A roadmap for an increasingly autonomous European renewables supply chain

Europe and Italy have set ambitious goals for the transition to decarbonization, through the adoption of renewable energy and the electrification of final consumption. However, the implementation of these plans is likely to come up against a complex reality that requires careful analysis and innovative strategies. One of the central issues is our current dependence on imported energy technologies from foreign countries, particularly China, which today supplies an average of 65% of the key components necessary for decarbonization on a global scale.

The good news is that the "Energy Transition Strategic Supply Chains: Industrial Roadmap for Europe and Italy" report, presented recently at the annual Ambrosetti Forum in Cernobbio, indicates that the "bottlenecks" facing energy industry supply chains today are surmountable, paving the way for a significant leap forward in manufacturing autonomy as early as 2030. But for this to happen, a number of conditions need to be put in place quickly by the EU and Italy, starting with an effective reallocation of existing funds, with accelerated recycling of materials (today, for example, 81% of global lithium battery recycling capacity is concentrated in China, where it is expected to increase to over 90% in the next few years), the development of cooperative innovation processes, and the establishment of a transparent and stable fiscal and regulatory framework.

Overcoming the "energy trilemma"

Europe's current industry-wide dependence in the major sectors of the "renewables revolution" poses a threat to its technological sovereignty, but it also presents a unique opportunity for the development of local supply chains that can generate far-reaching economic and social benefits.

An approach based on renewables, advanced digital power grids and electrification of consumption can overcome the historic "energy trilemma" challenge of balancing energy security, energy equity (access to affordable, clean energy), and sustainability. For this to happen, extensive industrial conversion is needed; massive investment in sustainable energy infrastructure is essential, but not sufficient on its own. Skill development and the creation of local clean energy industrial supply chains are equally crucial, as the study, prepared by the Enel Foundation and The European House - Ambrosetti, points out.

Europe, including Italy, lags behind China in the production of key materials and components for the energy transition. According to the data, Europe's share of the production of strategic components of key clean energy technologies still averages only 14%. To address this challenge, the European Union recently launched the "Net Zero Industry Act" with the goal of producing at least 40% of clean energy technologies in Europe by 2030. These ambitious targets require the efficient use of existing funds, which amount to 695.1 billion euros over the period 2021-2027, to support the development and production of zero-emission technologies.

However, EU funds often focus on the early stages of development, leaving a gap in the implementation and strengthening of local production capacity. In this context, manufacturing PV panels and batteries in Europe is more expensive than in China. Investment costs for PV panel factories in Italy and the EU are between 2.2 and 5.6 times higher than in China. In addition, operating expenses and energy costs are also higher.

Slashing time frames

One of the main challenges is the time it takes to develop production facilities. Today, building a photovoltaic panel factory in Europe can take 20 to 40 months, compared with 12 to 24 months in China. These delays are also reflected in battery production, where building a gigafactory can take up to five years.

In addition, the renewables industry requires a high level of specialization and advanced skills. According to a study by the International Energy Agency, the energy sector requires 45% of its workforce to have a tertiary education, highlighting the need for upskilling and reskilling programs to meet this challenge.

The lack of specialization is clearly visible in the photovoltaic industry, where some stages of the production chain require a highly qualified skill set and access to cutting-edge technologies. The lack of these skills and infrastructure is an obstacle that needs to be overcome.

Finally, the lack of integration in the upstream stages of the supply chain is another limiting factor. While in China there is considerable vertical integration between production, extraction, and refining stages of raw materials, Europe lacks this synergy. This deficiency is particularly evident in the battery sector, where Beijing has a solid capacity for extracting and processing key materials.

Strategic policies

To meet these challenges, Europe must adopt a clear and innovative strategy. The report suggests a range of policies at the Italian and European levels. For Italy, it is important to simplify authorization procedures, to incentivize the construction of gigafactories and the adoption of efficient technologies like heat pumps, as well as to develop supply chains for the recycling of raw materials.

At the European level, the emphasis should be on the distribution of strategic value (including defining financial mechanisms, such as VAT exemption on technologies produced in Europe, that would make domestic products cheaper precisely because of the socio-economic benefits they generate), on collaboration among member states at the level of R&D and industrial innovation, on the promotion of binding ESG standards, and on the creation of a common governance framework.

In short, Europe faces significant challenges in producing and developing key technologies for decarbonization. However, these challenges can be turned into opportunities through strategic vision, targeted investment, and innovative policies. The creation of competitive and sustainable local supply chains will not only enable Europe to achieve its decarbonization goals, but also ensure lasting economic and employment benefits.