The EU’s climate agenda is in trouble. The Green Deal, which aims to slash the bloc’s carbon emissions by 55% by 2030, had started off promisingly after several major pieces of legislation were adopted, including its ban on the sale of new combustion-powered vehicles from 2035 and carbon border tax. Increasingly, however, Europeans are rebelling against green restrictions of which they have difficulty seeing the advantages.
The elephants in the room
Another less reported upon but equally important threat to the bloc’s ecological and energy transition comes from the alarming number of Chinese and US companies moving into the EU power sector.
In our book, Energy: How to Recover Our European Ambition (published in French), we shed light on this overlooked issue ahead of European elections that will be critical for the EU’s energy strategy and call on the bloc to carefully weigh up cooperation and competition with sovereignty.
China eyes Europe’s energy sector
While there currently isn’t any quantitative data on China’s share in the European energy market, we do know the country detains 80% of the global clean-technology manufacturing capacity in 11 segments, from solar wafers to many lithium-ion battery components.
Taking advantage of the sovereign debt crisis in Europe, Chinese investors first stepped in to acquire substantial stakes in what have long been regarded as “sovereign” sectors, such as power transmission and distribution grids, in the early 2010s. Key among those was the world’s largest utility company, the State Grid Corporation of China (SGCC), commonly known as the State Grid – the world’s fourth-biggest company overall by revenue, behind Walmart, Saudi Aramco and Amazon as of March. Also increasingly present is Three Gorges Corp, responsible for the world’s largest hydroelectric power complex.
For instance, in Portugal, Three Gorges Corp. won the bidding for the Portuguese government’s 21% stake in EDP-Energias de Portugal SA in 2010. Meanwhile, in Italy, SGCC expanded its presence by collaborating with the Italian government in 2014, acquiring a 35% share in the CDP Reti fund, thereby attaining a blocking minority at the local gas network operator, SNAM, and electricity transmission network operator, Terna. Similarly, in Greece the State Grid made substantial inroads by acquiring a 24% stake in the national electricity transmission network operator from the Greek government in 2016.
While Portugal, Italy, and Greece were primary targets, Chinese investors have also acquired grids in Luxembourg. Last but not least, let’s not forget China’s green-tech industry has flooded Europe with cheap solar panels and electric vehicles (EVs).
US inroads in the EU energy market
The stakes are all the higher because China is not the only country with ambitions in the EU. The United States is also seeking to benefit from the bloc’s poorly thought-out energy strategy.
Russia’s war against Ukraine has not weakened the United States’ energy dominance in the world, and more specifically in the EU. Indeed, while Russian gas was expected to act as a bridge fuel in the energy transition, particularly for Germany, the EU was quick to adopt sanctions against its long-term trade partner that minimised its dependence. Partly filling the vacant space left by Moscow, the United States has become the leading producer and exporter of LNG to Europe. This development favours US trade while domestic energy costs are kept low, further widening the price gap, with Europe experiencing an energy inflation and undermining its relative competitiveness and attractiveness to energy-intensive industry.
Beyond these energy-supply issues, EU member states are struggling to carve out a common vision, highlighting the challenges of sovereignty and strategic autonomy. European companies, particularly in France, have endeavoured to develop fourth-generation small modular nuclear reactors (SMR), with an attempt to create a European nuclear alliance made in November 2023. But at the same moment, countries such as Italy, Belgium, and Romania have partnered with the American Westinghouse Electric Company to develop lead-cooled fast reactors.
Here again, the coordination gap plays to the advantage of American influence in Europe, as confirmed by John Kerry in September 2023. As part of the international consortium “Clean Fuel from SMR”, led by American companies, the Czech Republic, Slovakia, and Poland were selected to participate and will receive support for coal-to-SMR feasibility studies. These EU countries are turning to the Americans to build new nuclear power plants, mainly because of their funding and technical expertise, while the EU continues to block all support for nuclear projects developed on its soil.
Cracks in the EU’s net-zero goals
The scale of these foreign investments in renewable energies, new nuclear facilities and grid development could come to bear heavily onto the bloc’s strategic independence at a time when it’s looking to decarbonise.
These investments raise concerns over continental energy security, given the still fragmented nature of Europe’s energy landscape:
in the short run, supply issues due to the energy crisis urgently push the EU to turn to other foreign partners (other than Russia) and only shift our energy dependence problem;
in the longer term, faced with Chinese dumping and US protectionism, Europe will have to protect domestic energy manufacturers or grid operators after having long neglected them.
The main challenge for Europe is ending one dependency without falling into another. To replace imports of fossil fuels (coal, gas, and oil), harmful to the climate, the EU member states must accelerate and coordinate the development of their “green” technologies.
Toward green sovereignty
These risks demand that the bloc not only pays more attention to non-EU operators, but take greater responsibility over its own energy system. How can it do this, all while pursuing the vision of the “green, secure and affordable energy supply” set out in its Green Deal?
For starters, we recommend EU member states work harder on building truly European energy grids. As we move toward decarbonisation, we can expect an array of renewable energies to increasingly power our electricity system. These arrangements will require extensive and interconnected networks on a European scale, which must be consolidated and developed by the EU member states themselves.
A second emergency is green energy financing. In November, the European Climate Neutrality Observatory warned a lack of EU-level public investment in green energy and other advances could lead the bloc to fail to meet its net-zero goals. Rather than take heed of the warning, member states axed the fund earmarked for renewables and clean tech – the Strategic Technologies for Europe Platform (STEP) – to 1.5bn in February. Our book calls for a radical change of strategy, through the creation of a “European transition savings account” to attract private savings, on the one hand, and a “European sovereign fund” that receives proceeds from carbon-pricing revenues on the other.
Whether these actually come into being will depend on the upcoming European elections. Results leaning toward a higher European ambition could help us seen in clean, affordable and secure solutions. Further veering to the nationalistic right could further jeopardise the bloc’s economic clout and, paradoxically, sovereignty.
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