Top of the world
Despite tough times, Europe is still attracting more foreign direct investment than any other region. With energy and utilities ranked as the second most attractive target for investors, Alexandra Reuther highlights some key themes influencing the sector.
While 2012 was a difficult year for Europe, our 11th annual European attractiveness survey shows that investors are still confident of the continent’s opportunities.
The energy and utilities sector is proving particularly resilient, rated by our survey respondents as the second most attractive sector (behind information and communication technologies and ahead of pharmaceutical and biotechnology).
Some key trends and themes impacting investment in European energy include:
1. Foreign investors favor UK nuclear
Maintaining its historic lead in 2012, the UK secured nearly one in five of all foreign direct investment (FDI) decisions made and jobs created in Europe.
In the power and utilities sector, the nuclear industry is attracting significant investment, driven by the Government’s aim to replace its aging nuclear capacity by 2023.
Rosatom is exploring opportunities to introduce its pressurized water reactor design, while China General Nuclear Power Group is in talks with EDF to co-develop the Hinkley Point C nuclear power plant. Hitachi, which now owns Britain’s Horizon Nuclear Power, is also keeping tabs on decisions regarding nuclear subsidies, which will influence its plans to develop two plants.
2. Intra-European investment focused on renewables
While the US is Europe’s single leading FDI generator, intra-European investment continues to be the biggest source of FDI, contributing 55% of investment projects in 2012.
In the power and utilities sector, much of the intra-European focus is on renewable energy, particularly offshore and onshore wind generation.
Many of Europe’s biggest utilities – including RWE, Vattenfall, Dong Energy and EDF Energy – are investing in significant wind projects in the UK, Germany and Belgium.
The UK offshore wind industry has been boosted by a recently announced extension of subsidy levels to 2015 and a reduction in previously set subsequent cuts.
3. Shared service centers boost Central and Eastern Europe
Central and Eastern Europe (CEE) regained traction as an FDI destination in 2012, securing 26.1% more jobs and becoming the leading recipient of FDI jobs in Europe.
Investors ranked the region ahead of Brazil, Russia and India, with Patrick Deconinck, Senior Vice President of West Europe for 3M Company, noting, “CEE is increasingly attractive, offering improving infrastructure, investment climate and skills.”
Many of the region’s new jobs were in business support services, including shared service centers set up by large utilities such as RWE, to manage functions including accounting, HR and payroll, purchasing and IT.
4. More innovation needed
Developing a culture of innovation and creativity is crucial for 36% of investors. Hendrik Bourgeois, Vice President of European Affairs for GE, echoed many when he told us that “ensuring a technology transition should be a top priority” for European governments.
The energy and utilities sector has much to gain from further innovation in technology. As Bourgeois explains, “The cost of energy is high in Europe, and natural gas is notably more expensive than in the US. We need to use technology to bring down costs. This includes extracting unconventional fuels in an environmentally sound manner. Europe also needs to continue to invest in renewable energies, such as wind, solar and biogas, and to build more interconnected and ‘smarter’ power grids.”
5. Work together to achieve more
Investors see European unity as the best solution to the continent’s difficulties. Our survey respondents said the region would benefit from further economic and political integration as well as reduced regulation.
Kei Uruma, President and CEO of Mitsubishi Electric Europe BV, said it is “now essential that the EU Member States put their differences aside and focus on stimulating the market for renewed growth.”
Deconinck notes that remaining competitive will mean Europe must realize the continent can achieve much more together than individually.
In September, the CEOs of some of Europe's biggest utilities – Enel, Eni, Gas Natural Fenosa, GasTerra, GDF SUEZ, Iberdrola, RWE, Vattenfall – said investment in energy infrastructure was being stifled by the inconsistent policy frameworks and differing renewable energy targets of European governments.
“Energy security of supply is no longer guaranteed, CO2 emissions are currently on the rise, investments in the sector are not happening and energy bills are rising sharply,” the CEOs said.
While it remains strong amid difficult economic times, a well-functioning and integrated market for electricity and gas would further strengthen Europe’s resilience to future challenges and ensure its ability to cope.
European attractiveness survey – at a glance
For more information
Read our 2013 European attractiveness survey.