Solar panel manufacturer lays off employees. Battery manufacturers drove Europe to seek American subsidies. Green hydrogen projects stalled due to power shortages.
These are some of the early results from the European Union's Innovation Fund, a 40 billion euro ($43 billion) investment vehicle that is at the heart of Europe's plan to radically transform its economy to zero carbon by mid-century. be. It's also part of the EU's response to U.S. anti-inflation laws, with officials hoping the subsidies will deter key industries from leaving the country.
The fund is still fairly new and has supported dozens of projects, including the world's first large-scale green steel plant, but some of them, particularly in the manufacturing and hydrogen sectors, have struggled to get off the ground. .
Markus Ferdinand, chief analytical officer at Oslo-based research firm Veidt, said the Innovation Fund was designed to help “success It is one of those programs that we must do. If the early stumble turns out to be a broader trend, it would be a worrying sign for the bloc's ability to meet its 2040 climate goals.
Since its creation four years ago, the fund has spent more than €6 billion on expanding clean technologies, including capturing CO2 from Europe's biggest polluters, including French industrial gas giant Air Liquide and Swiss cement maker Holcim. I have assigned it. Major energy producers such as Shell Plc and German power company RWE AG are working on hydrogen production. We also support large-scale plants that manufacture solar panel equipment, batteries, and other renewable energy technologies.
Manufacturing projects are some of the most challenging projects. According to an analysis of project data by . bloomberg green.
Kurt Vandenberg, the European Commission's climate change chief, said the EU expected some of its bets to not pay off. The fund is meant to invest in “future novel and innovative activities,” Vandenberg said. “This means that not all projects necessarily make it to the end because there is considerable risk. Otherwise, if the market is going ahead with this on its own, we will You shouldn’t.”
And just because the bet was bad doesn't necessarily mean a lot of money was wasted. The money will be disbursed in stages, meaning projects that don't go ahead will largely be disbursed and the EU can direct the spending elsewhere. Companies that do not make a final investment decision will not receive any funds.
But that still means valuable time will be lost to decarbonise, and Europe's competitive advantage will be undermined if companies leave.
The Innovation Fund collects billions of dollars from polluting industries to clean up. Under Europe's cap-and-trade emissions trading system, polluters are allocated a set number of permits each year. Industrial polluters have few options to decarbonize and currently obtain most permits for free, while electricity producers must purchase permits. Companies must surrender permits for every ton of CO2 they emit into the atmosphere.
EU governments will auction off the permits and funnel some of the proceeds into an innovation fund. The idea is basically that the polluter pays, but some of that money could come back in the form of subsidies or subsidized new technologies that could reduce emissions in the future. It will help lower your bill.
This will be particularly important as the EU strengthens its carbon market in the coming years and reduces the number of permits handed out for free. Industry will be forced to reduce CO2 emissions or pay up. Companies may choose to shut down completely, like those faced with increased costs in the wake of Russia's invasion of Ukraine.
“Europe is now essentially decarbonizing through deindustrialization,” says Breakthrough Energy Europe, a consortium of nonprofits and venture capital funds backed by Bill Gates that invests in green technology. said Ann Mettler, vice president. The investment of 40 billion euros over 10 years is “a huge amount, but I also question whether it will be a game changer. Is it really enough?” (Michael Michael He is the founder and majority owner of Bloomberg News' parent company Bloomberg LP. His Bloomberg is an investor in Breakthrough Energy Ventures.)
European green manufacturers face the lure of attractive US subsidies on the one hand and competition from cheap Chinese products on the other.
Freya Battery received a €100 million subsidy for Norway's Giga Arctic project, but announced in November that it would limit spending on the project to focus investment on the United States. (Although Norway is not an EU member state, it participates in the Emissions Trading Scheme.)
Among the largest grants to date is €200 million for Swiss solar panel manufacturer Meyer Burger Technology AG to build new manufacturing facilities in Germany and Spain. The company has since announced plans to close its manufacturing facility in Germany in order to pivot its operations to the United States. A spokesperson said the company is discussing its options with the commission.
“The European Union must ensure a level playing field for the domestic solar industry by restricting products manufactured with dumping and forced labor,” the spokesperson said in an email. “Without that, the production of solar modules would not make economic sense in Europe as of today.”
Another solar equipment manufacturer, Sweden's Midsummer AB, has been awarded more than €30 million for an initiative known as Project DAWN to build a factory to produce thin, lightweight solar panels for rooftops. The company announced losses of more than 200 million Swedish kronor ($18.5 million) last year and began a staff reduction plan as part of cost-cutting measures at its Swedish operations.
A company spokesperson said the two efforts will go hand in hand as the company restructures its business to become more competitive in the face of cheaper imports. “If anything, the cost-cutting measures will give us more energy to speed up and execute Project DAWN,” said Peter Karazzi, director of communications at Midsomer.
One of the fund's biggest technology investments is hydrogen. This gas does not produce CO2 when burned and, when produced with renewable electricity (so-called green hydrogen), is a climate-friendly alternative to natural gas and coal. Hydrogen projects account for more than a quarter of the funding awarded by the Innovation Fund to date.
However, this technology is not as economically viable as once thought. Green hydrogen is much more expensive than the type of hydrogen produced from natural gas that is commonly used today. Projects aimed at scaling up the industry and cutting costs are facing challenges.
One was a plan by a division of German power company Uniper SE to produce green hydrogen at a facility outside Rotterdam. It is in many ways an ideal location, with close proximity to major industrial users and a coastal location, providing easy access to the growing offshore wind farm in the Dutch North Sea.
However, rising electricity, labor and financing costs in recent years have pushed the price of green hydrogen even higher, making it difficult to attract potential customers.
“It's too expensive at the moment,” said Dijon Rietveld, managing director of Uniper in the Netherlands. “The cost of interest rates and grid connection charges, as well as the risk profile of power purchase agreements, are hindering investment decisions.”
The company also found it nearly impossible to contract new offshore wind farms that guaranteed power fast enough to meet Innovation Fund requirements. In the end, Uniper returned the award. Project managers hope to find other means of building the site later this decade.
Another project that returned funds to the EU aimed to link cheap hydrogen production in Portugal to key industrial demand in Northern Europe.
“There's been a lot of hype around hydrogen, but now we need to be more realistic,” said Catherine McGregor, chief executive of Engie SA, one of the companies supporting the project.
Other green hydrogen developers are still working hard to make it a reality, despite the challenges. German energy company Iqony GmbH has been awarded €49 million to build a facility near Düsseldorf to produce hydrogen using electricity from wind farms in the North Sea. As the company moves forward with the project, it faces many of the same uncertainties as Uniper. That means Germany hasn't been able to add much new power generation capacity at sea in recent years, making it nearly impossible to sign deals with wind farms to secure electricity. At the same time, electricity prices are rising, said Tanja Braun, general manager of the Iqony project, known as the HydroOxy Hub.
Power shortages are holding back projects in Europe's industrial hubs, but there are promising signs in places where green power is plentiful.
One of the largest grants the Innovation Fund has ever made was awarded to a division of Australian mining giant Fortescue. A proposed project in Norway would use the abundant hydroelectric dams that provide nearly 90% of the country's electricity to produce hydrogen. Fortescue plans to use its hydrogen to produce ammonia, which can be used as a clean-burning fuel in the shipping industry. Thor Magnus Robic, Fortescue's country manager for operations, said the company has now completed major engineering and design work and expects to make a final investment decision next year.
Early successes in Scandinavia and disparities with continental Europe could hold lessons for European green subsidies. Europe has now opened tenders for a new financing mechanism designed to support green hydrogen. This is an outgrowth of the main innovation fund. The first 800 million euro auction round for the company's hydrogen bank will provide a fixed subsidy of up to 4.50 euros per kilogram of gas produced. According to BloombergNEF, this will benefit regions like Scandinavia and Iberia, where renewable electricity is cheap and plentiful.
Compared to major innovation funds, which pick winners based on meeting specific criteria, hydrogen banks can have greater market leverage to pick winners based on price. Ultimately, the EU's Vandenberg said, innovation is “creative destruction.”
