EU Doubling Down On Green Industrial Policy

In a bold move to drive Europe’s green transition, the Commission’s Clean Industrial Deal (CID) aims to increase the competitiveness of European industries while accelerating their decarbonization. At its core, there is a push to cut energy costs for energy-intensive sectors, with PPAs for clean power recognized as a critical instrument.

A guarantee scheme has already been announced to support the adoption of PPAs (if you have a premium Pexapark account read more here), but recent leaks reveal that the Commission is exploring a second aid instrument to further bolster the initiative. This potential new measure underscores the EU’s ongoing commitment to green industrial policy, even as it navigates the complex currents of geopolitical instability.

The new instrument would subsidize the cost of large consumers providing ‘clean flexibility’ and reducing CO2-intensive electricity consumption. This would involve demand-side load shifting, storing clean electricity to use when needed, or investing in baseload-like low-carbon generation like biomass.

While innovative PPA procurement from new clean energy sources is at the heart of the proposed scheme, the key goal is to catalyze consumption flexibility. The initiative clearly signals support for Demand-side Response (DSR) and Battery Energy Storage Systems (BESS) as complementary elements of a clean electricity-based procurement strategy.

The clean flexibility instrument is meant to provide financial aid to support industrials with the extra costs associated with i) adjusting their consumption profile ii) signing hourly-matching clean energy PPAs.

As a starting point, the idea for the competition-based instrument is to have the following features:

• Each Member State would organize an auction, where industrial corporates would place a bid in EUR/MWh for the level of aid requested, and the amount of electricity consumption they aim to cover. Depending on the allocated budget, support would be allocated to the lowest bids upward (competitive pay-as-bid design).

• Participants would need to commit to consume 100% clean electricity at any time for a 15-year period. This could be achieved through 24/7 hourly-matched PPAs, and/or a shift of consumption when there’s excess clean electricity to the grid.

• The PPAs would need to be linked to new installations, or projects commissioned after a specific set date, in order to carry additionality.

• It is understood that Financial PPAs would be the preferred settlement structure for the PPAs, to avoid reducing liquidity in the wholesale markets.

• The scheme would be open to all industrial corporate segments, with all types bidding in the same auction.

In a confidential discussion hosted by an industry body, the 100% hourly match with clean electricity requirement for 15 years sparked the most debate. On the one hand, some participants claimed that the 100% requirement is too ambitious. From an industrial’s point of view, the challenges raised were around the notably high costs of doing so. At the same time, the 15-year commitment may not align with existing practices, which mostly centers around short- and medium-term procurement cycles, potentially limiting attractiveness to some players.

From a seller’s point of view, some developers stated the challenges of doing so based on the fact that hourly certificates are not a developed practice in the EU yet, and the portfolio challenges of matching renewables profiles with industrial demand.

‘An overly restrictive interpretation of 100% hourly matching straight from the start could kill the scheme before it kicks-off,’ was noted by a participant. A suggested alternative mentioned was a progressive increase overtime, which would reflect the current realities of the system.

A common counterargument to this criticism was that the rules aim to provide a clear direction for the industry’s future – encouraging innovation from both the generation side (sellers) and the demand side (buyers). Relaxing the requirements may risk missing the point of the initiative.

At the same time, even though the scheme design is in infant stages, some notable uncertainties lay on the valuation cost of clean flexibility in terms of EUR/MWh – costing in the available tools of 100% hourly matching PPAs, DSR and BESS. Particularly in terms of valuing DSR, members of the industry body wondered whether the industry has methodologies to get a price valuation for demand-side load-shifting.

Lastly, there were also some unanswered questions vis-à-vis the methodology of the reference price of the auction, which is meant to be set with the cost of non-clean consumption as a baseline. Members of Solar Power Europe wondered whether the spot prices would be used as a reference, and whether the baseline prices would also factor in CO2 prices.

The timeline for follow-up clarity is unclear, as the discussion so far is early-stage and based on leaked documents. Even in case the scheme doesn’t fully materialize, it underscores the EU’s ongoing commitment to green industrial policy and reflects the growing momentum behind 24/7 PPAs, along with the integration of DSR and BESS into corporate electricity procurement strategies.