Energy crisis and dependencies: we must anticipate the transition

This week the European Commission has adopted a Communication on energy prices. It puts forward a toolbox to get to grips with the current energy crisis and its impact, especially for the most vulnerable.

 

Future means massive decarbonised electricity

 

I would like to elaborate on the implications for our industry.

Back from Sweden, where I spent earlier two days meeting some of the most innovative companies in Europe, I see two takeaways in direct relation to this crisis.

Firstly, we are at the heart of a major transition towards more decarbonised energy. This transition will obviously continue, with electricity needs that will double by 2050 to meet the objectives of the Green Deal.

All the companies I talked to, whether in batteries, heavy vehicles or steel, told me the same thing: We need electricity. A lot of electricity. Decarbonised electricity. Electricity that is not only decarbonised but also available at low cost and continuously.

Now, with the share of renewable energies due to increase, we are to expect some variability in our electricity production, depending on weather conditions (wind, sunshine). We must therefore act against such volatility.

At European level, our intention to increase our energy storage capacities, in the form of hydrogen or batteries.

There is also a repeated commitment to include nuclear energy in the European taxonomy, because Europe will need nuclear energy to ensure, alongside hydroelectricity, stable and decarbonised electricity production.

 

Ensuring stability in an increasingly changing environment

 

Secondly, we have an interconnected electricity market that functions very well under "normal" market conditions. But let’s be honest: in extreme cases like now - where we see for example the very high demand from China pushing up gas prices - the current system becomes inconsistent.

Just think: the electricity wholesale market price in countries like Spain, Portugal and Sweden is over 150 euros per megawatt hour! Even though the Swedish electricity mix, for example, is made up of nuclear, hydro and wind power for the most part.

Do we need to review the system? I think it is a good thing to consider it and I welcome the announcement that the European Energy Agency will be commissioned to launch a study, with a clear and accelerated timetable.

In parallel, we must continue promoting long-term contracts to help foster stability in an otherwise increasingly changing environment.

 

Let's not wait for the next shortage to reduce our strategic dependencies

 

This crisis is a reminder of our dependence on imported fossil fuels.

It should also act as a catalyst for better anticipating our future dependencies. I have in mind the burning issue of raw materials such as lithium or synthetic graphite, both indispensable for the production of electric batteries.

We are currently sourcing 98% of our rare earth elements from China because we do not have the industrial capacity to process, refine, transform or recycle them and we have not fully explored the possibilities of having our own primary sources of supply.

We are in a similar situation with permanent magnets. The EU uses about 17,000 tonnes of permanent magnets per year but produces only 1,000 tonnes. By 2030, demand should reach 35,000 to 40,000 tonnes per year.

 

Safeguarding the green and digital transition from geopolitics

 

By turning a blind eye to our strategic dependencies, we are leaving the success of the green and digital transition at the mercy of geopolitics. We are also accepting that this transition relies on mining and production practices that do not necessarily correspond to our standards and values.

The EU has the opportunity to increase its industrial capacities throughout the whole value chain and thus cater for its own needs, at least partially. However, our goodwill and intentions will not be enough.

 

Exploring all possibilities

 

Last year, I tasked the European Raw Materials Alliance (ERMA) with identifying, as a matter of priority, the challenges related to the rare earth global supply chain and proposing specific actions to diversify the EU's supply chains.

The Alliance has already identified more than 10 industrial projects in Europe that would require an investment of 1.7 billion euros. If implemented, they could meet up to 20% of our needs by 2030. This is an ambitious step towards greater resilience.

Access to finance remains a challenge but there is no alternative: we must keep up the work, alongside public authorities and private partners, to pool the financial resources that are needed for such investment.

Let's also ensure – including through regulatory action - that the principles of circular economy remain at the heart of the EU's rare earth and permanent magnet value chains.

Again, the Swedish example mirrors the unblemished willingness and energy of the European industry to act and to innovate.

Only collectively will we succeed in transforming ourselves while increasing our resilience along the value chains. What we have achieved so far should give us all the confidence it takes to spring into action!