The impact of Covid-19 on the critical role of small and medium enterprises (SMEs) in electricity sector decarbonisation

Small and medium enterprises play a crucial role in decarbonisation efforts in the electricity sector of the EU. How they were affected by the Covid-19 pandemic is summarised in this blog article by Elena Beianu, Pénélope Nabet, Pierre Serkine of EIT InnoEnergy.

Decarbonising the electricity generation is crucial in allowing the EU to achieve climate neutrality by 2050, since this sector contributes around 1/3rd of all energy-related greenhouse gas (GHG) emitted in the EU[1]. Rapid and continued innovation in novel clean energy technologies is required across all areas of the energy system in order to contribute to the EU’s decarbonisation efforts. Providing two out of three jobs in the EU and accounting for more than half of the EU’s GDP[2], SMEs create outstanding value for the market and for society and are an essential component of the wealth of our continent. In light of the unprecedented crisis caused by the COVID-19 pandemic, their resilience is critical to mitigate the socio-economic consequences of this crisis. Even prior to the pandemic, SMEs faced barriers, such as difficulty in identifying investors for innovative energy solutions and reluctance from investors to put down capital to support the energy transition. In the current context, these issues are likely to be exacerbated. Business as usual cannot define the way in which we continue to innovate and invest.

The European Union and the Member States have massively invested in the last decade in Research & Development in clean energy with over EUR20bn of public investment, fostering the emergence of a dense ecosystem of ventures and innovative SMEs. When negotiating the Union’s Multiannual Financial Framework for the recovery, European and national decision-makers must ensure that the progress made so far has not been in vain. Rescuing innovative SMEs active in the field of sustainable energy and currently at risk due to the economic crisis is critical in order to safeguard Europe’s entrepreneurial culture, defend its industrial future and ensure that European Leaders’ commitment to climate neutrality by mid-century remains achievable. Europe must leverage its innovative SMEs to ensure the success of the recovery, keeping in mind that 470Bn€ annual investments are required to deliver the green transition at a pace compatible with the Union’s climate targets[3].

The lack of support during this crisis would heavily impact Europe’s entrepreneurial culture. If the European Union fails to rescue its innovative SMEs, entrepreneurs will not feel encouraged to start new businesses in Europe. This is especially crucial in the clean energy sector as it tends to be capital-intensive and requires patient capital to consolidate a business (about ten to fifteen years before full-scale commercial deployment). Moreover, the EU’s industrial future could also suffer without appropriate investments and policy support. Innovative SMEs can help the EU achieve global leadership in future strategic value chains, such as renewable energy, hydrogen, storage technologies or low-emission mobility solutions.

Europe can turn these challenges into opportunities and embrace a new, inclusive and resilient way of investing and innovating. The EU, through the proposed “Next Generation EU” recovery plan, has already shown its commitment to support the Member States to recover, kick-start the economy and help leverage private investment. These investments must also be aimed at rescuing innovative SMEs, especially in the clean energy sector, and the focus should be placed on innovations that are close to the market in order to achieve quicker socio-economic impact, as well as support the long-term goal of achieving climate neutrality by 2050.

Crises know no boundaries. Europe can turn the current challenges into opportunities. We must ensure that the European SMEs are protected in these times in order to strengthen its competitive advantage, protect its entrepreneurial culture and defend its industrial future.

[1] https://ec.europa.eu/energy/data-analysis/energy-statistical-pocketbook_en

[2] European Commission, An SME Strategy for a sustainable and digital Europe (2020)

[3] Figures from the European Commission, SWD(2020) 98 final