Swedish megabrand Ikea\u2019s affordable self-assembly furniture has made Scandi style the go-to look for homes, hotels and Airbnbs all over Europe. More than 30 million of its ubiquitous Poang armchairs, for example\u2014curious-but-memorable names also being an Ikea speciality)\u2014have been sold since launch in 1977, making it one of the most popular furniture products ever.\u00a0\u00a0<\/p>\n
But the company has another, less well-known claim to fame. Since 2009 it has invested over \u20ac4.2 billion ($4.9 billion) in renewable energy, which now provides 75% of the electricity used by the business to make, transport and retail all that furniture. \u201cToday, it turns out that we are also a mid-sized utility company, although to be honest that was not part of the strategy,\u201d deadpans Jesper Brodin, CEO of Ingka (the largest Ikea franchisee, responsible for 90% of group sales).\u00a0\u00a0<\/p>\n
It\u2019s only half a joke: if their output was sold on the power market, the 49 wind farms and 26 solar parks owned by Ingka do produce enough low carbon electricity to meet the needs of 1.47 million EU households.\u00a0\u00a0<\/p>\n
The investment has certainly paid off in carbon terms. The firm\u2019s CO2 emissions\u2014scope 1,2 and 3\u2014are down 30% since the Paris Agreement of 2015, while sales have grown by 24% over the same period. Yet what started out as a desire to do the right thing for the planet and the brand (68% of Ikea customers think that climate change is the most serious global challenge, says Brodin) has morphed into an unexpected source of competitive advantage.\u00a0\u00a0<\/p>\n
\n$4.9 billion<\/p>\n
Ikea\u2019s investment in renewable energy since 2009<\/p>\n<\/blockquote>\n
\u201cWhen we set out to invest, we were not sure that it would be smart from an economic point of view. But our energy bills are down 27% [from 2015] so we have saved a lot of money. Over a three-to-five-year period, renewables come out at about half the price [of fossil fuel generated power]. People think that renewable energy will come at a financial premium, but actually it\u2019s the opposite.\u201d\u00a0\u00a0<\/p>\n
After the Russian invasion of Ukraine caused a two-year spike in wholesale gas prices, a similar change of emphasis has occurred in Brussels. The EU Commission\u2019s latest plan for its carbon economy\u2014the Clean Industrial Deal, announced in February\u2014has dropped previous appeals to the collective consciences of business leaders to help save the planet, in favor of focusing on the competitiveness advantages of further adopting renewable power across the continent.\u00a0\u00a0<\/p>\n
Commission president Ursula von der Leyen has said that the deal will \u201ccut the ties that still hold our companies back, and make a clear business case for Europe\u201d.\u00a0\u00a0<\/p>\n
Alongside reforms to electricity and gas markets designed to cut energy costs, the Clean Industrial Deal aims<\/a> to mobilize \u20ac100 billion of EU funding to support low-carbon manufacturing, particularly in hard-to-abate industries like metals, chemicals and cement that rely on hydrocarbons for their highly energy-intensive processes. The Commission predicts the policy program will create over 500,000 new jobs, and ample opportunities for European businesses looking to carve a competitive, low-carbon niche.\u00a0\u00a0<\/p>\n
Green steel start-up Stegra is one such company. It has raised a total of \u20ac6.5 billion (including a \u20ac250 million grant from the EU innovation fund) to build a plant at Boden in the north of Sweden which will use 100% renewable energy to produce 5 million tonnes of homegrown \u2018green\u2019 steel per annum by 2030, with a carbon footprint 95% smaller than a traditional \u2018brown\u2019 steel plant.\u00a0\u00a0<\/p>\n
Stegra\u2019s process uses renewable power to generate hydrogen, which is then used not as a fuel but as a chemical reagent. Production will begin at a lower level in 2026, and despite a 25%-30% price premium over brown steel, it is already proving popular: the firm has forward-sold around 1.25 million tonnes\u2014half of its initial production target\u2014to customers eager to get in on the green steel ground floor.\u00a0\u00a0<\/p>\n
\u201cOur customers are planning ahead, they see that brown steel will eventually be more expensive than green steel once the full cost of carbon is included. They are not buying it for branding or marketing purposes, it\u2019s pure economics,\u201d says Henrik Henriksson, Stegra\u2019s CEO.<\/p>\n
High costs, big barriers\u00a0<\/p>\n
If von der Leyen\u2019s vision of secure, green growth is to be realized at scale for more companies, Europe needs to ramp up the transition to renewables significantly, at the same time as bringing down costs.\u00a0\u00a0<\/p>\n
By the end of 2023, Europe (excluding Russia) had 786 gigawatts<\/a> of installed renewable generation capacity, according to the International Renewable Energy Agency (IRENA). That\u2019s an increase of 79% since 2014, and the pace has continued since, with a record increase of 65.6 gigawatts<\/a> in the EU alone last year and another record predicted this year.\u00a0\u00a0<\/p>\n
However, it still leaves a long way to go to reach the EU\u2019s ambitious targets of 69% of electricity consumption and 42.5% of total energy coming from renewables by 2030. According to the European Commission\u2019s 2022 REPowerEU plan to end reliance on Russian fossil fuels, the EU would need to nearly double its capacity to 1,236 gigawatts to achieve this goal. Some estimates<\/a> suggest this will cost around \u20ac1.5 trillion.\u00a0\u00a0<\/p>\n
Then there\u2019s the need to update Europe\u2019s grids, not just to handle the greater peak loads from these investments, but also to cover the distance between the best sites for renewable generation (solar in southern Europe, wind in coastal western Europe) and distant urban centers. So far, network investment has considerably lagged <\/a>investments in renewables themselves.\u00a0\u00a0<\/p>\n
\u201cBecause of the variability of wind [and solar], there is an urgent need for more interconnectors, and more investment in grids,\u201d says Christophe Zipf, spokesperson for WindEurope, the trade body for the EU wind energy industry. One such mooted project is the North Sea Renewables Grid<\/a>, a \u00a320bn project to link 400 wind turbines in the North Sea, to facilitate the exchange of wind power between countries on both sides of the water. \u201cWhere there are such clusters it makes sense to link them to more than one country\u2014the U.K., Denmark and Belgium for example,\u201d Zipf says.\u00a0\u00a0<\/p>\n
But where will the money come from? Given the right regulatory environment, there is capital ready to move, says Francecso Starace, partner at EQT, the world\u2019s third largest private equity investor, which has invested \u20ac17 billion in renewables in Europe over the past 15 years. There is already quite an appetite for investment in the grid and distribution networks. The networks need to be restructured for the modern world, not for the world of 50 years ago when they were built.\u00a0<\/p>\n
\u201cRegulators have a major role to play, but they need to understand that\u202fmore money needs to be invested into the networks. Network operators need regulation that incentivizes investment rather than discouraging them from doing that, which has been the case for many years,\u201d\u202fsays Starace, a former CEO of Enel.\u00a0\u00a0<\/p>\n