Has Europe lost its first-mover advantage in the energy transition to the US?

According to North American energy sector executives, it has not. The US has, however, slingshot its way into a leading position, with European industry fearing it will lose its position and pace in the race to net zero. Yusuf Latief travelled across the pond to investigate the sentiment.

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

However, with the advent of the Inflation Reduction Act (IRA) in 2022, Europe’s competitive position has been scrutinised.

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

Re-energising the transition draws on the results of a survey among 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.

According to the survey, 62% are concerned the IRA specifically will divert technology supplier attention away from Europe and toward the US.

From these insights, it is clear the very real fear of Europe being overtaken by the US, but are these fears shared across the pond?

All point in a similar direction: Europe remains in the first place. But the US is close behind.

To investigate, I discussed the current state of the energy transition with US-based energy sector experts at DISTRIBUTECH International.

Regulatory game changer

In line with the findings of the Re-energising the Transition report, one of the core reasons behind Europe potentially losing its lead was that of regulation, which at first gave the continent its edge. This was echoed by some of the US energy experts.

“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 now in “catch-up mode”.

This catch-up, of course, has been enabled by significant amounts of dollars funnelled into advanced energy systems and tech advancements, all of which come courtesy of the IRA.

The IRA, which proved a regulation game changer, boosted investment and removed red tape otherwise barring deployment, and has come to be a thorn in the side of European energy business.

For Sacks, however, although the IRA has brought the US into a leading position, parity between the two energy powerhouses is not yet on the table:

“There’s still mismatches [in the US] between policy and the ability to execute. Local regulators and certain markets in California, for example, are quite advanced, but in other territories there’s still nowhere near the adoption levels [we need].

“I think that until we start seeing the penetration levels that we've seen in Europe, which will force industry to take actions to manage the grid differently…we won’t have parity.”

Advantage not yet lost, but Europe should be wary

Sacks was not the only expert to think this way.

According to chiefs from two alliances, Bobbi Harris from the Utility Broadband Alliance (UBBA) and Phil Beecher of the Wi-Sun Alliance, in this race to net zero, the US is running fast, but it hasn’t yet caught up.

“I don't know if they lost or we just caught up, but we're running fairly fast now,” said Harris, who is UBBA’s Executive Director.

“Utilities can be slow to move as they're risk averse and slow to see some things. But when new tech comes and new spectrum becomes available…There's a lot of momentum.

“Maybe Europe slowed a little bit. Maybe they didn't have to go as fast as they do right now, but the US certainly is on a trajectory that means we could usurp them.”

Added the UK’s Beecher, who is President and CEO of California-based Wi-Sun: “I think it needs to be very careful, but it hasn’t lost yet.

“This also depends on whether you're talking about Europe or the EU.

“The EU, not necessarily. But the UK, for example, had huge opportunities for an economy based on renewables and renewable-based technology and I think we need to be very careful now that we now don't miss the photo, because that is definitely a future that we should be striving towards.”

Also of interest:
Europe risks losing global e-mobility ranking to US warns EV expert
The biggest market trends according to energy experts at DISTRIBUTECH International

Neck-and-neck

According to Re-energising the Transition, Europe has focused for too long on renewables, a ‘lowest hanging fruit’. Integration into the grid is now proving a harder task.

However, states Jeremy Klingel of consulting company West Monroe, we shouldn’t take this adoption, and the edge it gave Europe, for granted.

According to the consultancy’s 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 in the US, 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-type of 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.”