Is it time for Europe's industry to 're-regionalize'?

Is it time for Europe's industry to 're-regionalize'?

November 2, 2023

The energy transition presents a unique chance for Europe to revitalize its industrial footprint

Europe is a pioneer and global leader in renewable energy production. Its experience, expertise and location make it an excellent hub for all forms of green energy. After decades of gradual deindustrialization, this is crucial for Europe’s industry, which now faces a challenging transformation to achieve net zero. This transformation represents a unique chance for industrial 're-regionalization' – the establishment of new industrial hubs. Coastal areas in particular can become valuable 'landing ports' for low-cost green energy to power industrial activity. But to achieve this, Europe must redesign both its energy and industrial infrastructures.

Image of wind energy storage base
"A strong European industry acts as a key driver for economic growth, employment and technological advancement."
Portrait of Torsten Henzelmann
Senior Partner, Managing Director Central Europe
Frankfurt Office, Central Europe

The energy crisis of 2022 may have been triggered by Russia’s war against Ukraine, but it merely highlighted longstanding issues in Europe’s energy and industrial landscape. The continent has become overly dependent on imports of non-renewable energy, resulting in much higher energy prices than other regions. To compound the issue, the promise of lower energy costs and tax incentives announced in the US Inflation Reduction Act has already prompted some multinationals to downsize their European operations.

This shift of industry away from Europe isn’t entirely new: deindustrialization has been taking place in Europe for decades. While China’s share of global manufacturing output has nearly quadrupled in the last 20 years, Europe’s has declined by more than a third.

Now, with the energy transition underway, Europe must ensure this trend doesn’t accelerate. A strong European industry is vital for the region, acting as a key driver for economic growth, employment and technological advancement.

Transforming global energy supplies

Electrification and green molecules, such as hydrogen made from renewable sources, are key to more sustainable industry. Decarbonizing a wide variety of processes will have a massive impact on international energy supplies. Electricity demand in Europe is projected to increase by 80% by 2050. Hydrogen demand could leap from around 1,000 petajoules today to approximately 4,000 by 2050.

"Re-regionalization offers a major opportunity for Europe to tap into the new green economy and revitalize its industry."

Of course, this requires a major upscaling of clean energy production. Within Europe, the focus will be on offshore wind from the North Sea, onshore wind in mainland Europe, solar around the Mediterranean and hydropower in northern Scandinavia. But the continent will still need to import energy, particularly hydrogen, which enjoys better production conditions outside Europe. As such, new ‘landing ports’ of renewable energy will emerge around Europe’s coastlines, where offshore wind energy and imported electricity and hydrogen come ashore. This will signal a shift to a more concentrated energy system, with a strong focus on these renewable landing ports.

Of course, to facilitate this shift, utilities companies must invest in the required infrastructure, contracts and market mechanisms that can ensure a secure supply of affordable green energy. These are fundamental factors in safeguarding the competitiveness of European industry.

A new opportunity for industrial companies

For energy-intensive industries like steel, cement, chemicals and food, re-regionalization represents a major opportunity. Transport of renewable energy over long distances is costly and security of supply for large quantities of green energy may be tough to guarantee far away from landing ports. Energy-intensive industrial companies must therefore find a new balance between affordable green energy and other production costs, as well as ensuring easy access to end-markets and their ecosystem of suppliers and talent. Establishing new industrial hubs offers a highly promising solution.

What’s more, re-regionalization can benefit the entire continent and not just the areas that will house green energy landing ports. Re-regionalization frees up much-needed grid capacity to boost higher-value economic growth and accelerate the energy transition. Inland regions can gain from this by focusing on attracting and developing less energy-intensive industries such as automotive or pharmaceuticals.

To achieve such an ambitious shift, we call for a ‘smart industrial policy offensive’ by industry, suppliers and government. For more details on the steps involved in this, and further information about re-regionalization, download the full report below.

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Further readings
Portrait of Torsten Henzelmann
Senior Partner, Managing Director Central Europe
Frankfurt Office, Central Europe
+49 69 29924-6303