positive trend. Ensuring coordinated investments between suppliers of (waste) heat and demand require a strong coordination that is often considered a public responsibility. EU policies aim to overcome these barriers through support for local (holistic) planning and decision-making and to provide incentives to consider environmental and societal advantages. 142

Because of its large indoor appliances or installations and the need for house retrofitting consumer acceptance is key for market uptake of new DHC technologies.

Developing novel business models and capacity building may enable earlier and stronger market uptake. The challenge is to develop markets for services, rather than single technologies, as this can engage those end-users who cannot or will not interest themselves in using/maintaining technologies/measures most efficiently. 143 This can prove to be a business opportunity for companies related to energy-savings measures, H&C supply units and district energy by overcoming a main economic barrier, namely the large up-front investment costs 144 .

3.7.4.Heat pumps

3.7.4.1.State of play of the selected technology and outlook

Introduction

Heat pumps, mostly electricity-driven, are an increasingly important technology to meet heating and cooling demand in a sustainable way 145 . They efficiently extract heat from a source at lower temperature and provide it at higher temperature. If coupled with a heat storage tank, heat pumps can store heat or cold when there is an abundance of renewable electricity in the grid and/or the electricity price is lower and provide it when needed. Heat pumps achieve higher performances 146 than conventional boilers and electric heaters and can drastically reduce emissions of the delivered energy services. 147 Heat pump (HP) technology is mature and reliable and can be integrated with other systems (e.g. photovoltaic electricity or other heat generators, such as gas boilers) and use a diverse set of (renewable) sources (e.g. as an air source, water source, ground source or waste source). It comes with capacities from a few kW to several MW, to be used in applications ranging from households to industrial applications and district heating systems. Furthermore, heat pumps work in a wide range of climatic conditions and can be used in energy storage and grid management.

Capacity installed, generation 

The yearly market demand and the related growth in unit sales in Europe is growing rapidly, as shown in Figure 128. Industry experts expect this trend to continue and potentially accelerate. At the end of 2018, total installed heat pumps in Europe was 11.8 million. Air-to-air heat pumps are most commonly used, followed by air-to-water heat pumps.

Figure 129 Heat pump market development in Europe (annual sales, 2009–2018)

Source 131 European Heat Pump Association, 2020

The largest markets in terms of units sold are the Southern European countries where heat pumps are primarily used to deliver cooling. France, Italy, and Spain together account for almost 48% of sales 148 . The largest growth in number of units in 2017 was in France, Spain and Denmark. The European Heat Pump Association foresees a doubling of the number of units sold in the period 2018 to 2025. 149 According to the National Energy and Climate Plans (NECPs), significant contributions are foreseen from heat pumps in most Member States in order to increase the share of renewables in the heating and cooling sector. The total added annual final energy consumption from heat pumps is 7.7 Mtoe from 2020 to 2030 150 according to the NECPs. When compared to the rest of the world, the EU market has lagged behind China, Japan and the US but is now growing rapidly. The US demand is driven by installation incentives, while the development in the Asia-Pacific region is driven by construction sector growth.

The housing construction market is the largest market for heat pumps. New buildings are well insulated and thus suitable for heat pumps. However, there are increasing prospects in the housing renovation market, which accounts for high share of the building stock. Today's heat pumps can supply higher temperatures thus better meeting the energy needs of the older housing stock.

Cost

The operating costs of heat pumps are among the lowest in the heating and cooling sector. However, upfront investment cost is high, resulting in pay-back times of up to 20 years. According to recent studies 151 , 152 the average life time for air-to-air heat pumps would be 10 to 15 years (depending on the size) and for air-to-water heat pumps 15 to 20 years (depending on the size), meaning that capital cost reduction is a key issue for the sector.

Patenting trends

According to the Top 10 Innovators Report, the highest number of inventions originates from the Asia Pacific region (86%), with China at 58% of total inventions, followed by Europe at 9% and North America at 4%. The average IP strength score for inventions from Europe is more than that of Asia-Pacific (including China), but less than North America 153 .

Stiebel Eltron and Robert Bosch are the most prominent innovators from the EU with the highest number of inventions. Siemens, Électricité de France, Robert Bosch, Vaillant, ATLANTIC Climatisation & Ventilation SAS and Viessmann Group remain active since 2010, and have high quality patent portfolios. Grundfos Management has been less active in Europe since 2010, despite having high-quality inventions. Worth noting, none of the prominent European innovators appear in the global top ten list. 154

[further details on patents for heat pumps are included in the section above on DHC]

3.7.4.2.Value chain analysis

Turnover

The turnover generated in Europe in 2017 was EUR 7.1 billion 155 . The turnover is largest in France (EUR 1 474 million), followed by Germany (EUR 1 383 million), Italy (EUR 1 117 million) and Sweden (EUR 550 million).

Number of companies, incl. EU market leaders

In Europe there are about 180 heat pump manufacturers accounting for 70% of the global number of manufacturers. During the last few years, major European heat pump manufacturers have been consolidating. For instance, in 2016 and 2017, the Nibe Group (based at Markaryd) acquired many assets of the UK-based Enertech Group, including the highest value brand CTC, based at Ljungby in Sweden. The CTC product range includes ground source and air/water heat pumps. In 2017, Stiebel Eltron announced the acquisition of Thermia Heat Pumps, a brand that was previously owned by the Danfoss Group. Thermia was the third biggest heat pump supplier of the Scandinavian market, with annual sales close to EUR 70 million. With this acquisition, Stiebel Eltron becomes a major global electrical heating player.

Table 8 Non-exhaustive list of European heat pump manufacturers

Source 132 Eurobserv'er Heat Pumps Barometer (2018)

Employment figures

In 2018 the sector employed more than 224 500 people, directly or indirectly, an increase from 191 000 in 2017. However, employment in the sector has declined by 20% between 2015 and 2017. The Member States that employ by far the most are Spain (68 700), France (41 200) and Italy (37 600). 156

3.7.4.3.Global market analysis

Trade (imports, exports)

Between 2009 and 2018, EU-28 exports to the rest of the world were relatively stable at about EUR 0.3 billion, with a peak in 2012/13 of EUR 0.4 billion. For the 2016-2018 period, the EU28 share of global exports was stable - roughly 1%. Top EU exporters were France, Germany and Italy. For the same period, four out of the top ten global exporters were EU countries. Key competitors were China, Mexico and the US. In addition, for the 2016-2018 period, three out of the top five global importers were European countries. The US was the largest importer followed by Germany, France and the UK. 157

Figure 130 EU28 Trade in the heat pump value chain (EUR million)

Source 133 ICF, 2020

Global market leaders VS EU market leaders

The European heating industry is a well-established economic sector and a world leader in highly efficient heating systems. The European heat pump sector is characterised by a few, mostly large corporations and a relatively small ecosystem with some innovative SMEs. The heat pump value chain is well represented through a number of industry associations – most notably the European Heat Pump Association (EHPA).

Globally, Japanese (Daikin, Mitsubishi, Toshiba, Fujitsu, Panasonic) and South-Korean (LG, Samsung) manufacturers mainly produce residential and commercial air-to-air and air-to-water heat pumps, while US manufacturers (Trane, Carrier/UTC, Johnson Controls, Honeywell, Lennox) produce mainly chillers for large commercial buildings. 158  

Critical raw material dependence

Critical raw materials used are mainly copper in the heat exchanger and the gold in the printed circuit boards (PCBs). 159

3.7.4.4.Future challenges to fill the technology gap

The IEA has recently identified three gaps to fill: Enhance heat pump flexibility; raise heat pump attractiveness; and reduce costs of heat pump technologies. 160 A stakeholder consultation in the framework of the Horizon Europe work programme 161 highlighted as issues to address the high upfront prices and a lack of adaptability to multiple building contexts (e.g. multi-family residential buildings with limited outdoor space for exterior heat pump units) that needs to be addressed in particular by lowering device dimensions.

Reaching higher real life energy performances through the development of new texting methods that reflect real life usage behaviour better are important too.

Considering the growth potential of heat pumps in the EU, and the fact that it is a key technology for the decarbonisation of heating and cooling, it is important to keep on promoting innovative technological solutions in Europe, so manufacturers can distinguish themselves based on quality and innovation rather than on price. Improving existing (ecodesign and energy labelling) regulations and updating the requirements can contribute to innovation in the EU.

3.8.Carbon Capture and Storage

3.8.1.State of play of the selected technology and outlook

Reaching climate neutrality by 2050 requires strategic investment decisions. The pathway towards climate neutrality will bring about a major transformation of energy-intensive industries, such as cement, lime, steel and chemicals that are at the core of the European economy by producing basic industrial materials and products. For these sectors, carbon capture and storage (CCS) could represent the lowest-cost route to decarbonisation while maintaining industrial activity 162 in Europe. CO2 capture in natural gas-based hydrogen plants could also enable the delivery of early, large-scale quantities of low-carbon hydrogen 163 , which is a versatile energy vector that can be used across a number of sectors: energy intensive industries, transport, electricity production, and buildings, and it can also play an important role for zero-carbon domestic heating.

The Commission’s 2018 analysis of different CO2 reduction pathways 164 showed a correlation between increasing climate ambition (i.e. pathways compatible with the 1,5ºC temperature target) and the need for deploying Carbon, Capture and Storage technologies. The Communication states that ‘CCS deployment is still necessary, especially in energy intensive industries and – in the transitional phase - for the production of carbon-free hydrogen. CCS will also be required if CO2 emissions from biomass-based energy and industrial plants are to be captured and stored to create negative emissions’.

The in-depth analysis further elaborates on the modelling: ‘For the 1.5°C scenarios, the higher carbon prices allow the appearance of CCS from 2040, with 54 / 58 MtCO2 captured (for 1.5LIFE / 1.5TECH respectively), increasing to 71 /80 MtCO2 in 2050 and further to 112 / 128 MtCO2 post-2050’.

Table 9 Carbon capture and stored underground (MtCO2) in different CO2 reduction scenarios

Source 134 PRIMES model; In-depth analysis in support to the “A Clean Planet for all” Communication, 2018

The Commission’s proposal for a European Green Deal 165 confirmed that achieving climate neutrality by 2050 will be the European Union’s overarching climate goal, which will orient policies and investments. This development put the LTS 1,5 TECH and LIFE scenarios at the centre, and implied that the deployment of CCS at scale will be necessary. Correspondingly, the Green Deal Communication highlights CCS in two policy contexts:

Other European Commission Communications that followed the European Green Deal mentioned CCUS, including: the Industrial Strategy, the Circular Economy Action Plan, the Strategy for Energy System Integration, the Hydrogen strategy and, finally, the European Taxonomy on Sustainable Finance.

Capacity installed, generation

The 2019 report of the Global CCS Institute identified 51 large-scale CCS facilities worldwide. 166  Of these: 19 are operating, 4 are under construction, 10 are in advanced development using a dedicated front-end engineering design (FEED) approach, and 18 are in early development. Right now, those in operation and construction have the capacity to capture and permanently store around 40 million tons of CO2 every year. This is expected to increase by about one million tons in the next 12-18 months. In addition, there are 39 pilot and demonstration scale CCS facilities (operating or about to be commissioned) and nine CCS technology test centres (including the Technology Centre Mongstad in Norway).

2 of the 19 operating CCS projects are in Norway and they store a combined 1,7 MtCO2 per year. In addition, Norway’s government-backed full-chain CCS project (Longship) is in Final Investment Decision phase, awaiting the Parliament’s approval.

In the EU, there are no large-scale CCS facilities in operation. However, the Netherlands’ flagship PORTHOS project in the Port of Rotterdam area is in advanced planning phase, closely followed by Amsterdam’s ATHOS project. In Ireland, Ervia is planning an off-shore CO2 storage project South of Cork. The total storage capacity of these sites, if implemented, together with six CCS projects in the UK, could add up to as much as 20,8 Mt of CO2 stored per annum, according to the Global CCS Institute.

Figure 131 Large scale CCS facilities in operation, under construction and in advanced development, by sector (status in 2019)

Source 135 Global status of CCS 2019, Report of the Global CCS Institute

In a global perspective, the IEA estimates that some 1030 MtCO2 167 will need to be captured and stored from industry by 2040, and an additional 1 320 MtCO2 168 from power to keep on track with the IEA’s Sustainable Development Scenario (compatible with the Paris Agreement).

A significant share of that may be deployed to produce “negative emissions” via biomass or biogenic waste combustion coupled with CCS (BECCS). The Fifth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC) suggests a potential range of negative emissions from BECCS of 0 to 22 gigatonnes per year.

Considering the capacities of today (33 MtCO2/year captured globally, out of which 1,7 MtCO2/year in Norway), the CCS sector needs a huge global step change in all relevant sectors (power, industry, hydrogen) in order to fill in the significant role envisaged in some decarbonisation pathways.

Cost, LCOE

The upfront investment costs of CO2 transport and storage are considerable, however, not all needs to be built at once, the infrastructure can be progressively expanded. In some instances, investments to retrofit existing natural gas pipeline networks into CO2 pipeline networks can be advantageous and cut initial costs of infrastructure. Over time, the initial infrastructure will be progressively expanded to accommodate increasingly volumes of CO2.

At the same time CO2 emitters (power plants, industrial sites) can install CO2 capture solutions to trap their emissions and load them into the transport and storage infrastructure. This often comes not only with a higher CAPEX but also higher OPEX due to energy penalties and maintenance, which on their turn bear on the competitiveness of these clean products relative to unabated, high carbon products. In the same way as for every other low-carbon investment, in the absence of a “functional” (global) carbon price (min. EUR 50-60/tCO2), investment in CCS will have no business case today and will largely depend on public funding and policy and/or regulatory incentives (e.g. to purchasing zero-carbon products, such as clean steel or cement). It is thus crucial to fund R&I activities to develop an infrastructure backbone and reduce costs.

Figure 132 The Carbon price and CCS cost curves

Source 136 Scaling up CCS in Europe, IOGP Fact sheet, September 2019

Costs of CO2 capture 169

CO2 capture is typically the largest cost component in the CCS and CCU (carbon capture and use) value chain, as a result of the technology costs and energy requirements. Costs of capture equipment are determined by the percentage volume of CO2 in the flue gas from which it is captured. As the Figure below shows, the higher the CO2 purity, the lower the cost in terms of CO2 avoided. In addition, the figure highlights that indicative carbon capture for many processes is currently more expensive than the EU ETS price and will need support in the near-term. Higher purity sources of CO2 include hydrogen production from reforming natural gas, and ethanol and ammonia production. Many current and emerging capture technologies are engineered to remove 80% - 90% of the CO2 from flue gas. Higher capture rates are possible, with the H21 North of England project having modelled 95% capture rates. Recent work by the IEAGHG suggest that 99% capture rates on combined cycle gas turbines (CCGT) are achievable with an increased cost below 10% compared to 90% capture rates. 170

Figure 133 Overview of median carbon capture costs in various industrial processes

Source 137 (adapted by IOGP): Navigant (2019). Gas for Climate. The optimal role for gas in a net-zero emissions energy system, Appendix E

Costs of CO2 transport 171

On the basis of existing and planned CCS and CCU projects in Europe, the key options for CO2 transportation are pipeline transport using new or repurposed infrastructure, and shipping. CO2 transportation by ship will benefit from future standardization of the key ship components, including connection valves and flanges between ship and storage facilities, as well as optimization of the size and number of CO2 transport vessels to efficiently match the CO2 volumes. Equipment standardization will also increase the potential for cost reduction and will facilitate the construction and deployment of new CO2 transport ships relatively quickly using a “design one, build many” strategy.

Repurposing offshore oil and gas pipelines to transport CO2 to depleted oil and gas fields or saline aquifers suitable for CO2 storage can help to avoid installing new offshore infrastructure. The costs savings of reusing existing infrastructure, which would otherwise be decommissioned, depends on the condition of the existing pipelines, as well as any necessary technical interventions, e.g. installing additional concrete mattresses or repairing corrosion.

Reusing offshore oil and gas pipelines to transport CO2 may represent 1 – 10% of the cost of building a new CO2 pipeline. Offshore CO2 pipelines costs can vary between EUR 2–EUR 29/tCO2. Costs for ship transport range between EUR 10 – EUR 20/tCO2 and this option is usually preferable when smaller volumes need to be transported over longer distances. For onshore transportation of CO2 from industrial and power facilities to the storage location or port, gas infrastructure companies are exploring both the repurposing of existing gas pipelines, and also new-build CO2 pipelines.

Costs of CO2 storage 172

The cost of CO2 storage depends from location to location. The storage capacity in deep saline aquifers is much greater compared to onshore basins or offshore depleted oil and gas fields; these deep saline formations therefore have a better scaling-up and cost reduction potential. The upfront storage costs are lower in depleted oil and gas fields due to the presence of infrastructure that can be (re)used for CO2 injection. However, risks associated with securing legacy wells for storage operations may add additional risks and costs. Storage costs, while much lower than capture costs, are site dependent and require some upfront investment in mapping and understanding storage complexes (including, e.g. formation pressures, reservoir characteristics, cap rock efficiency, faults, trapping structures, mineralogy, salinity); estimating storage capacity; and designing infrastructure. Well costs are usually the highest component.

CO2 geological storage is a safe and mature technology ready for broad implementation, as evidenced by over twenty years of successful storage offshore in Norway, combined with more recent onshore storage in Canada and the US. In the EU, CCS benefits from a clear set of regulations and requirements under the 2009 EU CO2 Storage Directive that ensure the identification of appropriate storage sites and the safety of subsequent operation 173 . In the U.S. the recent 45Q tax bill, which provided a 55 USD support for every tons of CO2 174 stored underground, and 35 USD/ton 175 for enhanced oil recovery, proved to be a sufficient incentive for some industries. In Norway, two large-scale CCS projects are in operation: Sleipner (1996) and Snøhvit (2008). Both projects capture CO2 from natural gas processing. The business case is found in the otherwise payable CO2 tax (EUR ~40/t).

According to a paper of the the Zero Emissions Platform European Technology and Innovation Partnership (ZEP), in a mature CCS industry, the technical cost of storing CO2 in offshore storage reservoirs is expected to lie in the range EUR 2 – 20/tonne; adding transport and compression cost will bring this in the range of EUR 12 – 30/tonne 176 .

Figure 134 Storage costs in the EU28 per formation type

Source 138 IOGP from: ZEP (2011). The Costs of CO2 Capture, Transport and Storage

Learning curves 177

The cost reductions for CCS value chain are strongly connected to local and regional developments and to the introduction and adoption of EU policies and funding mechanisms. Shared CO2 transport and storage infrastructure - connecting industrial clusters and allowing numerous emitters to benefit from CCS applications – can deliver economies of scale and decrease the transport unit cost.

There is strong evidence that capture costs have already reduced in the U.S. The Figure below shows estimated costs from a range of feasibility and front end engineering and design (FEED) studies for coal combustion CCS facilities using mature amine-based capture systems. Two of the projects, Boundary Dam and Petra Nova are operating today. The cost of capture reduced from over USD100 178 per tonne CO2 at the Boundary Dam facility to below USD65 179 per tonne CO2 for the Petra Nova facility, some three years later. The most recent studies show capture costs (also using mature amine-based capture systems) for facilities that plan to commence operation in 2024-28, cluster around USD 43 180 per tonne of CO2. New technologies at pilot plant scale promise capture costs around USD 33 181 per tonne of CO2.

Figure 135 Levelised cost of CO2 capture for large-scale post-combustion facilities at coal-fired power plants, including previously studied facilities

Source 139 Global status of CCS 2019, Report of the Global CCS Institute

In the EU, new industrial-scale CCS projects may become operational in this decade with sufficient support and coordination. Most importantly, the five Projects of Common Interest funded by the EU’s Connecting Europe Facility, all aiming to build cross-border CO2 pipelines as part of larger CCS infrastructures: Northern Lights (Norway), PORTHOS/CO2 TransPorts and ATHOS (both in the Netherlands), ERVIA CCUS (Ireland), Acorn/Sapling (UK). 182  

Energy intensive sectors have also started putting up projects, which, once scaled up, can make these players part of the climate solution. Recent hydrogen projects include H2M (clean hydrogen), H2morrow (clean hydrogen for clean steel production), HyDemo (clean hydrogen for maritime sector) and H-Vision. Industrial CO2 capture projects include ViennaGreenCO2 (solid sorbent capture technology pilot), Technology Centre Mongstad (post-combustion capture technologies), Norcem (capture from cement plant), LEILAC project (Pilot installation for breakthrough technology in cement production) 183 .

Knowledge sharing across these and other projects should help with improving CCS technologies while bringing down their costs. The Global CCS Report 2019 estimates that next-generation capture technologies have unique features – either through material innovation, process innovation and/or equipment innovation – which reduce capital and operating costs and improve capture performance.

Figure 136 Selected next-generation capture technologies being tested at 0,5MWe (10 T/D) scale or larger with actual flue gas

Source 140 Global status of CCS 2019, Report of the Global CCS Institute

The learning opportunities go beyond individual sectors. In fact, the development of the CCS infrastructure requires close cross-sectoral (and sometimes cross-border) cooperation among point sources of CO2 emissions (cement, steel, chemical, hydrogen, etc.) and the transport and storage providers. Integrated CCS infrastructure planning and development will hence be one of the major challenges of the decade.

R&I 184

The EU has been long-time supporting research and innovation in CO2 capture and storage through its successive R&I framework programmes (e.g. FP7: 2007-2013; Horizon 2020: 2014-2020). CO2 capture in industrial plants has become particular area under Horizon 2020, with focus on the cement sector (e.g. the CEMCAP, LEILAC and CLEANKER projects) and steel making (e.g. STEPWISE and C4U). CO2 storage research has also continued receiving support (e.g. STEMM-CCS, ENOS, SECURe and CarbFix2).

For joint R&I priority setting and funding, the Commission established stakeholder-driven platforms under the Strategic Energy Technology (SET) Plan 185 , which typically include Member States, as well as industrial and R&I stakeholders. These platforms include the CCS Implementing Working Group of the SET Plan (which is Member State driven), the Zero Emissions Platform European Technology and Innovation Partnership (which is stakeholder driven) 186 and the CCUS Project Network 187 (which is project-driven).

In the 2020 decade, industrial scale CCS and CCU projects will generate many new challenges that can best be solved by undertaking R&I in parallel with large-scale activities. Therefore, under Horizon Europe, the EU’s now starting R&I programme, will have to focus on industrial clusters. An iterative process is needed where R&I projects address specific industrial challenges, including those related to negative emissions, with the results then implemented and published by large-scale projects. For example, pilot projects still have an important role to study the potential long-term impacts of varying flow rate and composition on CO2 pipeline, wellbore and reservoir integrity. Further knowledge will help large-scale projects establish the safe limits within which pipelines and wells can be operated. 188  

Priority research topics (from laboratory to pilot scales) may include the following areas:

·CO2 capture in industrial clusters;

·CO2 capture in power applications;

·technological elements for capture and application;

·CCS and CCU transport systems;

·CO2 Storage;

·standardisation and legislation issues, and non-technological elements.

In view of longer-term CCS infrastructure development, a mapping of European CO2 storage assets and the implementation of a European storage development/appraisal programme is considered necessary. This is to optimise development and investment decisions against regional characteristics, resources and CO2 reduction pathways.

The revision of the CCS Implementation Plan of the SET Plan will reflect these needs.  

Public R&I funding 189

National and EU public funding for CCS R&I continues being very important. The EU’s Horizon 2020 programme has provided close to EUR 240 million for carbon capture, use and storage projects during the 2014-2020 period. In the future, the Innovation Fund, which among other renewable and low-carbon energy technologies will also support CCS, will be instrumental for realising a new wave of CCS demonstrators and first-of-a-kind facilities in Europe. Horizon Europe, the EU’s new research and innovation framework programme will support not only the development of a new generation of CCS technologies, but also the necessary stakeholder engagement and knowledge sharing activities needed for the rollout of complex industrial CCS projects and infrastructure.

Government or public R&D investment can have a significant positive effect on the development and deployment of the CCS technology. It creates a positive environment for private initiatives, and affects among others the number of relevant publications and patent applications. 190 Public R&D investment from 2004 to 2016 in the European Economic Area (EEA), is shown in the following figure. Since 2009, Norway is the largest investor in CCUS R&D in terms of public funds, except from 2014 when it was overtaken by the UK.

Figure 137 Public R&D investments in CCUS for the EEA (top countries)

Source 141 JRC 2018 ‘Data collection and analysis on R&I investments and patenting trends in support of the State of the Energy Union Report’ based on 2018 IEA RD&D Statistics. Available at: https://www.iea.org/statistics/RDDonlinedataservice/

Private R&I funding

On private R&I funding, JRC analysis 191 showed that amongst the countries most highly investing in CCUS, public to private R&D investments were mostly leveraged in Germany, followed by the Netherlands and France. This means that these countries noted significantly higher private investments compared to the public ones.