Leveraging China's Expertise to Accelerate Europe's Energy Transition and Sustainable Growth

Introduction

The mission letter from Ursula von der Leyen, President of the European Commission, to Dan Jorgensen, Commissioner-designate for Energy and Housing, outlines the critical and important role he will play in driving Europe’s energy transition, decarbonization, and housing reform.

As Europe strives to achieve its 2030 climate targets and 2050 net-zero goal, Jorgensen is tasked with overseeing energy security, boosting renewable energy, modernizing infrastructure, and addressing affordable housing shortages.

The mission emphasizes delivering sustainable solutions through international partnerships, including leveraging China’s expertise in renewable energy technologies, grid infrastructure, hydrogen production, and sustainable construction to accelerate Europe’s green transition and ensure social equity.

Establishing a well-considered strategic cooperation with China in selected areas presents a unique opportunity for Europe to accelerate its green transition, enhance energy security, and address pressing housing challenges. As the world's leading producer of solar panels, wind turbines, and energy storage technologies, China offers the scale, cost efficiency, and expertise needed to meet Europe’s ambitious 2030 climate targets and 2050 net-zero goals. Additionally, China’s advancements in hydrogen production, carbon capture, and prefabricated construction align with Europe’s goals for decarbonization and sustainable housing development.

By strategically partnering with China in these key sectors, Europe can leverage cutting-edge technologies, boost infrastructure investments, and lower costs while ensuring faster deployment of renewable energy and sustainable housing projects. This cooperation could bridge critical supply chain gaps, foster innovation, and allow Europe to lead globally in the fight against climate change, while ensuring a resilient and affordable energy system for its citizens.

Examples of potential fields of cooperation

Below examples of potential fields of cooperation, in which Europe could choose strategic and well considered cooperation with China, using selected technologies and huge knowledge base that The Middle Kingdom has to offer.

1. Energy Security and Transition: Renewable Energy

What:

Europe is aiming for climate neutrality by 2050, with intermediate goals of 55% reduction in emissions by 2030. The EU’s energy transition plan includes increasing renewable energy sources like solar, wind, and hydrogen, and drastically reducing fossil fuel dependency, particularly from Russia.

How China Can Contribute:

a. Solar PV Leadership

China leads the solar photovoltaic (PV) industry, controlling 75-80% of the global supply chain from polysilicon production to module assembly. As Europe aims to install 600 GW of solar capacity by 2030, China’s low-cost, high-scale production will be critical in supplying the necessary solar technology.

• Metric 1: In 2023, China produced 400 GW of PV modules, more than the entire world’s installation capacity for that year.
• Metric 2: China’s polysilicon production reached 840,000 tons annually, which accounts for 60% of global capacity. Europe's production is negligible in comparison, making it dependent on imports from China.

b. Wind Power Expertise

China has the world’s largest installed wind power capacity at 328 GW (as of 2022), surpassing Europe’s 220 GW. With Europe’s goal to reach 450 GW of wind power by 2030, China's wind turbine manufacturers such as Goldwind and MingYang can play a key role.

• Metric 1: Offshore wind, a European priority, is where China’s expertise can be crucial. China installed 30 GW of offshore wind capacity as of 2022, far ahead of global competitors.
• Metric 2: European wind power needs to grow by 30 GW per year through 2030, of which 10 GW annually must come from offshore installations. China’s ability to deliver turbines at 30% lower cost can accelerate Europe’s wind power growth.

c. Hydropower and Energy Storage Integration

China is also a world leader in hydropower, with 356 GW of installed capacity, and energy storage technologies. Europe’s focus on balancing intermittent renewable energy sources like wind and solar requires robust energy storage solutions, an area where China excels.

• Metric 1: Europe’s storage demand is expected to rise to 200 GWh by 2030, and China’s annual lithium-ion battery production is currently at 1 TWh, more than capable of meeting a substantial share of Europe’s needs.
• Metric 2: By 2025, China aims to produce 1.3 TWh of energy storage, including battery and pumped hydro technologies, representing 40-50% of the global battery market. Europe's reliance on these technologies is vital to balance grid supply and demand.

When:

China can begin ramping up exports of PV and wind technologies in 2024, with ongoing deliveries over the decade. Immediate integration of Chinese batteries and storage systems could help stabilize Europe’s renewable energy grid by 2026, reducing Europe’s dependence on natural gas for peak load management.

Where:

Countries like Spain, Italy, and Greece, which receive high solar radiation, could benefit most from increased solar installations. Offshore wind development in North Sea countries like Denmark, the Netherlands, and the UK could see accelerated growth through Chinese turbine partnerships.

Who & Whom:

• European Stakeholders: Siemens Gamesa (Germany), Vestas (Denmark), and Iberdrola (Spain).
• Chinese Partners: LONGi Solar (PV), Goldwind (Wind Turbines), CATL (Battery Storage), and China State Grid for grid integration.

Why:

Meeting Europe’s 55% emissions reduction target by 2030 requires massive renewable energy deployment. China’s renewable energy manufacturing scale, combined with lower costs (20-30% cheaper for both solar and wind), will help Europe accelerate its energy transition without inflating costs.

Metrics to Consider:

• Solar installation: Europe needs to install 300-350 GW of additional solar capacity by 2030. Chinese manufacturers can provide 80-90% of these modules.
• Wind energy growth rate: To meet targets, Europe needs 30 GW of wind capacity per year, which China’s wind manufacturers can support at a cost advantage.
• Storage requirement: 200 GWh of energy storage will be necessary by 2030, and Chinese companies like CATL and BYD can meet this demand with their 1 TWh annual production capacity.

2. Grid Infrastructure and Electrification

What:

Europe’s transition to renewable energy requires significant grid modernization to accommodate intermittent energy sources like wind and solar. The mission outlines the need for expanded interconnection capacity, smart grids, and electrification of industrial processes and transport.

How China Can Contribute:

a. Ultra-High Voltage (UHV) Transmission Networks

China operates the largest UHV grid network globally, capable of transmitting electricity across thousands of kilometers with minimal loss. These UHV lines can efficiently transport renewable energy from production centers to demand centers, addressing a significant bottleneck in Europe’s transition.

• Metric 1: China’s UHV network spans over 55,000 km, handling more than 500 GW of power. Europe’s fragmented grid could benefit from UHV technology to move renewable energy across borders more efficiently.
• Metric 2: Europe needs to invest €584 billion in grid infrastructure by 2030, and UHV lines could reduce transmission losses by 30-50%, saving Europe €20-30 billion annually in energy waste.

b. Electrification of Industry and Transport

China leads in electric vehicle (EV) manufacturing, producing 60% of the world’s EVs and controlling 80% of global lithium-ion battery production. As Europe electrifies its transport sector, Chinese EV technology and batteries will play a crucial role.

• Metric 1: Europe aims to have 30 million EVs on the road by 2030, and China’s annual production of 4 million EVs as of 2023, with forecasts to reach 10 million by 2025, can meet much of the growing demand.
• Metric 2: Europe needs 2-3 million charging stations by 2030. China, with over 1 million public charging stations already installed, can provide technological and infrastructure expertise to accelerate Europe’s charging network expansion.

c. Smart Grid Technologies

China has invested heavily in smart grid technologies, utilizing 5G, AI, and IoT to manage energy flows, forecast demand, and optimize grid efficiency. Europe’s energy systems, which are moving towards higher renewable energy penetration, need these technologies to prevent blackouts and reduce peak load pressures.

• Metric 1: China’s smart grids have improved efficiency by 15-20% and reduced power outages by 50%, outcomes that could be replicated in Europe’s grids.
• Metric 2: The EU needs to invest €200-250 billion in smart grid technologies by 2030. China’s experience can reduce costs by 10-20%, leading to savings of €20-30 billion over the decade.

When:

UHV transmission line development can begin by 2025 in Europe, with phased expansions until 2030. Smart grid and electrification efforts should ramp up immediately, with significant infrastructure and EV adoption milestones by 2026.

Where:

Countries like Germany, France, and Italy will require significant grid upgrades to handle increasing renewable penetration. UHV lines can connect renewable-rich countries like Spain with industrial hubs like Germany and France. The electrification of transportation will be critical in Germany, Netherlands, and Scandinavia, where EV penetration is accelerating.

Who:

• European Partners: TenneT (Netherlands), RTE (France), National Grid (UK), and utilities like EDF.
• Chinese Partners: State Grid Corporation of China (SGCC), China Southern Power Grid, and BYD for electrification and EV technologies.

Why:

Europe’s shift to a net-zero carbon economy relies on expanding grid capacity and improving the efficiency of electricity transmission. China's proven technologies and extensive grid-building expertise can meet Europe’s infrastructure demands faster and at lower costs than domestic efforts alone.

Metrics to Consider:

• Europe’s €584 billion grid investment needs by 2030, with 15% interconnection goals across EU member states.
• Reduction in transmission losses by 30-50% through UHV technology, translating into annual savings of €20-30 billion.
• 30 million EVs on European roads by 2030, supported by China's 80% share of the global battery market.

3. Hydrogen and Carbon Capture Utilization and Storage (CCUS)

What:

The mission emphasizes hydrogen as a cornerstone of Europe’s energy transition, particularly for sectors that are hard to electrify, such as heavy industry and long-haul transport. Carbon capture and storage (CCUS) technologies are also critical for decarbonizing industries that emit high levels of CO2.

How China Can Contribute:

a. Hydrogen Production and Infrastructure

China is rapidly and with high focus, developing its green hydrogen capabilities, aiming to produce 1 million tons of green hydrogen annually by 2030. Europe’s hydrogen strategy targets 10 million tons of green hydrogen production by 2030 and will need international partners like China to meet its ambitious goals.

• Metric 1: Europe’s hydrogen consumption is projected to reach 20 million tons by 2030, with 10 million tons to be imported or produced in partnerships. China’s planned hydrogen production could supply 10-20% of this demand.
• Metric 2: By 2025, China’s hydrogen production costs are expected to fall to $2-3/kg, significantly below Europe’s current cost of $4-6/kg. This cost reduction could accelerate hydrogen adoption across Europe.

b. Hydrogen Infrastructure Investment

China is investing heavily in hydrogen infrastructure, with plans to build 1,000 hydrogen refueling stations by 2030. Europe needs 6,000 hydrogen refueling stations by 2030, and Chinese expertise in rapid infrastructure deployment could help Europe meet this target.

• Metric 1: The cost of developing Europe’s hydrogen infrastructure is estimated at €470 billion by 2050, and partnerships with Chinese firms could reduce these costs by 15-20%.
• Metric 2: China’s involvement could lower Europe’s total hydrogen infrastructure investment by €70-90 billion over the next three decades.

c. Carbon Capture Utilization and Storage (CCUS)

China has advanced significantly in CCUS technologies, with projects like Sinopec’s Qilu Petrochemical CCUS capturing 1 million tons of CO2 annually. Europe needs to capture 400 million tons of CO2 annually by 2030 to meet its climate goals.

• Metric 1: CCUS cost reductions driven by Chinese technologies could reduce the price of CO2 capture to $20-30 per ton, compared to current European costs of $50-70 per ton. This could lead to €30-50 billion in savings annually across Europe’s industrial sectors.
• Metric 2: Europe’s goal of capturing 400 million tons of CO2 by 2030 will require CCUS infrastructure investments of around €100 billion. Chinese companies could provide lower-cost solutions, reducing Europe’s infrastructure outlays by €10-20 billion.

When:

Hydrogen production and infrastructure projects could scale by 2025, with full integration into Europe’s energy system by 2030. CCUS technologies can be implemented across Europe’s industrial hubs by 2026, focusing on sectors like steel, cement, and petrochemicals.

Where:

Germany, the Netherlands, and Poland—Europe’s industrial heartlands—would benefit from hydrogen and CCUS partnerships with China. Hydrogen could also play a major role in transportation and logistics hubs in countries like France and Italy, which are prioritizing hydrogen for long-haul transport.

Who:

• European Partners: Air Liquide, Total Energies, Shell, and ArcelorMittal.
• Chinese Partners: Sinopec, China National Petroleum Corporation (CNPC), and PetroChina for CCUS and hydrogen.

Why:

Europe’s heavy industry and transport sectors cannot fully decarbonize without hydrogen and CCUS technologies. China’s advancements in both areas, combined with its ability to scale production and infrastructure, can help Europe achieve its 2030 and 2050 climate targets more cost-effectively.

Metrics to Consider:

• Europe’s €470 billion hydrogen infrastructure investment needs by 2050.
• Hydrogen cost reductions of 30-40% with Chinese involvement, lowering overall hydrogen production costs to $2-3 per kg.
• CCUS deployment reducing carbon capture costs by 30-50%, saving €30-50 billion annually across Europe.

4. Affordable Housing

What:

Europe’s housing crisis, exacerbated by rising costs and limited supply, requires significant public and private investment in affordable and sustainable housing. The mission emphasizes unlocking investment and utilizing innovative construction methods to meet the growing demand.

How China Can Contribute:

a. Prefabrication and Modular Construction Expertise

China is a global leader in prefabricated and modular construction, which can significantly reduce both the cost and time of construction. China built 15 million housing units annually during its peak urbanization phase, many of which used prefabricated technologies.

• Metric 1: Prefabrication reduces construction time by 30-50% and cuts costs by 20-30%, making it ideal for addressing Europe’s housing shortages. Europe faces a shortfall of 2.5 million affordable homes annually, and prefabrication could help close this gap.
• Metric 2: China’s prefabrication technology can reduce material waste by 30% and energy consumption in the construction process by 15-20%, aligning with Europe’s sustainability goals.

b. Investment in Affordable Housing

Chinese real estate developers and investment funds, such as China Vanke and others, have extensive experience in large-scale housing projects. These companies could co-invest in European affordable housing projects, potentially unlocking billions in new capital.

• Metric 1: Europe needs €350 billion in affordable housing investments by 2030. Chinese investment could reduce these costs by 15-20%, freeing up €50-70 billion for other infrastructure needs.

When:

Construction of affordable housing using Chinese prefabrication technology can begin by 2024, with major projects completed by 2027. Chinese capital investment in European housing can also scale up by 2025, helping to address the housing shortfall over the coming decade.

Where:

Urban areas in Germany, Spain, Italy, and France that are facing the most severe housing shortages would benefit from Chinese prefabrication technology. Prefabrication plants could be built in Eastern Europe to supply modular units across the continent.

Who:

• European Stakeholders: Bouygues (France), BAM Construct UK, Skanska (Sweden), and local housing authorities.
• Chinese Partners: China Vanke, China State Construction Engineering Corporation (CSCEC), and Country Garden.

Why:

Europe’s housing crisis requires rapid and cost-effective solutions, and China’s prefabrication technology provides a proven, scalable method to deliver affordable, sustainable housing at lower costs.

Metrics to Consider:

• 2.5 million affordable homes needed annually across Europe.
• €350 billion in affordable housing investment required by 2030.
• Cost reductions of 20-30% using Chinese prefabrication, cutting overall housing costs by €70-100 billion over the next decade.

5. Strategic Digitalization of the Energy Sector

What:

The mission letter emphasizes the need for digitalizing Europe’s energy systems to improve efficiency, resilience, and integration with renewable energy. The adoption of AI, IoT, and smart grid technologies will be critical to managing energy flows and demand-side response.

How China Can Contribute:

a. AI and Smart Grid Integration

China has deployed extensive smart grid technologies, utilizing AI and IoT to manage load balancing, predict energy demand, and integrate renewables. China’s 5G-enabled smart grids can optimize energy distribution and prevent grid instability caused by renewable intermittency.

• Metric 1: China's smart grids have improved energy efficiency by 15-20% and reduced power outages by 50%, achievements that Europe could replicate to manage its more intermittent renewable power sources.
• Metric 2: Europe needs to invest €250 billion in smart grid technologies by 2030. China’s experience could help reduce these costs by 10-15%, potentially saving Europe €30-40 billion.

b. Cybersecurity and Digital Infrastructure

China has invested heavily in securing its energy grid from cyber-attacks, a growing concern as Europe’s grids become more digitalized. Collaboration on cybersecurity solutions could ensure that Europe’s digital grids are secure from external threats.

• Metric 1: Europe’s cyber defense investment for its energy grids is projected to be around €50 billion by 2030. By integrating China’s cybersecurity solutions, these costs could be reduced by €5-10 billion, ensuring robust protection against attacks.
• Metric 2: Chinese smart grid technologies have allowed for a 5% reduction in energy loss, which, if applied in Europe, could lead to annual savings of €10-15 billion in grid efficiency improvements.

When:

Smart grid technology integration can begin immediately, with major rollouts by 2025-2026, significantly improving grid efficiency and resilience by 2030. Cybersecurity measures should also be implemented concurrently to protect critical infrastructure.

Where:

Regions with high renewable energy penetration, such as Germany, Denmark, and Spain, will benefit from immediate digital upgrades. Cybersecurity collaborations will be crucial in energy-intensive countries like France and Italy to protect nuclear and fossil fuel infrastructure during the transition.

Who:

• European Partners: Schneider Electric, Siemens, ABB, and European Network of Transmission System Operators for Electricity (ENTSO-E).
• Chinese Partners: Huawei, State Grid Corporation of China (SGCC), and Tencent AI Lab for AI-driven solutions.

Why:

As Europe moves towards a fully renewable-powered grid, smart grids and AI will be essential for optimizing energy flows, reducing costs, and ensuring resilience against cyber threats. China’s leadership in smart grid technologies can help Europe meet its 2030 digitalization goals.

Metrics to Consider:

• Europe’s €250 billion investment in smart grid technologies by 2030.
• Reduction of €30-40 billion in costs through Chinese smart grid technologies.
• Cybersecurity cost savings of €5-10 billion by integrating Chinese solutions.

General summary

China’s technological, industrial, and financial capacities make it a key partner for Europe in achieving its ambitious 2030 and 2050 goals in energy, housing, and industrial decarbonization. By leveraging China’s capabilities in renewable energy, grid modernization, hydrogen, CCUS, and digitalization, Europe can significantly accelerate its transition to a sustainable, resilient, and competitive economy.

Key Metrics Summary:

• Solar and Wind Energy: Europe’s 600 GW solar and 450 GW wind targets by 2030 will rely heavily on Chinese manufacturers, which can supply 80-90% of necessary technologies.
• Grid Infrastructure: Europe’s €584 billion grid investment by 2030 could see 30-50% reductions in losses, thanks to China’s UHV expertise.
• Hydrogen and CCUS: Europe’s €470 billion hydrogen investment by 2050 and 400 million tons of CO2 captured annually by 2030 will depend on China’s low-cost solutions, reducing costs by €30-50 billion annually.
• Affordable Housing: Prefabrication can reduce construction costs by 20-30%, cutting overall housing expenses by €70-100 billion over the next decade.

By creating strategic partnerships, China and Europe can co-lead the global fight against climate change, while building resilient energy and housing infrastructures. The metrics and figures underline the scale of opportunity and the mutual benefits of deepening collaboration in these critical areas.

Kjeld Friis Munkholm

www.munkholmconsulting.com

© 2024Kjeld Friis Munkholm. All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means without the prior written permission of the author