European components are 30% more expensive! EU needs to build resilient supply chains and strengthen

In 2022, Europe will account for more than 50% of China's total photovoltaic exports, making it China's largest overseas photovoltaic market. In recent years, this largest overseas photovoltaic market has continued to promote energy transformation plans and make long-term layout and planning.

In order to achieve a more orderly energy transition, research by McKinsey, a well-known analysis company, shows that the EU needs to create a more resilient supply chain, improve the grid and re-examine multiple constraints.

The European Union has released a number of energy transformation plans, including the "European Green Agreement" in 2020 and the "Fit for 55" plan in 2021. The goal is to reduce carbon dioxide emissions by 55% on the basis of 1990 by 2030. Achieve net zero emissions by 2050.

In addition, the EU launched the REPowerEU program last year to reduce dependence on Russian fossil fuels. 15 billion euros will go to solar, wind! EU REPowerEU receives capital increase

McKinsey defines an orderly transition as "the achievement of the EU's stated commitments to reduce CO2 emissions by 55% by 2030 and net zero emissions by 2050, while maintaining affordability, reliability, resilience and security."

Resilient and scalable supply chains for key decarbonization technologies

According to McKinsey, there are five areas in which the EU can work to achieve the transformation goals.

First, the EU needs to create a resilient and scalable supply chain for key decarbonization technologies. At present, about 70% of the EU's solar modules are supplied by China, and solar modules produced in the EU are 25%-30% more expensive than those produced in China.

According to InfoLink statistics, from January to June this year, the European market imported 62.4 GW of modules from China, but the annual growth rate in the second quarter has slowed down compared with the first quarter. In this regard, the agency predicts that in the third quarter of this year, China's total export of photovoltaic modules to Europe may maintain the level of the first quarter or show a slight increase.

In response, the European Commission established the European Solar PV Industry Alliance at the end of 2022 to support Europe's goal of reaching 30 GW of indigenous manufacturing capacity across the entire solar PV value chain by 2025. In addition, the EU plans to increase local production capacity in key green industries such as photovoltaics and batteries to 40% by 2030.

But the above is not enough, McKinsey believes that EU countries can form partnerships with raw material suppliers from different exporting countries. For example, the European Commission, in collaboration with the World Resources Forum Association, has developed a proposal for EU-Africa cooperation on sustainable raw material supply chains.

McKinsey pointed out that the EU also needs to expand the manufacturing scale of key technologies and provide incentives to consolidate the European manufacturing supply chain, such as the introduction of local content requirements, subsidies and more convenient capital access mechanisms.

Labor shortages can also hinder the adoption of renewable energy. Attracting and training the workforce can ensure a sufficient workforce to scale up clean technologies. Measures include providing clear career paths for blue-collar workers and investing in company-, national- or EU-wide labor schemes.

The EU's energy transition requires major improvements to the grid

To help the EU meet its energy transition goals, the grid will also need major improvements.

According to McKinsey, to support electrification, the integration of renewable energy and distributed resources, and the digitization of infrastructure, annual grid investment needs to be 40-70% higher than the average of the past five years.

To this end, stakeholders can identify the most critical projects in a comprehensive plan and review permitting and siting support efforts through regional collaboration and cooperation among EU countries.

Demand-side measures can also reduce peak energy loads and defer grid investment. These include using thermal energy storage in heating, ventilation, and air-conditioning systems to preheat buildings, as well as offloading data center computing loads to areas with less stress on the grid.

Revisiting land use, social, permitting and regulatory constraints

Adequate land supply is critical for the energy transition, especially the adoption of solar photovoltaics. France, Germany and Italy's 2040 renewable energy targets would require an additional 35,000 square kilometers of land, according to McKinsey.

Especially Italy. In order to meet the 2040 increase target, Italy needs to reach 63GW of installed PV capacity, using up to 85% of the available land.

To address the potential shortage of available land, policymakers could consider developing renewable energy targets at the national and regional levels to help allocate land and maximize land capacity utilization by re-powering existing facilities, McKinsey said.

This is because existing wind and solar plants are often located at sites with the greatest renewable energy potential, but are based on older technologies and therefore produce less renewable energy than their potential.

Ensuring clean tech affordability and redesigning electricity markets

If renewable energy accounts for 45% of EU supply by 2030 and energy electrification reaches the 2030 target, EU energy costs by 2030 will be 10% lower than in 2019. However, individuals and businesses may have to pay high upfront investment costs, which discourages them from choosing renewable energy.

McKinsey suggests that business leaders and policymakers can consider two key priorities, including reducing financial barriers such as costly upfront investments by providing incentives and subsidies for clean technology deployment. It can also enable active demand-side engagement and reduce volatility by removing regulatory and technical constraints on end users.

Finally, McKinsey said policymakers could revisit electricity markets to strengthen the system and attract investment in the long run.

Options for redesigning electricity markets include not only centralized competitive tenders and power purchase agreements, but also greater transparency in energy pricing through finer-grained bidding areas where prices can be settled at or near the point of generation