BusinessEurope messages on electrification

Introduction

The recent energy crisis has intensified the competitive pressure on European businesses, particularly in the hard-to-abate sectors. High and volatile energy prices, which are projected to remain higher than those of our major competitors over the coming decades1, are one of the key factors contributing to the competitiveness decline. This puts at risk Europe’s ability to invest in the transition to a decarbonised economy. A competitive and future-proof European economy can only be built on a competitive, secure and decarbonised energy system.

All key net-zero outlooks, including Compass Lexecon study commissioned last year for BusinessEurope show that reaching climate neutrality by 2050 requires a deep electrification of our economy, with renewable and low-carbon molecules playing a complementary role to electricity-based solutions when they are not feasible or competitive.

An electrified system with a higher share of decarbonised sources, necessary flexibility and baseload power can bring lower and more stable prices for consumers3. Greater electrification also represents a strategic opportunity to reduce Europe’s dependence on fossil fuel imports and shield our economy from future energy price shocks and geopolitical disruptions.

However, the electrification of our economy has been stagnating. The European electrification rate has remained at around 22% for over 10 years while it is increasing rapidly in Asia, especially in China thanks to inter alia globally competitive electricity prices.

Further policy measures are urgently needed to ensure energy affordability, remove bottlenecks and unlock and accelerate the electrification of our economy. The challenge of the electrification plan will be to ensure coordinated planning and investment across all segments of the system: generation, infrastructure, flexibility, and demand. In turn, businesses need visibility on the access to competitive, secure and decarbonised electricity to continue operating, plan and to roll-out investments and shape their decarbonisation trajectories.

The upcoming policy initiatives should therefore provide a coherent, efficient and predicable framework to make electricity and electrification affordable and globally competitive, derisk investments and support the rollout of underlying infrastructures and related value chains that will be needed to sustain electrification. In this paper we highlight seven key policy levers to increase the electrification rate in Europe.