REPowerEU to significantly accelerate clean energy transition in Europe
In late spring 2022, the European Commission presented the REPowerEU to accelerate clean energy transition and increase Europe’s strategic autonomy in energy as a response for Russia’s invasion of Ukraine. In short, the plan proposes actions to save energy, produce European clean energy and diversify EU’s energy supplies. With Member States having agreed on their position, the plan takes a major step forward towards its approval and implementation.
Investments in energy
The REPowerEU plan goes in line and in some cases exceeds the proposed targets of EU’s Fit for 55 package. One key target outlined in the REPowerEU plan is the increase of EU’s 2030 renewables target from 40% to 45%. To achieve this, the plan targets solar energy and renewable gases including hydrogen and biomethane. The EU Solar strategy aims to bring online over 320 GW of solar photovoltaic by 2025 and reach almost 600 GW by 2030.
Summary of proposed REPowerEU actions:
Moreover, the plan has actions to increase EU’s biomethane production to 35 billion cubic meters by 2030. To achieve this, 37 B€ in investments will be co-financed via EU’s financing instruments in Common Agricultural Policy, Connecting Europe Facility, Cohesion Policy and Recovery and Resilience Facility.
Renewable hydrogen driving green transition
The REPowerEU plan targets to increase EU’s domestic renewable hydrogen production to 10 million tons by 2030 whilst also increasing the renewable hydrogen imports to 10 million tons. To achieve the hydrogen goals, EU has to utilize its R&I funding instrument Clean Hydrogen Joint Undertaking (JU), Important Projects for Common European Interests framework, as well as national structures. One important project type funded by Clean Hydrogen JU are flagship Hydrogen valley projects where hydrogen market development to dedicated geographical areas will be supported. The next call for the Clean Hydrogen JU projects is expected to open in January 2023.
Hydrogen plays multiple roles in green transition. The quickest one to implement is the decarbonization of hard-to-abate industrial processes. For instance, most of the large steel manufacturers have plans to decarbonize their process by utilizing hydrogen, and the same applies to e.g. refineries and other chemical processes. Additionally, hydrogen has a potential to play a massive role in balancing the electricity grid. In particular, when used with intermittent electricity sources, it is possible to store electricity in the form of hydrogen and utilize it in industrial processes or convert it back into electricity at another time. This will require large hydrogen storage facilities, which are still in piloting phase, but will become reality in the upcoming decades.
EU has a clear strategy to support investments in hydrogen projects. Mid-September this year, the President of the European Commission Ursula von der Leyen published the plan to direct Innovation Fund resources into building a future hydrogen market through a dedicated hydrogen bank. This mindset and aim will hopefully speed up the rollout of commercial and industrial deployment of hydrogen technologies in Europe.
Scaling up sustainable industry
Besides energy supply, EU industry needs to advance its green transition goals. The targets stated by the plan focus on electrification, energy efficiency and uptake of renewables to allow industry to save up to 35 bcm of natural gas by 2030. EU has laid out investments to speed up the industry uptake of the renewable options. The key EU funding instrument to be utilised for large-scale demonstration projects of innovative low-carbon technologies is Innovation Fund.
The 2022 Innovation Fund has 3 B€ budget for front loading the industrial decarbonisation. The call for large-scale projects is expected to open in early November. Senior Manager and team leader for the Industrial Investments team Jani Peurakoski says: “We applaud for the active risk sharing from the EU and expect Innovation Fund to accelerate the green transformation. While EU has ambitious goals to decarbonise the economy and drive the energy independence, the implementation of the new technologies for energy production will take several years. Innovation Fund is channelling back the Emission Trading System (ETS) funds from established industries to new projects, facilitating investment decisions, making these essential investments possible.”
Financing and implementation of REPowerEU
EU instruments implementing the
All in all, the REPowerEU plan requires 210 B€ of additional investments by 2027 to enable and speed up the transition. The national Recovery and Resilience Plans function as key investment channels for the plan and Member States are expected to update their national Recovery and Resilience plans to include the REPowerEU priorities. The Member States will be able to use the remaining RRF loans that have not been utilised before. In addition, Commission has proposed auctioning 20 B€ worth of ETS allowances to finance the activities.
With Council of the EU’s agreement on its REPowerEU position, the plan has taken a major step forward towards action, but there are still some key questions that need to be solved. The update of national recovery plans will take some time. Moreover, Council has proposed some key changes to financing of the plan as instead of auctioning the 20 B€ worth of ETS, the Council proposes to utilise Innovation Fund (75%) as well as frontload ETS allowances (25%) not to disrupt the functioning of ETS system. For the use of Recovery and Resilience Facility (RRF) loans that have not been utilised, the Council states that Member States have time to submit their loan requests until the end of August 2023. The coming months will shed more light into the implementation of REPowerEU.
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