Has Europe lost its first-mover advantage in renewable energy?

According to North American energy sector executives, it has not. However, the US has slingshot its way into a leading position, fuelled largely by favourable policy removing red tape from renewable deployment and integration. Yusuf Latief reports.

An early mover on the road to renewable power, Europe and its Union have long enjoyed being an authority in the energy transition.

However, with the advent of the US Inflation Reduction Act (IRA) in 2022, Europe’s competitive position has started to come under scrutiny.

According to Enlit's recently published Re-energising the Transition report, nearly 60% of energy sector professionals believe that the continent has already lost its first-mover advantage, or will lose it in the next half decade.

Re-energising the Transition draws on the results of an extensive survey of energy professionals collected in the second half of 2023, in-depth expert interviews conducted at the Enlit Europe live event, as well as insights and recommendations of the Enlit Europe Think Tank – a half-day workshop that took place in Paris at Enlit Europe 2023.

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According to Re-energising the Transition, Europe’s early foray into renewables, although giving it a significant edge above competitors, is a core component of why it now fears being overtaken.

Too much focus has been on the deployment of renewables, states the report, calling it the ‘lowest hanging fruit’. Integration is now proving a harder task.

Commented Nico Arcauz, smart grids director of Iberdrola, in the report: “There’re so many renewable projects awaiting connection.

“This problem is only going to get worse. Regulators are not thinking ahead. Instead, their focus is on efficiency, which is tantamount to achieving the lowest cost. We are at war against climate change. The focus must be on effectiveness.”

Regarding renewable-to-grid integration, the report lists lengthy permitting procedures and aged market frameworks, which stifle flexibility and healthy competition, as key obstacles to overcome.

The solution? Rewarding flexibility and accelerating renewable integration plans.

Regulatory game changer

Regulatory hassles were also mentioned by sector experts at DISTRIBUTECH International, although with an opposite spin. Rather, they remember the strong position Europe’s early moves gave them.

“Europe’s regulatory environment and penetration levels that have been pushed within its communities have forced them to think about how best to manage the grid in this new complex state,” said IBM’s Bryan Sacks.

Because of this, said Sacks, a global CTO and solution leader for energy, environment and utilities, conditions are still very much present for investment in Europe’s energy sector, although the US is in “catch-up mode”, enabled by the IRA.

The IRA proved a regulation game changer, boosting investment and removing red tape otherwise barring deployment, becoming a thorn in the side of the European energy business.

According to Re-energising the Transition, 62% of sector experts are concerned the IRA specifically will divert technology supplier attention away from Europe and toward the US.

Said Global Senior Vice President of Energy of Bureau Veritas Joerg Gmeinbauer in the report: “We have to cut red tape and shorten the permitting process. If policymakers can get this right, the industry will get things done.”

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Renewables paved the way. Now, it’s going to be neck-and-neck

According to Jeremy Klingel of consulting company West Monroe, although renewables are clearly a pain point in need of remedy, we shouldn’t take its early adoption, and the edge it gave Europe, for granted.

According to Klingel, who is a senior partner of energy & utilities, the EU and UK have been ahead of the US, both in renewables adoption and "in thinking about the grid in a more connected way. The market mechanisms have been different and I think they’ve been able to capitalise on that.

“And when I think about the greater adoption of wind and battery technologies and solar proliferation, I don’t think they’re going to slow down.”

Klingel also, however, references policy and investment advantages garnered in the US from the IRA, slingshotting them into a lead position and what will prove to be a neck-and-neck competition. “It will be interesting to look at it as a competition of where capital is going to get spent.

“In the US? In the EU? I think that type of competition is going to be healthy, for this market, for us globally.

“Overall, if we look at a horizon that’s reasonable, such as the 2030 data point, I think that Europe and the US are going to be neck-and-neck in energy, trading top spots across the board on things such as investment, decarbonisation and better responses to climate change.”