McKinsey has published a new report showcasing how an ambitious roll-out of heat pumps and solar panels could contribute to the creation of 2 million jobs across Europe by 2030.
- Responsible for 35% of the EU’s emissions, decarbonisation of the built environment will play a critical role in the net zero economy.
- One of the most effective ways to address building heat consumption and energy efficiency is the deployment of solar and heat pumps.
- Widespread deployment of these technologies would provide emissions and economic benefits.
The report pinpointed a major opportunity to accelerate EU energy autonomy while creating domestic supply chains and high-growth new industries. For example, McKinsey said it expects that an ambitious roll-out of heat pumps and solar panels could contribute to the creation of 2 million jobs across Europe by 2030. Bringing heat pump manufacturing in-house could also represent a €57 billion EU industry by 2030.
The report, Refurbishing Europe: Igniting opportunities in the built environment, found that Europe has a shortage of 1.6 million qualified personnel for the forecasted rate of insulation, heat pumps, or solar panel installation and meeting its decarbonisation targets would require 132 new heat-pump factories producing 100,000 pumps a year.
Yet, with the built environment responsible for 32% of natural gas consumption, it must be transformed to enable the region’s decarbonisation targets to be met and to support its own energy security, let alone the potential economic benefit.
The built environment is a particular challenge
Not only would bringing heat pump manufacturing in-house potentially represent a €57 billion EU industry by 2030, but it could help achieve decarbonisation targets across the board. Today buildings represent around 35% of Europe’s emissions, so addressing the reuse of heat could be a significant shift.
The EU has embarked on a large-scale transformation of its economies. Decarbonisation targets and climate policies (such as Fit for 55 and RePowerEU) require that emissions reduce quickly in a short time. But the built environment still represents a significant challenge to effective decarbonisation.
Achieving EU targets would also require 15 times the current rate of difficult-to-achieve deep renovations, and one and a half times the current rates of rooftop solar installation. The issue of retrofit has been a challenge since discussions of building efficiency began in earnest.
The analysis showed that Europe’s building stock is disproportionately old and inadequately insulated, with 53% of dwellings rated ‘low insulation’, or poorly insulated. Achieving EU decarbonisation targets would therefore require 103 million unique installations between now and 2030.
Bram Smeets, partner at McKinsey, said: “Low-carbon buildings not only represent an opportunity to create new industries and supply chains but also to dramatically lower energy costs for consumers. Heat-pump adoption, rooftop solar installations, and insulation improvements could each individually reduce household energy bills by 30 to 40%. Further, heat pump payback periods could fall to nine to ten years and solar payback periods as low as five to nine years by 2030, with additional reductions as electricity costs are reduced.”
Europe is still over-reliant on international supply chains
The report revealed that the EU is overreliant on other parts of the world for rooftop solar panels and heat pumps, with China supplying 98% of some solar components, creating an opportunity to increase its energy autonomy by expanding domestic supply chains. It also showed that the EU currently has insufficient local materials, manufacturing capabilities and skilled labour to meet its decarbonisation targets.
Gustav Bolin, associate partner at McKinsey, said: “Creating new European supply chains in home installations would not only help meet EU climate targets but create new business opportunities from production and assembly to distribution and installation. Our analysis indicates there is a potential €300 billion addressable market for distribution and installation services, and green financing could be worth over €300 billion a year by 2030. Yet building an EU supply chain will require a major upskilling of Europe’s workforce. Decision-makers could also consider incentive mechanisms such as subsidies, carbon tariffs on building components, or including ESG in procurement criteria.”
The report called for a mass retraining and transitioning of workers from fossil-based industries, financial incentives from governments to scale supply and lower the cost of green technologies, and major power grid expansion to support household electrification.
It also urged private investment to spur energy-efficient home improvements among consumers, more climate-friendly recycling and disposal of material removed in renovations, and the decarbonisation of insulation manufacturing processes.
Five key drivers to catalyse change in the market
The first challenge is to upskill the workforce. This would involve retraining and upskilling workers from fossil-based industries to accelerate the green transition. It would also help in creating efficient ways of working and multi-skilled crews could comprise all energy upgrade roles from insulation installers to electricians.
Unsurprisingly, the second suggestion is to set appropriate incentive mechanisms to drive change. This could be done by setting state incentives to scale up supply chains and cut the cost of new technologies from tax cuts and reduced-rate loans to carbon tariffs on components and factoring ESG into public procurement criteria.
One of the requirements to effectively scaling up a new industry lies in attracting financing and private capital. This could include private financing mechanisms to boost energy-saving, from novel offerings to help homeowners invest in energy efficiency to bank loans paired with energy efficiency advisory services.
One driver that seems to be the same across all energy sectors that are part of the low-carbon transition is the importance of investing in grid infrastructure. Major investment in new transmission and distribution lines is required to support structural changes to the grid and increases in power demand, from grid-connected rooftop solar panels to extra demand from millions of heat pumps.
Finally, and again a common call across sectors, is the importance of creating net zero and circular supply chains. In this case, it would mean a coordinated effort to optimise the recycling and disposal of gas boilers and other materials removed in renovations and to create net-zero production processes for new insulation materials.