Determinants of Industry Development: EU Solar Energy Strategy, State Aid Initiatives, Carbon Tax, and Renewable Regulations

Determinants of industry development

In 2022, for the first time ever, the European Union prepared a solar energy strategy. In the EU Solar Energy Strategy, the European Commission notes that, in order to effectively meet its climate and energy policy goals, installed PV capacity in the EU should quadruple over the next decade - from 136 GW (as of June 2021) to 600 GW by the end of 2030. Similar strategies have also emerged in the US - the Inflation Reduction Act (aka IRA; USD 400bn in state aid in the form of tax and investment credits for the development of new PV projects to help reduce US CO2 emissions by 2032).

 

In addition, the EU's strategy is a response to high dependence on imports of PV components from China. Further initiatives (Net Zero Industry Act) related to increasing state aid to domestic industry and protecting the EU and domestic market from the flood of imported technology from China are being prepared for introduction from January 1, 2024. Also, in Poland, there are projects for multi-poly investments in the production of PV cells and modules.

 

The European Commission announced in 2022 the possibility of launching the PV IPCEI program (the so-called Important Joint Engagement Projects), followed in 2023 by the addition of new chapters of the so-called National Reconstruction Plans for the reconstruction of the EU industry, including the PV industry under the REPowerEU program (Poland received an additional pool of EUR 2.7bn). REPowerEU aims to increase the EU's energy sovereignty (installing more than 320GW of solar PV by 2025 and nearly 600GW by 2030.

 

FIT 55 approved the premise of a border carbon tax (known as CBAM), which will start charging in full from 2026 and will put importers (energy, steel, ammonia, among others) under an obligation to purchase CO2 in the amount they generate a carbon footprint. CBAM further mobilizes European industry, which will face foreign competition in the future and will itself have to reduce its carbon footprint to increase competitiveness (see decarbonization in the steel industry by building NG-DRI or carbon capture plants; Yara in 2026 plans the first industrial production of green ammonia sourced with hydrogen produced from RES; Stalprodukt, which plans to reduce CO2 emissions and fossil fuel consumption by 40-50% by 2030).

 

The Council and the European Parliament reached a preliminary agreement on the RES directive and approved a target of increasing the share of energy from RES in the EU's total energy consumption in 2030 to 45% (42.5% plus an additional 2.5% commitment).

A number of regulations within renewables introduced in 2022 and 2023 are also the result of rising energy costs in Europe. The one in 2022 was significantly affected by the conflict in Ukraine, resulting in a clear loss of competitiveness, especially in energy-intensive production.

 

PRIMES modeling has shown that investments for increasing the share of RES in electricity and heat in the EU between 2021 and 2030 will amount to about EUR 103-120bn/year, including EUR 55-65bn/year in solar and wind and EUR 43-46bn/year in the grid, while in 2011-2020 overall outlays amounted to EUR 47bn/year, including EUR 32bn/year in investment in electric generation sources (i.e. twice as much as planned for the next decade).