The Brief: How to make industrial electrification in Europe a reality

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Introduction:

This report from The World Economic Forum (WEF) outlines its strategies and policy recommendations for industrial electrification in Europe. We examine these proposals and look at the key challenges that could potentially impede the electrification process.

Key takeaways:

• Industrial electrification is defined by IBM as “the conversion of a device, system or process that’s dependent on nonelectric energy sources, such as fossil fuels, into one powered by electricity”.
• Based on a net zero scenario, the report states electricity’s share in final energy consumption is projected to rise from 20% to over 50% by 2050, with electrification offering a ‘major opportunity’ to cut emissions and improve efficiency in industrial processes.
• The proposed strategies are public and private collaboration (e.g. a shared regional vision and action plans across the value chain); supporting the development of a mature vendor and supplier ecosystem; and considering advancing proposed revisions to the Energy Taxation Directive, expanding the Industrial Emissions Directive and ensuring the EU Action Plan for Grids targets industrial electrification. 
• The WEF has identified 3 main challenges: the availability and price of clean power, limited financing support and risk aversion for new technologies.

Conclusion:

Finally, the report details how each proposed action and strategy will address the three key challenges. This includes integrated public funding, risk-sharing models and expanding markets for green products to tackle limited financing support, and developing regional certified models for electrification investment to tackle clean power availability and price.

The World Economic Forum (WEF) recently published a report setting out its strategies and policy recommendations for industrial electrification in Europe. In this edition of the Brief, we take a look at the proposed strategies and policies and the key challenges that could potentially impede the electrification process.

First of all, what is industrial electrification? Industrial research organisation IBM defines it as “the conversion of a device, system or process that’s dependent on nonelectric energy sources, such as fossil fuels, into one powered by electricity,” citing lower energy costs, improved energy efficiency and support for the clean, renewable energy transition as major benefits.

The report begins by stating that based on a net zero scenario, electricity’s share in final energy consumption is projected to rise from 20% to over 50% by 2050, with electrification offering a major opportunity to cut emissions and improve efficiency in industrial processes, especially low-to medium-heat processes (up to 500C) which account for “about half of all industrial carbon emissions”.

The WEF has identified three key challenges that could potentially impede industrial electrification progress. The first is the availability and price of clean power, as delays in accessing a reliable grid or system with sufficient capacity remain challenging, and uncertainty about electricity prices compared to other feedstocks (such as natural gas) is a key concern in decision-making for industrial electrification projects.

Limited financing support is also a potential hurdle, as it can be hard for businesses to secure funding due to high interest rates and lack of risk-sharing mechanisms. In addition, the WEF draws attention to risk aversion for new technologies, as industrial companies can be reluctant to invest in new technologies, due to them being seen as riskier due to limited case studies.

The WEF’s proposed strategies for industrial electrification in Europe consist of public and private collaboration, business and market enablers and policy and regulatory ideas. For public and private collaboration, the organization suggests collaboration on a shared regional vision and action plans across the value chain.

It also advises creating integrated public funding and risk-sharing models and developing regional certified financial models for electrification investment.

The Net Zero Basque Super Cluster (NZBSC) is given as an example; an initiative to accelerate the path to net zero in the Basque Country and part of the WEF project ‘Transitioning industrial cluster towards net-zero’.

The industry roadmap for the project outlines the initial phase as focusing on the most relevant industries by GHG emissions -oil refining; foundry; steel; cement; pulp and paper.

When it comes to business and market enablers, the WEF proposes supporting the development of a mature vendor and supplier ecosystem, streamlining access to private finance and investment support and capturing and expanding markets for green products. The first example cited by the organization is Legal & General Capital and Octopus Energy’s investment in the Kensa Group, a manufacturer of ground-source heat pumps, with the aim to increase pump installation to 50,000 units per year by 2030.

It also highlights HSBC and Temasek’s joint venture to create Pentagreen Capital, a debt financing platform seeking to accelerate the development of sustainable infrastructure in South-East Asia, which finances projects that might not have access to traditional financing and provides risk mitigation for project developers and financiers. The association adds that the EU Green Public Procurement sets standards for purchasing green products and services, including energy-efficient technologies.

The policy and regulatory ideas laid out in the report involve considering advancing proposed revisions to the Energy Taxation Directive, expanding the Industrial Emissions Directive and ensuring the EU Action Plan for Grids targets industrial electrification. The WEF suggests that the Industrial Emissions Directive could be extended to include a broader range of electrification technologies, and the EU Action Plan for Grids could be used to help facilitate industrial electrification.

When implementing this, the European Commission should work closely with industry stakeholders to ensure it meets electrification needs such as long-term grid planning and grid tariffs that incentivize electrification.

In the final pages of the report, the WEF details how each proposed action and strategy will address one or more of the three key challenges that have been identified. Collaboration on a shared regional vision and action plans across the value chain, supporting the development of a mature vendor and supplier ecosystem and amending the Industrial Emissions Directive are expected to address risk aversion for new technologies.

To tackle limited financing support, the organization recommends a shared regional vision and value chain plans as mentioned previously, as well as integrated public funding, risk-sharing models, streamlining access to private finance and investment support and capturing and expanding markets for green products.

Finally, to address clean power availability and price, the WEF proposes a shared regional vision and value chain action plan, development of regional certified models for electrification investment, advancing proposals to the Energy Taxation Directive and ensuring the EU Action Plan for Grids targets industrial electrification.

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