Players from across the renewable energy sector praised the European Union's attempt to rival the US Inflation Reduction Act with a stimulus package that aims to preserve and expand Europe's clean-tech industries and prevent investor flight.
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European lawmakers have raised concerns about the potentially market-distorting effect of the IRA, the US government's $369 billion climate and energy law. The historic legislation contains billions of dollars in tax credits for clean energy and low-carbon technologies over the next decade along with incentives for US-based manufacturing.
But the EU's Green Deal Industrial Plan, announced Jan. 17 by European Commission President Ursula von der Leyen, represents "a conscious decision to emulate...rather than challenge" the IRA, according to Pierre Tardieu, chief policy officer at lobby group WindEurope.
"This is exactly the right approach," Tardieu said, adding that the policy is "not coming out of a vacuum," but is instead a logical extension of REPowerEU, the bloc's strategy for ending its dependence on Russian gas and supporting technologies that accelerate the energy transition.
The new industrial plan features legislation to speed up permitting for clean-tech production sites in Europe, as well as measures to simplify state-aid rules and provide subsidies to European manufacturers.
Analysts say it could help reignite Europe's clean-tech prowess and bring capacity back to Europe from historically lower-cost manufacturing centers in Asia and elsewhere.
"There is no doubt that the European response to the Inflation Reduction Act is going to have...a material positive impact for the entire industry," Mads Nipper, CEO of Denmark's Orsted, one of the world's largest wind farm developers, said on a Jan. 20 investor call.
Clean-tech manufacturing revival
Through the Green Deal Industrial Plan, von der Leyen plans to "make Europe the home of clean tech and industrial innovation." But for now, details beyond those in the EC President's speech at the World Economic Forum are scant.
Still, Dries Acke, policy director at SolarPower Europe, described von der Leyen's announcement as a "significant moment" for the European solar industry, which has lost the majority of its manufacturing activities to China in the last decade.
European wind turbine-makers such as Vestas Wind Systems and Siemens Gamesa Renewable Energy have also ramped down or mothballed domestic manufacturing facilities in recent years in favor of best-cost countries outside of Europe, according to Shashi Barla, director and head of research for renewable energy at consultancy Brinckmann.
"The Green Deal Industrial Plan will reverse this trend," Barla said in an email.
Siemens Gamesa, which last year announced a 10% reduction of its workforce in Europe, welcomed the EC's new strategy. The REPowerEU targets require 40 GW of new wind capacity each year, according to a company spokesperson. That compares with just 15 GW installed in 2022.
"This is a very large market and will require additional production capacities," the spokesperson said in an email.
A key pillar of the Green Deal Industrial Plan is a Net-Zero Industry Act, which will simplify and fast-track permitting for new clean-tech production sites. The announcement shows the EU is heeding the industry's warning calls, according to Andreas Becker, head of regulatory affairs at German wind turbine-maker Enercon.
"Now, as programs are shaped, there is a unique opportunity to create a new European industrial policy that keeps critical technologies in Europe," Becker said in an email.
However, analysts at Barclays caveated some of the market optimism, saying the EU cannot directly replicate the IRA given new wind and solar projects are built on an unsubsidized basis in Europe.
"An EU IRA just focused on funding wind turbine components and new solar panel manufacturers will put European renewable developers in the same position they are today (or worse if panels and turbines are more expensive), reaping low returns on their European investments," the analysts said in a Jan. 18 note.
'Big lure for European companies'
EU leaders will meet for an extraordinary summit Feb. 9 to discuss the bloc's response to the IRA. An EU-US Inflation Reduction Act Task Force also continues to try to find ways to resolve the trans-Atlantic spat.
The EU's concerns center on the IRA's financial incentives and lack of spending caps for subsidies. European lawmakers also claim that the domestic content requirements are "clearly discriminatory" and in breach of World Trade Organization rules.
Some of what the EU is arguing is "wrapped up into wider anxieties around the energy crisis," according to Sarah Jackson, policy adviser for trans-Atlantic diplomacy in think tank E3G's Berlin office. "The big fear is deindustrialization and the EU not being seen as a leader in the clean energy future."
The IRA served only to exacerbate these fears. Belgian Prime Minister Alexander De Croo recently attacked the US for using the legislation "in a very aggressive way to attract investment."
Officials from several US states have reportedly been touring Europe in recent months to try to lure companies to America, according to a Jan. 24 article in The Financial Times.
On the ground, market players see it slightly differently, with some of Europe's largest utilities, clean energy companies and component manufacturers heaping praise on the IRA.
Ignacio Galán, executive chairman of Spanish green energy giant Iberdrola, said in October 2022 that the law meant the incentive to invest in renewables was now greater in the US than in Europe.
Meanwhile, German power producer RWE described it as a key driver in its decision to spend $6.8 billion to buy Con Edison Clean Energy Businesses and deepen its US footprint.
"[Companies] love the fact that [the IRA is] very long term," said Lucas Ferhani, an analyst at Jefferies, pointing to the 10-year tax credits contained in the US legislation for industries such as renewable power, electric vehicles and advanced manufacturing. "It's the first time potentially we have a decade of visibility."
Still, much of the positive noise remains just that, and it is difficult to know how much of it is just European companies "making a big fuss" to try to get more money from the EU, according to Mary Hellmich, an analyst on international climate policy and trans-Atlantic climate cooperation at European think tank Adelphi.
"[The IRA] is going to be a big lure for European companies to make US investments," Hellmich said in an interview before the Green Deal Industrial Plan was announced. By coming out in praise of the US legislation, companies are "doing a good job of getting the attention of EU policymakers."
S&P Global Commodity Insights reporter Alex Blackburne produces content for distribution on Capital IQ Pro.