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Goldman Sachs does and seeks to do business with companies covered in its research reports. As a

result, investors should be aware that the ﬁrm may have a conﬂict of interest that could affect the

objectivity of this report. Investors should consider this report as only a single factor in making their

investment decision. For Reg AC certiﬁcation and other important disclosures, see the Disclosure

Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non-US afﬁliates are not

registered/qualiﬁed as research analysts with FINRA in the U.S.

The Goldman Sachs Group, Inc.

EQUITY RESEARCH | July 20, 2022 | 5:16 PM BST

Michele Della Vigna, CFA

+44 20 7552-9383

michele.dellavigna@gs.com

Goldman Sachs International

Zoe Clarke

+44 20 7051-2816

zoe.clarke@gs.com

Goldman Sachs International

Re-Imagining Europe's Energy System

Can Europe strengthen its energy independence in the face of the Russia-Ukraine

crisis without compromising its climate change goals? We use our Carbonomics

framework to model the evolution of Europe’s energy system towards a lower

cost, lower imports, lower carbon system. Our analysis leads to ﬁve main

conclusions:

1) Cumulative infrastructure investments of €10 trn will be needed by 2050 for

Europe's energy transformation, reaching the equivalent of >2% of GDP by 2030.

This incremental investment is fully offset by a €10 trn reduction in net energy

imports, reducing the net energy import dependency rate of the region from

58% to 15% by 2050. Efﬁcient ﬁnancing and a reliable regulatory environment are

key to bridge the 10-year time gap between the two ﬂows.

2) Europe's new energy system would improve affordability. We estimate the

direct energy cost to the average European consumer could be reduced by

c.40% vs 2021 and c.60% from the peak (2022) owing to improved energy

efﬁciency, lower cost LNG, cheaper renewables and better regional connectivity.

3) Natural gas remains key to Europe’s energy supply for the next two

decades and we believe it is in Europe’s interest to sign up to an additional 40

mtpa of 15-yr LNG contracts, and potentially up to another 50 mtpa of 10-yr

LNG contracts, to improve security of supply and drive a new cycle of LNG

construction. We identify 15 new LNG projects for a total of 155 mtpa that can

deliver gas to Europe at <$12/mcf.

4) Renewable power will be at the heart of Europe's future energy system, but

seasonality, heavy industry and transport will require a major green hydrogen

economy to complement the ecosystem, reaching 15% of Europe's ﬁnal

energy mix long term.

5) An inter-connected European system of power networks and hydrogen

pipelines will be required to substitute hydrocarbon imports with clean energy

ﬂows from low cost producers such as Iberia, parts of Southern Europe and

the UK to the rest of Europe.

Carbonomics

Bepul Shahab

+44 20 7774-3694

bepul.shahab@gs.com

Goldman Sachs International

Alberto Gandolﬁ

+39 02 8022-0157

alberto.gandolﬁ@gs.com

Goldman Sachs Bank Europe SE - Milan branch

Note: The following is a redacted version of the original report published July 20, 2022 [63 pgs].

Europe’s Energy Evolution - Thesis in charts 3

PM Summary: Re-imagining Europe’s energy system – lower cost, lower imports, lower carbon 7

Re-Inventing Europe’s energy system: A sectoral modeling approach consistent with the de-carbonization

ambitions of the region 10

Re-Inventing Europe’s energy system: A more secure, sustainable and resilient energy system 12

The investment path: €10 tn investment opportunity, largely recouped by lower net energy imports 21

A more affordable energy system: c.40% reduction in the average European direct energy cost per capita vs

2021 and c.60% vs the peak 25

Power generation: At the heart of Europe’s energy evolution, affordability and security 26

Buildings: Electriﬁcation and efﬁciency likely to govern the energy evolution path 29

Transportation: The rise of NEVs and alternative fuels drive differing energy evolution proﬁles across

transport modes 31

Industry: A new industrial technology revolution centered around efﬁciency, electriﬁcation, hydrogen, circular

economy and CCUS 39

Europe’s energy evolution and the need for molecular energy sources: Hydrogen and Bioenergy 43

The role of hydrocarbons: Signing LNG contracts is consistent with Europe’s de-carbonization ambitions and

critical to its security and diversiﬁcation of energy supply 50

Appendix: Glossary of key terminology terms 58

Disclosure Appendix 59

20 July 2022 2

Goldman Sachs Carbonomics

Table of Contents

Europe’s Energy Evolution - Thesis in charts

Exhibit 1: We model Europe’s energy evolution, consistent with the

region’s ‘Fit for 55’ and net zero by 2050 ambitions...

EU27+UK Gross available energy (PJ)

Exhibit 2: ...driving overall a more secure, independent energy

system, with rising domestic energy production and lower energy

import reliance bringing the energy dependency rate to 15%.

EU27+UK Gross available energy (PJ)

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

EU27+UK Gross available energy (PJ)

Solid fossil fuels - domestic Solid fossil fuels - net imports

Oil and petroleum products - domestic Oil and petroleum products - net imports

Natural gas - domestic Natural gas - net imports

RES power domestic RES power domestic for hydrogen

RES imports (hydrogen) Bioenergy - domestic

Nuclear heat - domestic Other - domestic

57%

49%

28%

15%

10%

20%

30%

40%

50%

60%

70%

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

2003

2005

2007

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

2031

2033

2035

2037

2039

2041

2043

2045

2047

2049

EU27+UK Gross available energy

(PJ)

Gross available energy domestic Gross available energy net imports

Dependency rate

Source: Eurostat (historical), Goldman Sachs Global Investment Research Source: Eurostat (historical), Goldman Sachs Global Investment Research

Exhibit 3: We estimate €10 trn of infrastructure investments are

required for Europe to re-invent its energy system to net zero..

Cumulative infrastructure investments for EU28 net zero by 2050 (€tn)

Exhibit 4: ..reaching >2% of GDP by 2030 and peaking by mid-2030s.

Annual infrastructure investments for EU27+UK by 2050 (€bn)

1.3

1.2

1.0

1.5

0.5

0.6 0.3 0.4 0.3 0.6

1.0

0.9 0.01

10.1

RES

power

Power

networks

Energy

storage

(batteries)

Transp.

charging

and

refueling infra

Bioenergy

plants

prod

plants

strorage,

transport,

imports

infra

Buildings

heat

pumps

Buildings

efficiency

upgrades

Industrial

processes

incl.

CCUS

Nat.

sinks

Cum.

investments

to 2050

Cumulative investments for Europe on the

path to net zero by 2050 (€tn)

Solar PV

Onshore wind

Offshore wind

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

100

200

300

400

500

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041

2042

2043

2044

2045

2046

2047

2048

2049

2050

Annual infrastructure investments for

Europe's path to net zero (€bn)

Industrial plant upgrades (incl. CCUS) Hydrogen production, storage, transport

Natural sinks Bioenergy plants

Transport charging and refueling stations Insulation retrofits and other efficiency

Heat pumps Power generation

Energy storage (batteries) Power networks

Annual investments as a % of GDP (RHS)

Source: Goldman Sachs Global Investment Research Source: Goldman Sachs Global Investment Research

Exhibit 5: The infrastructure investment can be largely recouped

through lower net energy imports, yet with a decade lag...

EU27+UK annual required infrastructure investments vs net annual

energy import savings (€bn)

Exhibit 6: ...contributing to a material improvement in the balance

of payments for the region.

EU27+UK net energy product imports value (€bn)

100

200

300

400

500

600

700

800

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041

2042

2043

2044

2045

2046

2047

2048

2049

2050

EU27+UK Infrastructure

investments required vs net energy

imports savings (€bn)

Savings from energy imports reduction Required infrastructure investments

Net energy imports

savings: €9.8 tn

Required infrastructure

investments: € 10 tn

-1,200

-1,000

-800

-600

-400

-200

2017

2019

2021

2023

2025

2027

2029

2031

2033

2035

2037

2039

2041

2043

2045

2047

2049

EU27+UK Net energy products

imports value (€ bn)

Petroleum oil Natural gas Solid fossil fuels Clean hydrogen

Source: Goldman Sachs Global Investment Research Source: Eurostat (historical), Goldman Sachs Global Investment Research

20 July 2022 3

Goldman Sachs Carbonomics

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GoldmanSachsdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethattheﬁrmmayhaveaconﬂictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.ForRegACcertiﬁcationandotherimportantdisclosures,seetheDisclosureAppendix,orgotowww.gs.com/research/hedge.html.Analystsemployedbynon-USafﬁliatesarenotregistered/qualiﬁedasresearchanalystswithFINRAintheU.S.TheGoldmanSachsGroup,Inc.EQUITYRESEARCHJuly20,20225:16PMBSTMicheleDellaVigna,CFA+44207552-9383michele.dellavigna@gs.comGoldmanSachsInternationalZoeClarke+44207051-2816zoe.clarke@gs.comGoldmanSachsInternationalRe-ImaginingEurope'sEnergySystemCanEuropestrengthenitsenergyindependenceinthefaceoftheRussia-Ukrainecrisiswithoutcompromisingitsclimatechangegoals?WeuseourCarbonomicsframeworktomodeltheevolutionofEurope’senergysystemtowardsalowercost,lowerimports,lowercarbonsystem.Ouranalysisleadstoﬁvemainconclusions:1)Cumulativeinfrastructureinvestmentsof€10trnwillbeneededby2050forEurope'senergytransformation,reachingtheequivalentof>2%ofGDPby2030.Thisincrementalinvestmentisfullyoffsetbya€10trnreductioninnetenergyimports,reducingthenetenergyimportdependencyrateoftheregionfrom58%to15%by2050.Efﬁcientﬁnancingandareliableregulatoryenvironmentarekeytobridgethe10-yeartimegapbetweenthetwoﬂows.2)Europe'snewenergysystemwouldimproveaffordability.WeestimatethedirectenergycosttotheaverageEuropeanconsumercouldbereducedbyc.40%vs2021andc.60%fromthepeak(2022)owingtoimprovedenergyefﬁciency,lowercostLNG,cheaperrenewablesandbetterregionalconnectivity.3)NaturalgasremainskeytoEurope’senergysupplyforthenexttwodecadesandwebelieveitisinEurope’sinteresttosignuptoanadditional40mtpaof15-yrLNGcontracts,andpotentiallyuptoanother50mtpaof10-yrLNGcontracts,toimprovesecurityofsupplyanddriveanewcycleofLNGconstruction.Weidentify15newLNGprojectsforatotalof155mtpathatcandelivergastoEuropeat<$12/mcf.4)RenewablepowerwillbeattheheartofEurope'sfutureenergysystem,butseasonality,heavyindustryandtransportwillrequireamajorgreenhydrogeneconomytocomplementtheecosystem,reaching15%ofEurope'sﬁnalenergymixlongterm.5)Aninter-connectedEuropeansystemofpowernetworksandhydrogenpipelineswillberequiredtosubstitutehydrocarbonimportswithcleanenergyﬂowsfromlowcostproducerssuchasIberia,partsofSouthernEuropeandtheUKtotherestofEurope.CarbonomicsBepulShahab+44207774-3694bepul.shahab@gs.comGoldmanSachsInternationalAlbertoGandolﬁ+39028022-0157alberto.gandolﬁ@gs.comGoldmanSachsBankEuropeSE-MilanbranchNote:ThefollowingisaredactedversionoftheoriginalreportpublishedJuly20,2022[63pgs].Europe’sEnergyEvolution-Thesisincharts3PMSummary:Re-imaginingEurope’senergysystem–lowercost,lowerimports,lowercarbon7Re-InventingEurope’senergysystem:Asectoralmodelingapproachconsistentwiththede-carbonizationambitionsoftheregion10Re-InventingEurope’senergysystem:Amoresecure,sustainableandresilientenergysystem12Theinvestmentpath:€10tninvestmentopportunity,largelyrecoupedbylowernetenergyimports21Amoreaffordableenergysystem:c.40%reductionintheaverageEuropeandirectenergycostpercapitavs2021andc.60%vsthepeak25Powergeneration:AttheheartofEurope’senergyevolution,affordabilityandsecurity26Buildings:Electriﬁcationandefﬁciencylikelytogoverntheenergyevolutionpath29Transportation:TheriseofNEVsandalternativefuelsdrivedifferingenergyevolutionproﬁlesacrosstransportmodes31Industry:Anewindustrialtechnologyrevolutioncenteredaroundefﬁciency,electriﬁcation,hydrogen,circulareconomyandCCUS39Europe’senergyevolutionandtheneedformolecularenergysources:HydrogenandBioenergy43Theroleofhydrocarbons:SigningLNGcontractsisconsistentwithEurope’sde-carbonizationambitionsandcriticaltoitssecurityanddiversiﬁcationofenergysupply50Appendix:Glossaryofkeyterminologyterms58DisclosureAppendix5920July20222GoldmanSachsCarbonomicsTableofContentsEurope’sEnergyEvolution-ThesisinchartsExhibit1:WemodelEurope’senergyevolution,consistentwiththeregion’s‘Fitfor55’andnetzeroby2050ambitions...EU27+UKGrossavailableenergy(PJ)Exhibit2:...drivingoverallamoresecure,independentenergysystem,withrisingdomesticenergyproductionandlowerenergyimportreliancebringingtheenergydependencyrateto15%.EU27+UKGrossavailableenergy(PJ)-10,00020,00030,00040,00050,00060,00070,00080,00090,000EU27+UKGrossavailableenergy(PJ)Solidfossilfuels-domesticSolidfossilfuels-netimportsOilandpetroleumproducts-domesticOilandpetroleumproducts-netimportsNaturalgas-domesticNaturalgas-netimportsRESpowerdomesticRESpowerdomesticforhydrogenRESimports(hydrogen)Bioenergy-domesticNuclearheat-domesticOther-domestic57%49%28%15%0%10%20%30%40%50%60%70%-10,00020,00030,00040,00050,00060,00070,00080,00090,000200320052007200920112013201520172019202120232025202720292031203320352037203920412043204520472049EU27+UKGrossavailableenergy(PJ)GrossavailableenergydomesticGrossavailableenergynetimportsDependencyrateSource:Eurostat(historical),GoldmanSachsGlobalInvestmentResearchSource:Eurostat(historical),GoldmanSachsGlobalInvestmentResearchExhibit3:Weestimate€10trnofinfrastructureinvestmentsarerequiredforEuropetore-inventitsenergysystemtonetzero..CumulativeinfrastructureinvestmentsforEU28netzeroby2050(€tn)Exhibit4:..reaching>2%ofGDPby2030andpeakingbymid-2030s.AnnualinfrastructureinvestmentsforEU27+UKby2050(€bn)1.31.21.01.50.50.60.30.40.30.61.00.90.0110.1-24681012RESpowerPowernetworksEnergystorage(batteries)Transp.chargingandrefuelinginfraBioenergyplantsH2prodplantsH2strorage,transport,importsinfraBuildingsheatpumpsBuildingsefficiencyupgradesIndustrialprocessesincl.CCUSNat.sinksCum.investmentsto2050CumulativeinvestmentsforEuropeonthepathtonetzeroby2050(€tn)SolarPVOnshorewindOffshorewind0.0%0.5%1.0%1.5%2.0%2.5%-10020030040050020222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050AnnualinfrastructureinvestmentsforEurope'spathtonetzero(€bn)Industrialplantupgrades(incl.CCUS)Hydrogenproduction,storage,transportNaturalsinksBioenergyplantsTransportchargingandrefuelingstationsInsulationretrofitsandotherefficiencyHeatpumpsPowergenerationEnergystorage(batteries)PowernetworksAnnualinvestmentsasa%ofGDP(RHS)Source:GoldmanSachsGlobalInvestmentResearchSource:GoldmanSachsGlobalInvestmentResearchExhibit5:Theinfrastructureinvestmentcanbelargelyrecoupedthroughlowernetenergyimports,yetwithadecadelag...EU27+UKannualrequiredinfrastructureinvestmentsvsnetannualenergyimportsavings(€bn)Exhibit6:...contributingtoamaterialimprovementinthebalanceofpaymentsfortheregion.EU27+UKnetenergyproductimportsvalue(€bn)-10020030040050060070080020222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050EU27+UKInfrastructureinvestmentsrequiredvsnetenergyimportssavings(€bn)SavingsfromenergyimportsreductionRequiredinfrastructureinvestmentsNetenergyimportssavings:€9.8tnRequiredinfrastructureinvestments:€10tn-1,200-1,000-800-600-400-200020172019202120232025202720292031203320352037203920412043204520472049EU27+UKNetenergyproductsimportsvalue(€bn)PetroleumoilNaturalgasSolidfossilfuelsCleanhydrogenSource:GoldmanSachsGlobalInvestmentResearchSource:Eurostat(historical),GoldmanSachsGlobalInvestmentResearch20July20223GoldmanSachsCarbonomicsExhibit7:Renewableenergy(renewablepower,hydrogenandbioenergy)becomes>75%ofthetotalgrossavailableenergymixforEuropeby2050...EU27+UKGrossavailableenergymix(PJ)Exhibit8:...withpowersittingattheheartofEurope’senergyevolution,morethandoublingto2050...EU27+UKpowergenerationandmixovertime(TWh)0%20%40%60%200320052007200920112013201520172019202120232025202720292031203320352037203920412043204520472049EU27+UKGrossavailableenergymix(%)SolidfossilfuelsNaturalgasOilandpetroleumproductsNuclearheatRESpowerRESpowerforgreenhydrogenandhydrogenimportsBioenergy-1,0002,0003,0004,0005,0006,0007,0008,00020002002200420062008201020122014201620182020202220242026202820302032203420362038204020422044204620482050EU27+UKpowergeneration(TWh)Naturalgas(incl.othergases)SolidfossilfuelsOilandotherproductsNuclearHydroSolarWindBioenergyOtherRESOtherSource:Eurostat,GoldmanSachsGlobalInvestmentResearchSource:Eurostat(historical),GoldmanSachsGlobalInvestmentResearchExhibit9:...aselectriﬁcationandrenewablescontributetoimprovedenergyefﬁciencyandmoreaffordableenergyfortheaverageEuropeanenergyconsumer.AverageEuropeandirectenergycostfortheconsumer(€/capita)Exhibit10:PowergenerationinEuropehasalreadystartedtotransformoverthepasttwodecades..EU27+UKpowergenerationmixovertime(%)020040060080010001200140016001800200920112013201520172019202120232025202720292031203320352037203920412043204520472049AverageEuropeandirectenergycostpercapitaassociatedwithfinalenergyconsumption(€/capita)Gasoline/dieselfuelcostNaturalgascostPowercostc.60%reductionfromthe2022peakc40%reductionvs2021c.36%reductionfromthe2022peakc.6%reductionvs20210%10%20%30%40%50%20002002200420062008201020122014201620182020202220242026202820302032203420362038204020422044204620482050EU27+UKpowergenerationmix(%)SolidfossilfuelsNaturalgas(incl.CCUSlongterm)OilandotherproductsHydroSolarWind(onshoreandoffshore)BioenergyOtherRESNuclearOtherSource:Eurostat,GoldmanSachsGlobalInvestmentResearchSource:Eurostat,GoldmanSachsGlobalInvestmentResearchExhibit11:..owingtoitsmorefavourablepositiononEurope’sde-carbonizationcostcurve,mostlyoccupyingthespectrumrequiring<$100/tnCO2..EuropeCarbonomicscostcurveofde-carbonizationExhibit12:..yetwenotethecriticalimportanceofenergystorage,inparticularseasonal(throughhydrogen),tosupportsuchasystemHydrogenconsumptionforEU27+UK(MtH2)-200-10001002003004005006007008009001,0001,1001,2001,3001,4001,5000.00.20.40.60.81.01.21.41.61.82.02.22.42.62.83.03.23.43.63.84.0Carbonabatementcost(US$/tnCO2eq)GHGemissionsabatementpotential(GtCO2eq)PowergenerationTransport(road,aviation,shipping)Industry(iron&steel,cement,chemicalsandother)Buildings(residential&commercial)Agriculture,forestry&otherlanduses(AFOLU)Non-abatableatcurrentconservationtechnologies0%25%50%75%100%020406080202120222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050%CleanhydrogenpenetrationHydrogenconsumptionforEU27+UK(MtH2)PowergenstorageChemicalfeedstockRefineriesIndustry-heatIndustry-steelTransport-internationalshipping(ammonia)Transport-internationalaviationTransport-domesticshippingTransport-domesticaviationTransport-railTransport-road(HDVs,buses)Blendingingrid%CleanhydrogenSource:GoldmanSachsGlobalInvestmentResearchSource:GoldmanSachsGlobalInvestmentResearch20July20224GoldmanSachsCarbonomicsExhibit13:OurmodelofEurope’senergyevolutionisconsistentwiththeambitionslaidoutin‘Fitfor55’(reducingemissionsbyc.55%vs1990)andnetzeroby2050..EUR27+UKnetGHGemissions(MtCO2eq)Exhibit14:..yetitisevidentthatnaturalgasisstillpivotalinthesystemfortwomoredecades..NaturalgasgrossenergyandﬁnalconsumptionforEU27+UK(PJ)-1,000-1,0002,0003,0004,0005,0006,00020002002200420062008201020122014201620182020202220242026202820302032203420362038204020422044204620482050EU27+UKGHGemissions(MtCO2eq)PowergenerationTransportIndustry,industrialwaste&otherfugitiveResidentialCommercialandpublicAgricultureInternationalmaritimebunkersInternationalaviation-2,0004,0006,0008,00010,00012,00014,00016,00018,00020,000200320052007200920112013201520172019202120232025202720292031203320352037203920412043204520472049NaturalgasgrossdemandamdfinalconsumptionforEU27+UK(PJ)TotalfinalconsumptionNon-energyconsumptionEnergyconsumptionGrossenergySource:Eurostat,EEA,GoldmanSachsGlobalInvestmentResearchSource:Eurostat,GoldmanSachsGlobalInvestmentResearchExhibit15:..whichimpliesthattheregionstillrequiresmaterialnaturalgasimportsto2040,especiallywhenconsideringtheRussiangasimportreductiontargets..EUR27+UKgrossnaturalgasdemandvssourcing(domestic,imports)Exhibit16:..leadingtoourestimateofc.40Mtpaofnew15-yrlong-termLNGcontractsrequirementuntil2040.Naturalgasdemandimpliedrequiredimports(bcm)-5,00010,00015,00020,000200320052007200920112013201520172019202120232025202720292031203320352037203920412043204520472049EU27+UKgrossrequirednaturalgas(PJ))RequiredLNGimportsRussiaimportsOtherpipelineimportsPrimarylocalproductionOtherchangeinstockGrossavailablenaturalgasdemandrequired2/3reductioninRussiangasimportsFeasibledemandrationingintheabsenceofanindustrialrecession100%reductioninRussiangasimports-5010015020025030035040045020192020202120222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050NaturalgasnetimportstoEU27+UK(bcm)ExistingLNGcontractsNewLNGcontractsalreadysignedSpotLNGRequiredLNGimportsTotalnaturalgasimportsrequiredPotentialforlong-term15-yearLNGcontractsc.40Mtpaofadditional15-yrLNGcontractscanbesignedSource:Eurostat,GoldmanSachsGlobalInvestmentResearchSource:Eurostat,GoldmanSachsGlobalInvestmentResearchExhibit17:Europe’soilconsumptiondeclineacceleratesmostlytowardstheendofthisdecade..Oilandoilproductsgrossenergyandﬁnalconsumption,EU27+UK(PJ)Exhibit18:..andweestimatethenextmajorcycleofreﬁningclosureswilllikelyonlycomein2027,whentheutilisationratefallsbelowthehistoricalaverageEuropeanoilreﬁningcapacity,throughput(LHS)andutilisationrate(RHS)-5,00010,00015,00020,00025,00030,00035,000200320052007200920112013201520172019202120232025202720292031203320352037203920412043204520472049Oilandoilproductsgrossdemandandfinalconsumption(PJ)TotalfinalconsumptionEnergyconsumptionNon-energyconsumptionGrossavailableenergy0%10%20%30%40%50%60%70%80%90%100%-1002003004005006007008009001000200320052007200920112013201520172019202120232025202720292031203320352037203920412043204520472049Europeanrefiningutilisation(%)mntoeEuropeanoilrefiningcapacity(mntoe)-LHSEuropenoilandoilproductsgrossavailableenergy(mntoe)-LHSEuropeanoilrefiningthroughput(mntoe),LHSEuropeanrefiningutilisation-RHSSource:Eurostat,GoldmanSachsGlobalInvestmentResearchSource:Eurostat,GoldmanSachsGlobalInvestmentResearch20July20225GoldmanSachsCarbonomicsReferencetotheEuroperegionthroughoutthisreportreferstotheEU27countriesplustheUK(previouslyreferredtoasEU28),unlessotherwiseindicated.Exhibit19:ThemapofenergyﬂowsistransformedbyemerginglowcostrenewablesandgreenhydrogenexportersincludingIberia,partsofSouthernEurope(SouthernFrance,Italy,Greece)andtheUK(wind).LCOEforsolar,onshorewindandoffshorewind,LCOHforgreenhydrogenandpopulationdensityforkeyEuropeanregionsLCOEsareestimatedatthecountryaveragelevel,acknowledgingthatdifferentpartsofaregionwillhavevarioussolar,windandLCOEproﬁles.Weuseconsistently7%costofcapitalforsolarandonshorewind,9%costofcapitalforoffshore,8%costofcapitalforgreenhydrogen.Populationdensitydataarefor2019.Source:Eurostat(populationdensity),GoldmanSachsGlobalInvestmentResearch20July20226GoldmanSachsCarbonomicsPMSummary:Re-imaginingEurope’senergysystem–lowercost,lowerimports,lowercarbonEurope’scurrentenergysystemisunsustainableonthreekeymetrics:costs(c.€980bnofnetenergyimportsin2022Eonourestimates),securityofsupply(58%energydependencyrate)andcarbonintensity(3.7GtCO2eqnetGHGemissionspa).OurutilitiesteamhasaddressedthedeepimpactontheEuropeanindustrialsystemandconsumerdisposableincomeofRussiangasﬂowscurtailmentsinthereport‘WhathappensifRussiangasﬂowsfalltozero:ourassessment’.Inthisreport,welookatEurope’sopportunitytoleverageonthecurrentchallengingenvironmenttobuildamoresustainableenergysystemforthefuture,improvingaffordability,balanceofpayments,securityofsupplyandcreatingdomesticemploymentinkeycleantechinnovationareas.WeuseourCarbonomicsframeworktomodeltheevolutionofEurope’senergysystemoverthecomingdecadesbysector,aimingforNetZeroCarbonby2050,throughapathofleastcost,maximizingdomesticproductionandthecontinent’senergyinterconnectivity.TheGSmodelforEurope’senergyevolutionisconsistentwithachievingnetzeroby2050fortheregionandwiththekeyambitionslaidoutbytheEuropeanCommissionaspartofthe‘Fitfor55’package(atleast55%netemissionsreductionby2030vs1990level,atleast40%renewableenergysourcesintheoverallenergymixby2030).Cumulativeinfrastructureinvestmentsof€10trnwillbeneededby2050forEurope’senergytransformation,reachingtheequivalentof>2%ofGDPby2030Weestimateatotalinfrastructureinvestmentopportunityof€10trnby2050forthetransformationofEurope’senergysystem(EU27+UK)onthepathtonetzerocarbon,implyinganaverageannualgreeninfrastructureinvestmentopportunityof€350bnpa.Wenotethatthisﬁgurefocusessolelyonincrementalinfrastructureinvestmentsanddoesnotincludemaintenanceandotherend-usecapex.Weestimatethatthisinfrastructureinvestmentcanbeentirelyrecoupedfromthesavingsofnetenergyimports.Ourmodelseesamaterialreductionintheenergydependencyrateoftheregion,fromc.58%currentlyto<50%by2030,<30%by2040andc.15%by2050.Weestimatethatcloseto€10tncanberecoupedfromlowernetenergyimportsby2050,sufﬁcienttofullycovertheinfrastructureinvestmentsrequired,althoughwithadecadeoftimelag.Efﬁcientﬁnancingandareliableregulatoryenvironmentarekeytobridgethistimegap.WefurthernotethatwhilsttheenergyindependenceofEuropewillimprovesubstantially,theregionwilllikelystillneedtoimportc.15%ofitsgrossenergyneeds,accountingforfossilfuelsusedasfeedstocks(suchasforchemicalsmanufacturing)andaroundhalfofthegreenhydrogenvolumesitrequires.ThisenergyevolutionwilllikelybeveryaccretivetotheoverallBalanceofPayments,evenwhenconsideringtherisingvolumesofimportedequipment.Weestimatethatincludingtheimpactofnetimportedcleantechequipment(mostlysolarpanelsandbatteries),c.75%oftheinfrastructureinvestmentscanberecouped,withc.€7.5trninnetimportssavings.20July20227GoldmanSachsCarbonomicsWeestimatethedirectenergycosttotheaverageconsumerinEuropecouldbereducedbyc.40%longtermvs2021andc.60%fromthepeak(2022E)Improvedenergyefﬁciency,butalsolowercostlong-termLNGcontracts,cheaperrenewablepowerandbetterseasonalitymanagementthroughbatteriesandhydrogencansubstantiallyreducetheEuropeanconsumer’senergyspendinginthelongterm.WeestimatethatthedirectenergycosttotheaverageconsumerinEuropecouldfallbyc.40%longtermvs2021andc.60%fromthepeak(2022E).OuranalysisfocusesonthedirectcosttotheaverageEuropeanenergyconsumeroftheelectricity,fuelandgasthattheyuseintheirresidentialbuildingsandfortheirpassengervehicles,calculatedattheretailprice,includingallrelevanttaxesandlevies.NaturalgasremainskeytoEurope’senergysupplyforthenexttwodecadesandwebelieveitisintheinterestofEuropetosignnewlong-termLNGcontractstoimprovesecurityofsupplyNaturalgasremainsacorepartoftheEuropeanenergysystemforanother20years,inouranalysis,beingthemostversatileenergysourcefortheregionwithabroaduseacrossapplications.Despiteitskeyimportanceacrossindustries,powergenandbuildings,Europe’sreluctancetosignlong-termLNGcontractsoverthepast15yearshasresultedinanover-concentrationofnaturalgasimportsreachingtheregionviapipeline,withEuropeimporting>80%ofitsnaturalgasneedsandwiththatsupplylargelydominatedbyahandfulofregions:Russia,Norway,Algeria,Nigeria,theUS,andQatar.Thisisnolongersustainable,inlightofthecurrentgeopoliticallandscape.WeincorporatetheEU’sambitionfor2/3reductioninRussiangasimportsbytheendofthisyearandzerogasimportsbytheendofthisdecade(2030)intoourmodelling,concludingthattheshortfallbetweengrossnaturalgasdemandandavailabledomesticsupplyplusotherex-RussianpipelinesimportshastobemetwithincrementalLNGimportedvolumes.ThisanalysissuggestsitisinEurope’sinteresttosignuptoanadditional40mtpaof15-yrLNGcontracts,andpotentiallyuptoanother50mtpaof10-yrLNGcontracts,toimprovesecurityanddiversiﬁcationofsupply–andallowanewgenerationofLNGprojectstobedevelopedforEurope.WeleverageourTopprojectsdatabasetoidentify15projectsthatcouldsupplyuptoatotalof155mtpapatoEuropewithalong-termLNGpriceof$8-12/mcf.Ontheoilside,ourEuropeanenergysystemevolutionmodelshowsoildemandincreasingtothemiddleofthisdecade,largelydrivenbytheongoingrecoveryofaviation,beforestartingagradualdeclinewhichacceleratespost2030,drivenbythehigherpenetrationofEVsandbettercharginginfrastructure.WeestimatethatthenextmajorcycleofreﬁneryclosuresinEuropewillonlybeneededby2027,whenthereﬁningutilisationratefallsbelowthehistoricalaveragefortheregion.20July20228GoldmanSachsCarbonomicsRenewablepowerisattheheartofEurope’senergysystemre-invention,withpowerdemandmorethandoublingby2050,andgreenhydrogenaccountingforc.15%ofEurope’senergymixlongterm.Electriﬁcationisthemostimportantdriverofloweremissionsandlowerenergyimportdependenceinourmodelling,withamorethandoublingofEuropeanpowerdemandby2050.Howeverrenewablepowerintermittencyandseasonalitycreatetheneedforlarge-scaleenergystoragesolutions,ofwhichgreenhydrogenwillbethemostimportant,inourview.Hydrogencurrentlyhasanicherole,mostlyinchemsandreﬁning.However,weseehydrogenemergingasacriticaltechnologyinthelongterm,addressingtheseasonaldiscrepancybetweenrenewablepowersupplyandpowerdemandandaidingthede-carbonizationofheavyindustryandtransport.Acceleratedelectriﬁcationofheatingislikelytoresultinlargepowerdemandandsupplyimbalances,makingtheroleofamolecularseasonalenergystoragesolutionvital.Weidentifythreekeyrolesofcleanhydrogeninthepowergenerationindustrythatcanenhancesystemresilienceandenablehigheruptakeofrenewablepower,whileontheindustrialside,hydrogenisthenaturalsuccessorofnaturalgasandcoalfordiversiﬁcationofenergysupplyinenergy-intenseindustrialprocesses.Overall,webelievehydrogendemandforEuropewillsurpass60Mtpalongterm,inascenarioconsistentwith‘Fitfor55’,reachingc.15%oftheregion’sﬁnalenergyconsumptionandcreatingac.€0.74tncumulativeinvestmentopportunityinthedirecthydrogensupplychaininEurope.ThemapofenergyﬂowsistransformedbyemerginglowcostrenewablesandgreenhydrogenexportersincludingIberia,partsofSouthernEuropeandtheUKTheenergyimportdependencyofEuropecanbereducedmaterially,withinter-regionalhydrocarbonﬂowsbetweenEuropeandtherestoftheworldbeingsubstitutedbycleanenergyintra-regionalﬂowsbetweenEuropeancountries–inamoreinter-connectedEuropeansystemofpowernetworksandhydrogenpipelines.WeconductananalysistoaddressthecompetitivepositioningofkeyEuropeancountriesacrossthemostcriticalenergytechnologiesofthefuture:solar,onshorewind,offshorewind,greenhydrogen.Wealsonotetheinclusionofthepopulationdensitymeasureforcontextregardingthepotentialspaceconstrainsassociatedwiththescale-upofthesetechnologiesonshore.ThemapofEuropeanenergyﬂowscanbetransformedbyemerginglowcostrenewablesandgreenhydrogenexportersincludingIberia,partsofSouthernEurope(SoutheasternFrance,Italy,Greece)andtheUK(offshorewind).Iberiainparticularscreensveryattractivelyonthepotentialofsolarenergyandlowcostproductionofgreenhydrogen(bothintermsoftheimpliedsolarPVLCOEandwithregardstospaceavailabilityandpopulationdensity)whilsttheUKscreensattractivelyintermsofitscostpositioninginoffshorewind.20July20229GoldmanSachsCarbonomicsRe-InventingEurope’senergysystem:Asectoralmodelingapproachconsistentwiththede-carbonizationambitionsoftheregionLayingoutthepathforEurope’senergyevolution:AsectoralmodelingapproachleveragingourCarbonomicsframeworkInthisreport,weintroduceourmodelfortheevolutionoftheEuropeanenergysystemoverthecomingdecadestowardsamoresecure,moreaffordableandmoresustainablesystem,consistentwithachievingnetzeroby2050andthekeyambitionslaidoutbytheEuropeanCommissionaspartofthe‘Fitfor55’package(atleast55%netemissionsreductionby2030vs1990level,atleast40%renewableenergysourcesintheoverallenergymixby2030).Forthepurposeofthismodelingandanalysis,referencetotheEuroperegionthroughoutthisreportreferstotheEU27countriesplustheUK(formerlyreferredtoasEU28),unlessotherwiseindicated.ThemethodologyweadoptedwithregardstoourenergymodelingissummarizedinExhibit20below,andexplainedindetailinthesectionfollowingthisexhibit.ThekeyterminologyanddeﬁnitionsofthetermsoutlinedintheexhibitandthroughoutthisreportareconsistentwiththeenergybalancesterminologyadoptedbyEurostat(theEuropeanStatisticalOfﬁce,adirectorate-generaloftheEuropeanCommission).Exhibit20:AmethodoverviewfortheGSEuropeanenergysystemmodelsandanalysisSource:GoldmanSachsGlobalInvestmentResearch20July202210GoldmanSachsCarbonomicsStep1:Asaﬁrststep,weleverageourCarbonomicsframeworkandadoptasectoralapproachtomodeltheﬁnalenergyconsumptionevolutionofeachkeyenergyconsumingsectorinEurope(denotedasStep1inExhibit20):buildings(residential,commercial/servicesandpublic),transport(lightandheavy-dutyroadtransport,aviation,shipping,rail),industry(includingindustrialcombustion,industrialprocesses,fuelextraction,otherfugitiveandwaste)andagriculture.Theﬁnalenergyconsumptionisdeﬁnedasthetotalenergyconsumedbytheendusersineachofthesesectors,theenergywhichreachestheﬁnalconsumer’sdoorandexcludesthatwhichisusedbytheenergysectoritself.Asmentioned,overall,forthemodelingoftheﬁnalenergyconsumption,weleverageourCarbonomicsframeworktoconstructthismodel,andweadoptasectoralapproach,usingourde-carbonizationcostcurveintroducedinthisreportspeciﬁcallyforEurope,todeterminetherelativepaceofde-carbonizationandenergytransformationineachindustryonthebasisofthecurrentcostandtechnologicalreadinessoftheavailablealternativeenergyandde-carbonizationtechnologies.Thissectoralmodellingprovidestwocriticaloutputs:theﬁnalenergyandnon-energy(energysourcesusedasfeedstock)consumptionforEuropeovertime,wemodelto2050.Step2:Asasecondstep,wemodeltheevolutionoftheenergysectoritself,whichbridgesthegapbetweentheﬁnalenergyconsumptionobtainedfromStep1andtherequiredtotalsupplyforEurope.Thisincludesthemodelingofthepowergenerationsystem,aswellasotherenergytransformationinputsandoutputs(fuelconversions)anddistributionlosses.Step3:InStep3,weaddtothetotalEuropeanenergysupplytheenergyrequiredforinternationalmaritimebunkersandinternationalaviation(vesselswhichareinvolvedininternationalactivitiesforwhichthedemandforenergyisstemmingfromEurope).Thisbridgesthegapbetweentotalrequiredenergysupplyandgrossavailableenergy.Steps4&5:GrossavailableenergyisobtainedfromSteps1through3andisdeﬁnedastheoverallsupplyofenergyforallactivitiesontheterritoryoftheEuropeanregionconsideredinouranalysis(EU27+UK).Itincludesenergyneedsforenergytransformation(includinggeneratingelectricityfromcombustiblefuels),supportoperationsoftheenergysectoritself,transmissionanddistributionlosses,ﬁnalenergyconsumption(industry,transport,buildingsincludinghouseholdsandservices,agriculture)andtheuseoffossilfuelproductsfornon-energypurposes(e.g.inthechemicalindustry).Italsoincludesfuelpurchasedwithinthecountrythatisusedelsewhere(e.g.internationalaviation,internationalmaritimebunkers).Grossavailableenergyforthetotalofallproducts(fuels)isthemostimportantaggregateinenergybalancesandrepresentsthequantityofenergynecessarytosatisfyalltheenergydemands.Grossavailableenergy=Primaryproduction+Recovered&Recycledproducts+Imports–Export+StockchangesStep6:Utilisingoursectoralmodelingoftheenergyandprocesstechnologicalmixevolutionovertimeforeachkeyemittingindustry(bothﬁnalenergyconsumingsectorsandenergyproducingsectorssuchaspowergeneration,fuelextraction,reﬁning),wemodeltheoverallnetGHGemissionsoftheregionovertime.20July202211GoldmanSachsCarbonomicsRe-InventingEurope’senergysystem:Amoresecure,sustainableandresilientenergysystemTheoutputsofourmodelforEurope’senergysystemevolutionandtransformationarepresentedthroughouttheexhibitsofthisreport.Overall,Europe’sgrossenergyevolution(grossavailableenergyhasbeendeﬁnedintheprevioussectionofthisreport),modeledacrosssectorsandfuels,ispresentedintheExhibit21below,andtheﬁnalenergyconsumption(alsodeﬁnedintheprevioussectionofthisreport)withitsmixevolutionisshowninExhibit22.Weseetheregion(EUR27+UK)graduallyreducingitsoverallgrossenergyconsumptionandenergyintensity,aresultofongoingimprovementsinefﬁciencyandswitchtoalternativecleanerandmore,onaggregate,efﬁcientsourcesofenergy(suchaselectriﬁcation).Moreimportantly,weexpectthemixofthegrossEuropeanenergytocompletelytransforminthecomingyearsfromlargelyrelyingonimportedhydrocarbons(oilandoilproducts,solidfossilfuelsandnaturalgas)topredominantlyrelyingondomesticrenewableenergysourcesandfuels(renewablepower,bioenergy,hydrogen,nuclear).Acombinationofmoresustainablebutalsolargelydomesticallyproducedenergysourceswilllead,inourview,tobothamoresustainable,secureandindependentenergysystem,withalowerrelianceonimportedenergyandlowercarbonfootprint.ThissectionofthereportaddresseshowtheEuropeanenergysystemcouldevolvetobe(1)moresustainablewithalowercarbonfootprint,(2)moresecureandindependentthroughareducedrelianceonimportedenergysources,(3)moreresilientthroughanecosystemoftechnologiesextendingbeyondrenewablepowerespeciallywithregardstoenergystoragetosupportseasonalandintradayimbalancesinsuchasystem,and(4)moreaffordable.Exhibit21:WepresentinthisexhibittheresultingEuropeangrossavailableenergyevolutionovertime,consistentwiththeregion’sde-carbonizationambitions..Europe’s(EU27+UK)grossavailableenergyundertheGSEuropeenergyevolutionmodel(PJ)Exhibit22:..aswellastheevolutionoftheﬁnalenergyconsumptionofEuropeanenergyend-users(buildings,industry,transport,agriculture)Europe’s(EU27+UK)ﬁnalenergyconsumptionundertheGSEuropeenergyevolutionmodel(PJ)-10,00020,00030,00040,00050,00060,00070,00080,00090,000EU27+UKGrossavailableenergy(PJ)Solidfossilfuels-domesticSolidfossilfuels-netimportsOilandpetroleumproducts-domesticOilandpetroleumproducts-netimportsNaturalgas-domesticNaturalgas-netimportsRESpowerdomesticRESpowerdomesticforhydrogenRESimports(hydrogen)Bioenergy-domesticNuclearheat-domesticOther-domestic-5,00010,00015,00020,00025,00030,00035,00040,00045,00050,000200920112013201520172019202120232025202720292031203320352037203920412043204520472049EU27+UKCO2finalenergyconsumption(PJ)SolidfossilfuelsPeatandpeatproductsNaturalgasOilandpetroleumproductsRenewablesandbiofuelsNon-renewablewasteElectricityHeatOtherSource:Eurostat(historical),GoldmanSachsGlobalInvestmentResearchSource:Eurostat,GoldmanSachsGlobalInvestmentResearch20July202212GoldmanSachsCarbonomicsAmoresustainableenergysystem:Apathconsistentwiththeemissionreductionambitionslaidoutin‘Fitfor55’,netzeroby2050,leveragingourCarbonomicscostcurveacrossemittingsectorsTheGSmodelforEurope’senergyevolutionisconsistentwithachievingnetzeroby2050fortheregionandthekeyambitionslaidoutbytheEuropeanCommissionaspartofthe‘Fitfor55’package(atleast55%netemissionsreductionby2030vs1990level,atleast40%renewableenergysourcesintheoverallenergymixby2030).OurEuropeanmodeladdressesallkeyemittingsectorsintheregion:powergeneration,buildings(residential,commercial/servicesandpublic),transport(lightandheavy-dutyroadtransport,aviation,shipping,rail),industry(includingindustrialcombustion,industrialprocesses,fuelextractionandotherfugitiveandwasteemissions)andagriculture.Thisenablesusnotonlytomodeltheenergyandprocesstechnologicalevolutionbyindustrybutalsotrackandestimatetheresultingoverallemissions(bothenergyandprocess)stemmingfromeachoftheseindustriesandthebroaderEuropeanregionconsideredinouranalysis.TheresultingemissionsproﬁleresultingfromourGSmodelofEurope’senergyevolutionisshowninExhibit23andisresultinginc.55%GHGemissionsreductionvs1990levelfortheregionby2030andnetzeroby2050.Withregardstoemissionsaccounting,weincludeinouremissionsproﬁletheinternationaltransportelements(deﬁnedearlierinthisreport)aswellasthecontributionofthelanduse,land-usechangeandforestry(LULUCF)sector,consistentwiththeCommission’sproposaltostrengthenthecontributionofthatsectortoreversethecurrentdecliningtrendofcarbonremovalsandenhancethenaturalcarbonsinkthroughouttheEU.Speciﬁcally,therevisionofthecurrentlegislationproposestosetanEU-leveltargetfornetremovalsofgreenhousegasesofatleast310milliontonnesofCO2equivalentby2030,whichisdistributedamongthememberstatesasbindingtargets.Exhibit23:OurmodelofEurope’senergyevolutionisconsistentwiththeambitionslaidoutin‘Fitfor55’(reducingemissionsbyc.55%vs1990)andnetzeroby2050..EU27+UKGHGemissions(MtCO2eq),includingLULUCFExhibit24:..adoptingasectoralapproach,modellingtheemissionsacrossallkeyemittingsectorsEU27+UKGHGemissionsbykeyemittingsector(MtCO2eq)-1,000-1,0002,0003,0004,0005,0006,00020002002200420062008201020122014201620182020202220242026202820302032203420362038204020422044204620482050EU27+UKGHGemissions(MtCO2eq)PowergenerationTransportIndustry,industrialwaste&otherfugitiveResidentialCommercialandpublicAgricultureInternationalmaritimebunkersInternationalaviation-2004006008001,0001,2001,4001,6001,8002,00020002002200420062008201020122014201620182020202220242026202820302032203420362038204020422044204620482050EU27+UKGHGemissions(MtCO2eq)PowergenerationTransportIndustry,industrialwaste&otherfugitiveResidentialCommercialandpublicAgricultureInternationalmaritimebunkersInternationalaviationForecastSource:Eurostat,EEA,GoldmanSachsGlobalInvestmentResearchSource:Eurostat,EEA,GoldmanSachsGlobalInvestmentResearch20July202213GoldmanSachsCarbonomicsThepaceoftheenergytransformationandde-carbonizationachievedforeachsectoriscorrelatedtothesector’spositioningonourCarbonomicscostcurve.Inourdeep-divede-carbonizationreport,wehadintroducedindetailourCarbonomicscarbonabatementcostcurves.TheCarbonomicscostcurvesshowthereductionpotentialandcarbonabatementcostforanthropogenicGHGemissionsthrough>100differentapplicationsofGHGconservationandsequestrationtechnologiesacrossallkeyemittingsectorsintheregionthecostcurveisaddressing.Inthisreport,weintroducetheﬁrstCarbonomicsde-carbonizationcostcurveforEurope(EU27+UK),presentedinExhibit25below.Overall,weexpectallthekeytechnologiesaddressedinourde-carbonizationcostcurvetoplayaroleinfacilitatingthepathtonetzero,eachintheirrespectivesector.Thespeedofde-carbonizationineachsectorislargelydependentonthecurrentcarbonabatementcostandstateofreadinessoftheavailablecleantechnologiespresentedinourCarbonomicscostcurve.Assuch,inourmodelsforEurope’senergyandemissionsevolutiononthepathtonetzero,differentsectorsde-carbonizeatdifferentspeedsandhaveadifferentcarbonbudgetallocation,dependingontheirrelativecostpositioningandreadinessonourde-carbonizationcostcurve.WenotethatourCarbonomicscostcurveofde-carbonizationisnotstatic,andisexpectedtoevolveovertimeasthecostsofexistingtechnologiescontinuetochangeandastechnologicalinnovationleadstotheadditionoffurtherde-carbonizationtechnologiesacrosssectors.Assuch,ourenergyevolutionandnetzeromodelsarealsodynamic,andareexpectedtoevolveovertimeastechnologicalinnovationandfocusonde-carbonizationcontinues.Exhibit25:OurGSEuropeanenergyevolutionandnetzeromodelincorporatesatransformationpathacrosssectorsthatislargelydependentonthecarbonabatementcostandreadinessoftheavailablede-carbonizationtechnologies,asshowninourCarbonomicscostcurve2022EuropeancarbonabatementcostcurveforanthropogenicGHGemissions,basedoncurrenttechnologiesandcurrentcosts,assumingeconomiesofscalefortechnologiesinthepilotphase-200-10001002003004005006007008009001,0001,1001,2001,3001,4001,5000.00.20.40.60.81.01.21.41.61.82.02.22.42.62.83.03.23.43.63.84.0Carbonabatementcost(US$/tnCO2eq)GHGemissionsabatementpotentialforEurope(GtCO2eq)PowergenerationTransport(road,aviation,shipping)Industry(iron&steel,cement,chemicalsandother)Buildings(residential&commercial)Agriculture,forestry&otherlanduses(AFOLU)Non-abatableatcurrentconservationtechnologiesSource:GoldmanSachsGlobalInvestmentResearch20July202214GoldmanSachsCarbonomicsAsmentionedpreviously,thepaceofde-carbonizationvariesbysectorandsub-sector,dependingonthecarbonabatementcostandtechnologicalreadiness,asaddressedbyourCarbonomicscostcurveshownabove.Exhibit26showsthatthepaceofde-carbonizationto2030foreachsub-sectorsinourEuropeanenergyevolutionmodeliscorrelatedwiththesub-sector’scurrentaveragecarbonabatementcost,asdescribedpreviously.Harder-to-abatesectorswithlimitedalternativeenergyandde-carbonizationtechnologiescurrentlyatlargescalesuchasaviation,heavyindustry,shippingwithahighercarbonabatementcost,de-carbonizeslower,comparedtosectorssuchaspowergeneration,buildingsandefﬁciencymeasures,whichareassociatedwithalowercarbonabatementcost.Inadditiontoahigherenergysustainability,wealsoexpecttheenergyefﬁciencyoftheregiontoimprovenotablyinthecomingyearsandwepresentinExhibit27theenergyintensityevolutionforEuropebasedonourmodel.Energyintensityisanindicatorusedtomeasuretheenergyneedsofaneconomyanditisoftenemployedasaproxyforenergyefﬁciency.EnergyintensityiscalculatedasunitsofenergyperunitofGDP.Wenotenonethelessthatmanyfactorscaninﬂuenceenergyintensity,asitreﬂectsonstructureofeconomyanditscycleandgeneralstandardsoflivinginthereferencearea.Moreinterestingly,overtheperiod2000-19,theoverwhelmingmajorityoftheenergyintensityreductionwasdrivenbytheriseinGDPfortheregion(drivingc.90%oftheenergyintensityreduction),whilstfromhere(2022-50)weexpecttheenergyintensityreductiontobelargelydrivenbytheoverallenergyefﬁciencyimprovementofthesystemasopposedtotheriseinGDP.Exhibit26:Thepaceofenergytransformationandde-carbonizationineachsectorandsub-sectoriscorrelatedtotheaveragecarbonabatementpriceoftheavailablecleantechnologiesinthatsector.GHGemissionsreductionin2030vs.2019bysub-sectorvs.averagecarbonabatementcostExhibit27:Weexpecttheenergyintensity(energyperunitGDP)oftheEuropeanenergysystemtocontinuetoimproveovertime,mostlydrivenbyhigherenergyefﬁciencyasopposedtohigherGDPgrowthwhichhasbeenthecaseover2000-19.EnergyintensityforEU27+UK(PJ/EURbnGDP)PowergenerationBuildings-residentialBuildings-commercialTransport-HDVsTransport-aviationTransport-shippingTransport-railIron&steelNon-metallicmineralsChemicalsPaperandpackagingOtherindustrialTransport-LDVsR²=0.7021-60%-50%-40%-30%-20%-10%0%10%20%02004006008001000GHGemissionsreductionvs2019baseline(%)Averagecarbonabatementcost(US$/tnCO2eq)0.01.02.03.04.05.06.07.08.09.020002002200420062008201020122014201620182020202220242026202820302032203420362038204020422044204620482050EnergyintensityforEU27+UK(PJ/EURbnGDP)Energyintensity-Grossavailableenergy/GDPEnergyintensity-Finalenergyconsumption/GDPSource:GoldmanSachsGlobalInvestmentResearchSource:Eurostat,GoldmanSachsGlobalInvestmentResearch20July202215GoldmanSachsCarbonomicsAmoresecureandindependentenergysystem:TheenergydependencyrateforEuropefallsfromc.58%toc.15%by2050onourestimateswiththeemergenceoflocal,lowcostrenewablepowerandgreenhydrogenexportersOurmodeloftheEuropeanenergysystemevolutionseesamaterialreductioninthedependencyrateoftheregion,fromc.58%currentlyto<50%by2030,<30%by2040andc.15%by2050.Theenergydependencyrateshowstheproportionofenergythataneconomymustimport.Itisdeﬁnedasnetenergyimportsdividedbygrossavailableenergy,expressedasapercentage.Anegativedependencyrateindicatesanetexporterofenergywhileadependencyrateinexcessof100%indicatesthatenergyproductshavebeenstocked.Itcanbedeﬁnedforallproductstotalaswellasforindividualfuels.In2020,everysinglecountrywithintheEU27andtheUKhasbeenanetimporterofenergy,asshowninExhibit28,withdependencyratesaslowas10%toashighas98%.Whilstwedonottakeaviewonacountrybycountrybasis,wenotethattheenergyimportdependencyoftheoverallregion(EU27+UK)willreducemateriallywithenergyﬂowsdominatedbyintra-regionalﬂowsbetweenEuropeancountriesratherthaninter-regionalhydrocarbonﬂowsbetweenEuropeandtherestoftheworld.Inthatcontext,weconductananalysistoaddressthecompetitivepositioningofkeyEuropeancountriesacrossthemostcriticalenergytechnologiesemergingasthedominatingenergypillars:solar,onshorewind,offshorewind,greenhydrogen.Wealsonotetheinclusionofthepopulationdensitymeasureforcontextregardingthepotentialspaceconstrainsassociatedwiththescale-upofthesetechnologiesandwhichextendsbeyondeconomicconsiderations.Wenotethatthisanalysisisnotexhaustive(doesnotaddresseverysinglecountryintheregion)andadoptsaveragecostﬁguresforthesetechnologiesacrosstheseregions.OurresultsaresummarizedinExhibit32.Exhibit28:ThedependencyrateforEuropequantiﬁestheshareofnetenergyimportsaspartofthetotalgrossavailableenergyfortheregion,currentlyatc.58%forEurope..Europe’senergydependencyratebycountry(2019,2020andGSprojectionsfortheoverallregionto2030and2050),%Exhibit29:..yetweexpectittoreducemateriallyto<50%/<30%/c.15%by2030/40/50basedonourmodel,enhancingtheregion’senergysecurityandindependence...Europegrossavailableenergysplitbetweennetimportsanddomesticenergy(PJ)0102030405060708090100Dependencyratebycounry(%)20202019Europe-2019Europe-2030Europe-205057%49%28%15%0%10%20%30%40%50%60%70%-10,00020,00030,00040,00050,00060,00070,00080,00090,000200320052007200920112013201520172019202120232025202720292031203320352037203920412043204520472049EU27+UKGrossavailableenergy(Pj)GrossavailableenergydomesticGrossavailableenergynetimportsDependencyrateSource:Eurostat,GoldmanSachsGlobalInvestmentResearchSource:Eurostat,GoldmanSachsGlobalInvestmentResearch20July202216GoldmanSachsCarbonomicsThemapofenergyﬂowsistransformedbyemerginglowcostrenewablesandgreenhydrogenexportersincludingIberia,partsofSouthernEuropeandtheUKThemapofEuropeanenergyﬂowsistransformedbyemerginglowcostrenewablesandgreenhydrogenexportersincludingIberia,partsofSouthernEurope(SoutheasternFrance,Italy,Greece)andtheUK(offshorewind).Iberiainparticularscreensveryattractivelyonthepotentialofsolarenergyandlowcostproductionofgreenhydrogen(bothintermsoftheimpliedsolarPVLCOEandwithregardstospaceavailabilityandpopulationdensity)whilsttheUKscreensattractivelyintermsofitscostpositioninginoffshorewind.Exhibit32summarizesthekeycomparativemetricsacrosskeyregionsofEuropewithregardstodomesticallyproducedcleanenergy.Exhibit30:..drivenbyahighershareofdomesticallyproducedenergysources,primarilyrenewablepower,nuclear,bioenergy..EU27+UKgrossavailableenergymixevolution(%)Exhibit31:...allofwhichhaveanoveralllowerenergydependencyratecomparedtothehydrocarbonsourcestheyaredisplacing.EnergydependencyratebyenergysourceforEU27+UK(%)0%20%40%60%200320052007200920112013201520172019202120232025202720292031203320352037203920412043204520472049EU27+UKGrossavailableenergymix(%)SolidfossilfuelsNaturalgasOilandpetroleumproductsNuclearheatRESpowerRESpowerforgreenhydrogenandhydrogenimportsBioenergy0%10%20%30%40%50%60%70%80%90%100%OilandpetroleumproductsNaturalgasSolidfossilfuelsRES-hydrogenRESpowerandbiofuelsNuclearheatDependencyratebyfuellforEU27+UK(%)Source:Eurostat,GoldmanSachsGlobalInvestmentResearchSource:Eurostat,GoldmanSachsGlobalInvestmentResearch20July202217GoldmanSachsCarbonomicsExhibit32:ThemapofenergyﬂowsistransformedbyemerginglowcostrenewablesandgreenhydrogenexportersincludingIberia,partsofSouthernEurope(SouthernFrance,Italy,Greece).LCOEforsolar,onshorewindandoffshorewind,LCOHforgreenhydrogenandpopulationdensityforkeyEuropeanregionsLCOEsareestimatedatthecountryaveragelevel,acknowledgingthatdifferentpartsofaregionwillhavevarioussolar,windandLCOEproﬁles.Weuseconsistently7%costofcapitalforsolarandonshorewind,9%costofcapitalforoffshore,8%costofcapitalforgreenhydrogen.Populationdensitydataarefor2019.Source:Eurostat(populationdensity),GoldmanSachsGlobalInvestmentResearch20July202218GoldmanSachsCarbonomicsMoreresilientenergysystem:AnecosystemofcleantechnologiessupportingaresilientsystemandﬁlingthepivotalneedforenergystorageAswehavehighlightednumeroustimesinourCarbonomicsresearchseriesandourglobalnetzeromodels,webelievethattheenergyevolutionandpathtonetzerocallsforanevolutionofthede-carbonizationprocessfromonedimensional(renewablepower)toamulti-dimensionalecosystem.Fourmoretechnologiesareemergingastransformationalinourviewinadditiontorenewablepower:hydrogen,bioenergy(includingtheroleofbiogas),batteryenergystorage,carbonsequestration(bothnaturalsinksandcarboncapture).Allofthesewill,inourview,berequiredtohelpthestabilityandresilienceoftheenergypathweenvisagefortheEuropeanregion.Renewablepowergenerationisakeydriverofthepathtonetzerocarbon.However,itsuffersfromtwokeyproblemsthatneedtobeaddressed:intermittencyandseasonality.Theseasonalnatureofnaturalgasconsumption,withEUaveragemonthlyconsumptionofc.20bcminJun/July/Augvs.c.45-50bcminDec/Jan/Feb,willmakeitverydifﬁcultforRussiangastobesubstitutedwithrenewablepower–especiallysolarpower,whichhasoppositeseasonality.Asthegrowthinrenewablepoweraccelerates,intradayandseasonalvariabilityhastobeaddressedthroughenergystoragesolutions.Toreachfullreplacementofcoalandnaturalgasandde-carbonizationofpowermarkets,webelievetwokeytechnologieswilllikelycontributetosolvingtheenergystoragechallenge:utility-scalebatteriesandhydrogen,eachhavingacomplementaryrole,withbatteriesaddressingintermittencyandhydrogenaddressingseasonality.WeincorporatebothofthesetechnologiesinourenergyevolutionpathforEurope.Thislowcarboninfrastructurehoweverwillrequiretimetobebuilt.Untiltherelevantenergystorageinfrastructure(networksandsmartgrids)andtechnologies(utilityscalebatteriesandhydrogen)arereadytosupportanincreasinglyelectriﬁedenergyeconomy,wearguethatbothnaturalgasandnuclearpowerhavearoletoplayintheneartermtoenableasmoothenergytransitionandhelpavoidapowercrunch.Exhibit33:Europeannaturalgasconsumptioninwintermonthsisonaveragec.2.5xthatofsummermonthsinordertomeetgrowingseasonalpowerdemandandaddressthecounter-seasonalityofrenewablepower.EU27averagemonthlypowergenerationbyfueltyperelativetoannualaverage,rebasedExhibit34:Hydrogencouldbetheoptimalsolutionforlarge-scale,long-durationenergystorage,particularlyfordischargedurationsbeyond50hours30507090110130150170190JanFebMarAprMayJunJulAugSepOctNovDecMonthlypowergenerationbyfuel,relativetoannualaverage(rebased)TotalNaturalGasWindonshoreWindoffshoreSolarCoalEU27Source:Eurostat,GoldmanSachsGlobalInvestmentResearchSource:HydrogenCouncil20July202219GoldmanSachsCarbonomicsWithregardstoenergystorage,whilebatteriesarecurrentlythemostdevelopedtechnologyforintradaypowergenerationstorage,weconsiderhydrogenasamorerelevanttechnologyforseasonalstorage,implyingtheneedforinnovationanddevelopmentofbothtechnologies.Batteries,forinstance,areparticularlysuitedtosunnyclimates,wheresolarPVproductionislargelystablethroughouttheyearandcanbestoredforeveningusage.Hydrogenontheotherhand,andtheprocessofstoringenergyinchemicalformandreconvertingittopowerthroughfuelcells,couldbeusedtooffsettheseasonalmismatchbetweenpowerdemandandrenewableoutput.Hydrogencurrentlyhasanicheroleinpowergeneration.However,aspowergenerationundergoesacompletetransformation,hydrogencouldemergeasacriticaltechnologyinthisindustry,complementingrenewablepowerasitunlocksseasonalenergystoragecapabilitiesandenhancestheresilienceofanincreasinglyelectriﬁedenergysystem.Theroleofpowergenerationis,inourview,onlylikelytoincreaseinthecomingdecades,asthepenetrationandpaceofelectriﬁcationrapidlyincreaseacrosssectors(includingroadtransport,buildingheating,industrialmanufacturingprocessesandlow-temperatureindustrialheat)astheyprogressivelyfollowtheirownde-carbonizationpath.Acceleratedelectriﬁcationofheatingislikelytoresultinlargepowerdemandandsupplyimbalances,makingtheroleofamolecularseasonalenergystoragesolutionvital.Weidentifythreekeyrolesofcleanhydrogeninthepowergenerationindustrythatcanenhancesystemresilienceandenablehigheruptakeofrenewablepower:seesectionEurope’senergyevolutionandtheneedformolecularenergysources:HydrogenandBioenergylaterinthisreport.Exhibit35:..andweexpectEuropeanhydrogenconsumptiontorisemulti-foldonthepathtonetzero.HydrogenconsumptionforEU27+UK(MtH2)Exhibit36:..complementingtherisingneedforutility-scalebatteriestosupportanincreasinglyintermittentrenewablepower-dominatedgrid.Utility-scalebatteriesEuropeandemand(GW)0%25%50%75%100%020406080202120222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050%CleanhydrogenpenetrationHydrogenconsumptionforEU27+UK(MtH2)PowergenstorageChemicalfeedstockRefineriesIndustry-heatIndustry-steelTransport-internationalshipping(ammonia)Transport-internationalaviationTransport-domesticshippingTransport-domesticaviationTransport-railTransport-road(HDVs,buses)Blendingingrid%Cleanhydrogen0100200300400500600700800202120222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050Utility-scalebatteriesEuropeandemand(GW)Source:GoldmanSachsGlobalInvestmentResearchSource:GoldmanSachsGlobalInvestmentResearch20July202220GoldmanSachsCarbonomicsTheinvestmentpath:€10tninvestmentopportunity,largelyrecoupedbylowernetenergyimportsThere-inventionoftheEuropeanenergysystemandpathtonetzeroby2050hasthepotentialtotransformnotonlythelocalenergyecosystembutalsotheeconomyandsociety’sstandardofliving.Exhibit37showsthewiderangeofinvestmentopportunitiesassociatedwithwhatwebelievearethekeyinfrastructuremilestonesrequiredtotransformEurope’ssystem.Theseinclude,amongothers,theincreasinguptakeofrenewablepower,batteryenergystorage,hydrogen,bioenergy,aswellasanincreasingfocusoninfrastructureinvestmentsforpowernetworksandchargingstationsthatwillenableaneweraofelectriﬁcation,anupgradeand/orretroﬁtofindustrialplants,retroﬁttingofbuildingsandotherexistingheatinginfrastructureenablinggreaterefﬁciencyanduptakeofelectriﬁcation,andﬁnallyagreaterfocusoncarbonsequestration(naturalsinksandcarboncapture).Inaggregate,weestimateatotalinfrastructureinvestmentopportunityaround€10trnby2050forthetransformationofEurope’senergysystem(EU27+UK)onthepathtonetzero,whichimpliesanaverageannualgreeninfrastructureinvestmentopportunityofc.€350bnpa.Wenotethatthisﬁgurefocusessolelyonincrementalinfrastructureinvestmentsanddoesnotincludemaintenanceandotherend-usecapex.Exhibit37:Weestimatethatthereexistsinaggregatea€10trninfrastructureinvestmentopportunityforthetransformationofEurope’senergysystemonthepathtonetzeroCumulativeinvestmentopportunityacrosssectorsforthere-inventionofEurope’senergysystemtonetzeroby2050(€tn)1.31.21.01.50.50.60.30.40.30.61.00.90.0110.1-24681012RenewablepowerPowernetworksEnergystorage(batteries)TransportchargingandrefuelinginfraBioenergyplantsHydrogenproductionplants(domestic)Hydrogenstrorage,transport,importsinfraBuildings-heatpumpsBuildings-efficiencyupgradesIndustrialprocessesincl.CCUSNaturalsinksCumulativeinvestmentsto2050CumulativeinvestmentsforEurope'senergysystemevolutiononthepathtonetzeroby2050(€tn)SolarPVOnshorewindOffshorewindNuclearOtherRES(geothermal,biomass)Source:GoldmanSachsGlobalInvestmentResearch20July202221GoldmanSachsCarbonomicsThere-inventionofEurope’senergysystemrequires,onourestimates,c.€350bnpaofinfrastructureinvestments,representing>2%oftheregion’sGDPby2030andpeakinginthemid-2030sAshighlightedinExhibit37,weestimateatotalinvestmentopportunityofc.€10tnby2050foranenergytransformationpathconsistentwiththelong-termnetzeroand‘Fitfor55’ambitions,foramoresecure,independentandsustainableenergysystem.Wenotehoweverthatwewouldnotexpectthistobeevenlydistributedannuallyto2050.Instead,weanticipateanannualde-carbonizationinvestmentproﬁlesimilartothatshowninExhibit38,withanaccelerationofinvestmentsto2035,theyearswhenweexpectinvestmentstopeak,drivenlargelybytheinitialinfrastructureexpansionrequiredforpowernetworks,chargingnetworks,themassiveexpansionofrenewablepower,buildingsupgradesandheatingpipelineinfrastructuretoacceleratethepenetrationofelectriﬁcationandcleanhydrogen,andfuelsubstitutionintransportandindustry.Overall,theaverageannualinvestmentsinde-carbonizationthatweestimateover2022-50arec.€350bn,withthepeakinthe2030s(c.€450bn)representing>2%oftheregion’sGDP(EU27+UK).Exhibit38:Weexpectanannualinvestmentproﬁlesimilartotheonepresentedhere,forthetransformationofEurope’senergysystemonthepathtonetzeroby2050,withinvestmentsreaching>2%oftheregion’sGDPby2030andpeakingaroundthemid-2030s0.0%0.5%1.0%1.5%2.0%2.5%-5010015020025030035040045050020222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050AnnualinfrastructureinvestmentsforEurope'senergyevolutionandpathtonetzeroby2050(€bn)Industrialplantupgrades(incl.CCUS)Hydrogenproduction,storage,transportandotherinfraNaturalsinksBioenergyplantsTransportchargingandrefuelingstationsInsulationretrofitsandotherefficiencyHeatpumpsPowergenerationEnergystorage(batteries)PowernetworksAnnualinvestmentsasa%ofGDP(RHS)Source:GoldmanSachsGlobalInvestmentResearch20July202222GoldmanSachsCarbonomicsWeestimatethattheinfrastructureinvestmentsrequiredcanlargelyberecoupedfromthesavingsofnetenergyimportscontributingtoamaterialimprovementinthebalanceofpaymentsfortheregionAsmentionedintheprevioussectionofthisreport,theevolutionoftheEuropeanenergysystemweenvisagewillleadtoanotablereductionofitsnetenergyimportsdependencyrate,astheshareofdomesticproductionovertakesanddominatesenergysupplylongterm(drivenlargelybytheriseofelectriﬁcationsupportedbydomesticrenewablepowerproduction).ThereductionofnetenergyimportsdependencyoftheregionwillsubsequentlyresultinanotableimprovementtoEurope’snetenergyimportsbalance.Weestimatethat€10tncanberecoupedfromthesavingsassociatedwiththereductionofnetenergyimports,sufﬁcienttofullycovertheinfrastructureinvestmentsrequired.Wehighlightnonethelessthattheannualevolutionandproﬁleofthesesavingsandrequiredinfrastructureinvestmentsdiffers,withtheformerlaggingthelatterbymorethanadecade.Efﬁcientﬁnancingandareliableregulatoryenvironmentarekeytobridgethetimegap.WefurthernotethatwhilsttheenergyindependenceofEuropewillimprovesubstantially,theregionwilllikelystillneedtoimportc.15%ofitsgrossenergyneeds,accountingforfossilfuelsusedasfeedstocks(suchasforchemicalsmanufacturing)andaroundhalfofthegreenhydrogenvolumesitrequires(mostlyfromadvantageousregionswithlowcost,excessrenewablepowersuchastheMiddleEast,NorthAfrica,partsofLatinAmerica,Australia).Exhibit39:Theinfrastructureinvestmentcanbelargelyrecoupedthroughlowernetenergyimports,yetwithmorethanadecadelag...EU27+UKannualrequiredinfrastructureinvestmentsvsnetannualenergyimportsavings(€bn)Exhibit40:...contributingtoamaterialimprovementinthebalanceofpaymentsfortheregion.EU27+UKnetenergyproductimportsvalue(€bn)-10020030040050060070080020222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050EU27+UKInfrastructureinvestmentsrequiredvsnetenergyimportssavings(€bn)SavingsfromenergyimportsreductionRequiredinfrastructureinvestmentsNetenergyimportssavings:€9.8tnRequiredinfrastructureinvestments:€10tn-1,200-1,000-800-600-400-200020172019202120232025202720292031203320352037203920412043204520472049EU27+UKNetenergyproductsimportsvalue(€bn)PetroleumoilNaturalgasSolidfossilfuelsCleanhydrogenSource:GoldmanSachsGlobalInvestmentResearchSource:Eurostat(historical),GoldmanSachsGlobalInvestmentResearch20July202223GoldmanSachsCarbonomicsExtendingtheanalysisbeyondthechangesinenergyimports,andincorporatingthepotentialnetimportsofcleantechequipmentrequiredforEurope’senergytransformation(primarilysolarpanels,stationaryandroadtransportbatteries),westillviewthatEurope’senergyshiftwilllikelybeaccretivetoitsoverallBalanceofPayments.Weestimatethatevenincludingtheimpactofnetimportedequipment,c.75%oftheinfrastructureinvestmentscanberecoupedthroughnetimportsavings,withc.€7.5trninnetimportssavingsfortheregion,asshownintheexhibitbelow.Exhibit41:Evenwhenconsideringtheimpactofrisingimportedequipmentvolumes(solarpanels,stationaryandtransportbatteries),weestimateac.€7.5trnnetimprovementinEurope’sbalanceofpaymentscumulativelyto2050...EU27+UKinfrastructureinvestmentsvsnetenergyimportssavingsandrequiredequipmentimports(€bn)Exhibit42:..withtheimprovementmostlyseenfrom2028NetchangeinEurope’sbalanceofpaymentsasaresultoftheEuropeanenergyevolutionweenvisage(€bn)-10020030040050060070080020222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050EU27+UKInfrastructureinvestmentsrequiredvsnetenergyimportssavings(€bn)SavingsfromenergyimportsreductionRequiredinfrastructureinvestmentsRequiredimportedequipmentNetenergyimportssavings:€9.8tnRequiredinfrastructureinvestments:€10tnRequiredimportedequipment:€2.3tn-200-100-10020030040050060070080020222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050ImpactofEurope'senergytransformationonbalanceofpayments(€bn)ChangeinnetenergyimportsChangeinnetequipmentimportsNetchangeinEurope'sbalanceofpaymentsSource:GoldmanSachsGlobalInvestmentResearchSource:GoldmanSachsGlobalInvestmentResearch20July202224GoldmanSachsCarbonomicsAmoreaffordableenergysystem:c.40%reductionintheaverageEuropeandirectenergycostpercapitavs2021andc.60%vsthepeakWebelievetheaverageEuropeandirectenergycostpercapitacanbereducedbyc.40%to2050(vs2021)andc.60%vsthepeakin2022Inadditiontothemoresustainable,secureandresilientenergysystemweenvisageforEurope,webelievethisenergysystemcouldprovetoalsobemoreaffordable.WeestimatethedirectenergycosttotheaverageconsumerinEurope(doneonapercapitabasis)couldbereducedbyc.40%longterm(by2050)vs2021ﬁgureandc.60%fromthepeak(2022).OuranalysisfocusesonthedirectcosttheaverageEuropeanenergyconsumerpaysinEuropeandincludesthetotalcostoffuelatthepump(gasoline,dieselforpassengerroadtransport),naturalgasﬁnalenergyconsumptioninresidentialbuildingsandelectricityﬁnalconsumptionforresidentialbuildingsbutalsofortransportelectriﬁcation.Wenotethatthisanalysisisdonebasedontheretailpricesthatconsumerspayforenergyandwhichincludeallrelevanttaxesandlevies.TheresultsoftheanalysisarepresentedinExhibit43.TheaverageEuropeanenergycostpercapitaisgoingthroughanabruptandlargeincreasein2022,consistentwiththetrendsobservedacrosstheenergypricebenchmarks(oilproducts,naturalgasandpowerprices)beforegraduallyreducingtothe2021levelbythemiddleofthedecade,onourestimates.Thereafter,thehighershareofpowerintheaverageEuropeanconsumer’senergyspendingaswellastheimprovedenergyefﬁciencyofEuropedrivesagradualreductionintotalenergycostpercapita,assumingthatthehighershareofrenewablesandPPAsdrivesthewholesaleandsubsequentlypowerpricelowerlongterm.Exhibit43:WeestimatethedirectenergycosttotheaverageenergyconsumerinEurope(doneonapercapitabasis)couldbereducedbyc.36%longterm(by2050)vs2021ﬁgureandc.60%vsthepeakin2022.AverageEuropeandirectenergycostpercapitaassociatedwithﬁnalenergyconsumption(EUR/capitapa)020040060080010001200140016001800200920102011201220132014201520162017201820192020202120222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050AveragerEuropeandirectenergycostpercapitaassociatedwithfinalenergyconsumption(EUR/capita)Gasoline/dieselfuelcostNaturalgascostPowercostc.60%reductionfromthe2022peakc.40%reductionc.36%reductionfromthe2022peakc.6%reductionvs2021Source:Eurostat,GoldmanSachsGlobalInvestmentResearch20July202225GoldmanSachsCarbonomicsPowergeneration:AttheheartofEurope’senergyevolution,affordabilityandsecurityPowergenerationisthemostvitalcomponentforanyEuropeanenergyevolutionandnetzeropath,withthesectorcontributingto>20%ofthetotalanthropogenicGHGemissionsfortheregion.Theroleofpowergenerationis,inourview,onlylikelytoincreaseinthecomingdecades,asthepenetrationandpaceofelectriﬁcationisrapidlyincreasingacrosssectorsastheseprogressivelyfollowtheirownenergyevolutionandde-carbonizationpath,including,amongstothers,theelectriﬁcationofroadtransport,buildings,industrialmanufacturingprocessesandlow-temperatureindustrialheat.Overall,weexpecttotalEuropeandemandforelectricitygenerationtomorethandouble(vs.thatof2019)andsurpass7,500TWhasthede-carbonizationprocessunfoldsandelectricityformsc.65%oftheoverallEuropeanﬁnalenergyconsumptionmix.BasedonourEuropeanCarbonomicscostcurveanalysis,powergenerationcurrentlydominatesthelowendofthecarbonabatementcostspectrum,withrenewablepowertechnologiesalreadydevelopedatscaleandcoststhathavefallenrapidlyoverthepastdecademakingthemcompetitivewithfossilfuelpowergenerationtechnologiesacrosskeyEuropeanregions.Assuch,webelievethatpowergenerationwilllikelybeamongstthesectorsthattransformtheirmixandde-carbonizeatafasterpacethanothers,asshowninExhibit26earlierinthisreport.Infact,asshowninExhibit47,itcanbearguedthatthetransformationofpowerinEuropehasalreadystartedandacceleratedoverthepastdecadewithrenewablepowerthemostcriticalcomponentofthemixmovingforward.BasedonourEuropeanenergyevolutionmodel,consistentwiththe‘Fitfor55’ambitions,weestimatethattheshareofrenewablesintheEuropeanpowermixwillrisefromc.40%currently(2021,includinginadditiontosolarandwind,hydro,bioenergyandrenewablewaste)to>60%by2030and>90%by2050.Exhibit44:WeestimatethattotaldemandforpowerinEuropewillincreasealmostthree-foldto2050..EU27+UKelectricitygeneration(TWh)Exhibit45:..asitformsacriticalpartoftheenergyevolutionandde-carbonizationrouteforothersectorssuchastheelectriﬁcationoftransport,buildings,industry,productionofgreenhydrogen..EU27+UKelectricitybridgeto2050E(TWh)-1,0002,0003,0004,0005,0006,0007,0008,00020002002200420062008201020122014201620182020202220242026202820302032203420362038204020422044204620482050EU27+UKpowergeneration(TWh)Naturalgas(incl.othergases)SolidfossilfuelsOilandotherproductsNuclearHydroSolarWindBioenergyOtherRESOther3,0912391,4146702,2317,64601,0002,0003,0004,0005,0006,0007,0008,0009,000EU27+UKelectricitygeneration-2020BuildingsTransportIndustryandotherDomesticgreenhydrogenEU27+UKNetZero2050EU27+UKelectricitygeneratyiondemandbysector(TWh)Source:Eurostat,GoldmanSachsGlobalInvestmentResearchSource:GoldmanSachsGlobalInvestmentResearch20July202226GoldmanSachsCarbonomicsExhibit46:..anditsshareintheEuropeanﬁnalenergymixisrising,reachingc.65%oftheEuropeanﬁnalenergyconsumption,fromc.23%currently.Europe’s(EU27+UK)ﬁnalenergyconsumptionmixundertheGSEuropeenergyevolutionmodel(%)Exhibit47:Thetransformationofthepowergenerationmixhasalreadystartedandweonlyexpectittoacceleratefromherewithrenewableenergyhavingthemostcriticalroletoplay...EU27+UKelectricitygenerationmix(%)0%10%20%30%40%50%60%70%200920112013201520172019202120232025202720292031203320352037203920412043204520472049EU27+UKfinalenergyconsumptionmixbytypeoffuel(%)SolidfossilfuelsPeatandpeatproductsNaturalgasOilandpetroleumproductsRenewablesandbiofuelsNon-renewablewasteElectricityHeatOther0%10%20%30%40%50%20002002200420062008201020122014201620182020202220242026202820302032203420362038204020422044204620482050EU27+UKpowergenerationmix(%)SolidfossilfuelsNaturalgas(incl.CCUSlongterm)OilandotherproductsHydroSolarWind(onshoreandoffshore)BioenergyOtherRESNuclearOtherSource:Eurostat,GoldmanSachsGlobalInvestmentResearchSource:Eurostat(historical),GoldmanSachsGlobalInvestmentResearchExhibit48:...anddominatingcapacityadditionsfromhere,withtotalinstalledrenewablecapacityreaching3,000GWby2050..EU27+UKgenerationcapacityadditionsbridge(GW)Exhibit49:...drivenpredominantlybysolarandwind(onshoreandoffshore)SolarpvandwindinstalledcapacityforEurope(GW)-5001,0001,5002,0002,5003,0003,5004,000EU27+UKpowergenerationcapacity-2020FossilfuelretirementsSolarWindBiomassandbiogasOtherRESEU27+UKNetZero2050EU27+UKPowergenerationcapacityadditionsbridge(GW)CoalNaturalgasOilNuclearHydroSolarWind-2004006008001,0001,2001,4001,6001,800201020122014201620182020202220242026202820302032203420362038204020422044204620482050SolarandwindinstalledcapacityforEU27+UK(GW)OnshorewindOffshorewindSolarPVSource:Eurostat(2020),GoldmanSachsGlobalInvestmentResearchSource:Eurostat,GoldmanSachsGlobalInvestmentResearchExhibit50:Accesstorenewablepoweristhemostcriticalde-carbonizationcomponent,beingbroadlyvitalforthede-carbonizationofc.50%ofthecurrentEuropeanemissionsEurope(EU27+UK)GHGemissionsde-carbonizationcostcurvewithorangeindicatingtechnologiesreliantonaccesstorenewablepower(cleanelectricity)Exhibit51:PowergenerationemissionshavebeenonadownwardtrajectoryinEuropeformostofthelasttwodecadesandweexpectthattocontinueto2050,despitetheslowdownin2022-23PowergenerationCO2emissions(LHS)andcarbonintensity(RHS)-200-10001002003004005006007008009001,0001,1001,2001,3001,4001,5000.00.40.81.21.62.02.42.83.23.64.0Carbonabatementcost(US$/tnCO2eq)GHGemissionsabatementpotential(GtCO2eq)De-carbonizationtechnologiesrelyingonrenewablepowerOtherde-carbonizationtechnologies-100200300400500-2004006008001,0001,2001,4001,60020002002200420062008201020122014201620182020202220242026202820302032203420362038204020422044204620482050Carbonintensity(kgCO2/MWh)PowergenerationCO2emissions(MtCO2)Solidfossilfuels(coal)NaturalgasOilandpetroleumNon-renewablewasteOtherNaturalgas+CCUSPowergenerationcarbonintensitySource:GoldmanSachsGlobalInvestmentResearchSource:Eurostat,GoldmanSachsGlobalInvestmentResearch20July202227GoldmanSachsCarbonomicsThepowergenerationinvestmentopportunity:Highercapitalintensityofrenewablepowerandtherisingimportanceofenergystorageandnetworksinfrastructurepavethewayforac.€6tninvestmentopportunityEarlierinthisreport,wehighlightedthesubstantialpotentialinvestmentcreationopportunityassociatedwithEurope’senergyevolutionpath.Renewablepowergenerationactsasamajorcontributortothisinfrastructureinvestmentopportunity(Exhibit37).Thisismainlyattributedtothehighercapitalintensityofthesetechnologiesandtheirassociatedinfrastructure,comparedwithtraditionalfossilfuelenergydevelopments.Intheexhibitsthatfollow,wepresentthecapitalintensity(capex)perunitofoutputenergyforeachtypeofpowergenerationtechnology.Wepresenttheresultsbothinunitsofcapexperﬂowingunitofenergy(US$/GJofpeakenergycapacity)andperunitofenergyoverthelifeoftheasset(US$/GJ).Thisshowshighercapitalintensityperunitofenergyaswemovetocleaneralternativesforpowergeneration.However,thisdoesnotnecessarilytranslateintohighercostsfortheconsumer,thankstotheavailabilityofverycheapﬁnancing(underanattractiveandstablelong-termregulatoryframework)andloweropex,comparedwithtraditionalhydrocarbondevelopments.Infact,inthecurrentcommoditypricelandscape,renewablepoweronaggregateimprovestheaffordabilityofpower.Asthegrowthinrenewablepoweraccelerates,intradayandseasonalvariabilityhastobeaddressedthroughenergystoragesolutions,ashighlightedinanearliersectionofthisreport.Toreachfullde-carbonizationofpowermarkets,webelievetwokeytechnologieswilllikelycontributetosolvingtheenergystoragechallenge:utility-scalebatteriesandhydrogen,eachhavingacomplementaryrole.WeincorporatebothofthesetechnologiesinourmodelforEurope’senergyevolution.Energystorageandtheneedforextensivenetworkinfrastructureisaparticularlyimportantconsiderationasdemandforpowergenerationgrowthaccelerates,toensurearesilientglobalenergyecosystem.Exhibit52:Renewablecleantechnologiesinpowergenerationhavehighercapitalintensitycomparedwithtraditionalfossilfuelsources,basedonperﬂowingunitofenergy...Capexperﬂowingunitofenergy(US$/GJ)Exhibit53:...andoverthelifetimeoftheassetCapexperunitofenergyoverthelifeoftheasset(US$/GJ)foreachtechnology0100200300400500600Coal-firedcombustionNaturalgasCGGTOnshorewindHydroSolarPVBiomassOffshorewindGeothermalCapitalintensityperflowingunitofenergy($/GJ)CapexperflowingunitofenergyCapexperflowingunitofenergy-GSbasecaseforChina0510152025Coal-firedcombustionNaturalgasCGGTOnshorewindHydroSolarPVBiomassOffshorewindGeothermalCapitalintensityperunitofenergyoverthelifetimeoftheasset($/GJ)Capexperunitofenergyoverassetlife-rangeCapexperunitofenergyoverassetlife-GSbasecaseforChinaSource:Companydata,GoldmanSachsGlobalInvestmentResearchSource:Companydata,GoldmanSachsGlobalInvestmentResearch20July202228GoldmanSachsCarbonomicsBuildings:ElectriﬁcationandefﬁciencylikelytogoverntheenergyevolutionpathBuildings,bothresidentialandcommercial(includingservicesandpublic),accountforc.42%oftheﬁnalenergyconsumptioninEurope,withtheenergymixcurrentlydominatedbyelectricityandnaturalgas(primarilyforheating).Whilstthekeytechnologiesthatgoverntheenergyevolutionandde-carbonizationofbuildingsinthenearandmediumtermarereadilyavailable,includingelectricheatpumps(airandgroundsource)andresidentialsolar,geothermal,andbioenergy,thelonglifespanofbuildingsmakestheneedforcomparativelycostlyretroﬁtsessentialtoachievenetzeroemissionsby2050,particularlyforresidentialbuildingswheretheswitchislargelyreliantonconsumerpreference.Assuch,anyaspirationforgrosszeroemissionsinbuildingshastocomewiththeneedforanacceleratedpaceofretroﬁts.OurenergyevolutionmodelforEuropeincorporatesastepchangeinthepaceofaccelerationofenergyefﬁciency,aswellastheﬂexibilityofthestockandashiftawayfromfossilfuels.Theformercanbeachievedbyacombinationofmeasures,includingtheswitchtobest-availabletechnology(BAT)acrossapplianceswithheatpumpsinparticularbeingveryenergyefﬁciencyaccretive(asshowninExhibit58),insulation(cavitywall,ﬂoor),automationandsmartmeters,andwilllargelybegovernedbyunderlyingbuildingcodesandstandards.Thelatterislargelydependentonthecostandavailabilityofcleanalternativetechnologies.Overall,asshowninExhibit55,electricityaccountsforaroundonethirdofthetotalﬁnalenergyconsumptionofbuildings,andweexpectitssharetomorethandouble,reachingc.74%by2050,whilsttheshareofdirectrenewableenergy,suchasresidentialsolar,geothermalandbioenergy,isalsoincreasingovertime,reaching>15%by2050.Thisimplies,onourestimates,morethan40millionheatpumpsinstalledacrossEuropeby2030.Increasingheatpumpinstallationscoupledwithincreasedspendingonefﬁciencyandinsulationcontributetoc.€1.6trnofcumulativeinfrastructureinvestmentsforbuildingsinEurope(mostlyretroﬁts).20July202229GoldmanSachsCarbonomicsExhibit54:Thecurrentﬁnalenergyconsumptionofbuildingsisdominatedbyelectricityandnaturalgasconsumption,eachaccountingforc.32%/34%oftheﬁnalenergyconsumptionacrosstotalbuildings(residential,commercial/servicesandpublic)..EU27+UKBuildingsﬁnalenergyconsumption(PJ)Exhibit55:...withelectriﬁcationanddirectrenewableshoweverdominatingtheenergymixlongerterm,eachrepresentingc.74%/15%ofthemixrespectively...EU27+UKﬁnalenergyconsumptionmixinbuildings(%)04,0008,00012,00016,00020,00024,000200920112013201520172019202120232025202720292031203320352037203920412043204520472049EU27+UKbuildingsfinalenergyconsumption(PJ)OtherElectricityRenewablesinclbiofuelsPeatandpeatproductsOilandpetroleumproducts(excl.biofuels)HeatNaturalgasManufacturedgasesSolidfossilfuels0%20%40%60%80%200920112013201520172019202120232025202720292031203320352037203920412043204520472049EU27+UKfinalenergyconsumptionmixinbuildings(%)SolidfossilfuelsManufacturedgasesElectricityNaturalgasHeatOilandpetroleumproducts(excl.biofuels)PeatandpeatproductsRenewablesinclbiofuelsOtherSource:Eurostat(historical),GoldmanSachsGlobalInvestmentResearchSource:Eurostat(historical),GoldmanSachsGlobalInvestmentResearchExhibit56:..andheatpumpinstallationssurpassing40mnby2030and75mnby2040Cumulativeheatpumpsinstallations(mn)Exhibit57:Switchtoelectriﬁcationandacceleratedefﬁciencyimprovementsdrivethebuildings’carbonintensityandemissionslowerEU27+UKbuildings’directcarbonintensity(LHS)andtotaldirectCO2emissions(RHS)14.441.175.3111.4-204060801001202020203020402050HeatpumpsinstalledinEurope(mn)CAGR:11%CAGR:6%CAGR:4%01002003004005006007000.05.010.015.020.025.030.035.0200920112013201520172019202120232025202720292031203320352037203920412043204520472049BuildingsCO2emissions(MtCO2)Buildingsdirectcarbonintensity(tnCO2/GJ)Buildingsdirectcarbonintensity(LHS)BuildingsCO2emissions(residentialandcommercial/services)(RHS)Source:EHPA,REHVA,GoldmanSachsGlobalInvestmentResearchSource:Eurostat,GoldmanSachsGlobalInvestmentResearchExhibit58:Heatpumptechnologieshaveadistinctadvantageforbuildingswheretheycanbesuccessfullydeployed,giventheirrelativelyhighefﬁciency(lowprimaryenergyfactor)..PrimaryenergyfactorofheatproductionacrosstechnologiesandfuelsExhibit59:..yettheinfrastructureinvestmentandtimeittakesforabroadretroﬁtandadoptionmayprovetobeatransitionopportunityforblendinghydrogeninthenaturalgasgrid,subjecttofurthertestingandanupgradeofglobalhydrogenblendinglimitsHydrogenblendinglimitsinnaturalgasgridbyvolume(%)0123456DistrictResistanceHeatpumpBiolerHeatpumpStoveBiolerHybridheatpumpFuelcellHeatElectricityNaturalgasBiomassHydrogenPrimaryenergyfactorofheatproduction0%5%10%15%20%25%30%CaliforniaBelgiumJapanLatviaFinlandNetherlandsSwitzerlandLithuaniaUSAAustriaSpainAustraliaFranceUKGermanyHydrogenblendinglimitsinnaturalgasgridbyvolume(%)H2blendlimitAllowableundercertaincircumstancesSource:IEASource:S&PGlobalPlatts20July202230GoldmanSachsCarbonomicsTransportation:TheriseofNEVsandalternativefuelsdrivedifferingenergyevolutionproﬁlesacrosstransportmodesTransportation,incontrasttopowergeneration,mostlysitsinthe‘high-cost’areaofthede-carbonizationcostcurve,withthesectorresponsibleforc.30%oftheEuropeanﬁnalenergyconsumptionandc.25%ofthenetEuropeanGHGemissions(excludinginternationalbunkersandaviation).Aspartofouranalysis,welayouttheenergyevolutionandde-carbonizationpathforEurope’stransportation,asshowninExhibit60,addressingallkeytransportationmodes:shortandmedium-haulroadtransport,heavylong-haultransport,rail,domesticaviationandnavigation.Wehighlightthatthespeedoftheenergytransformationandde-carbonizationvariesdependingonthetransportmode,largelydrivenbythedifferenceincostsandtechnologicalreadinessoftheavailablecleanalternativesrequiredforeachsub-sector.Light-dutyvehiclesandrail(whichisalreadylargelyde-carbonizedthroughelectriﬁcation)arethetwotransportmodeswithafasterrelativede-carbonization,giventhereadinessandrisingscaleofthecleantechnologiesforboth(electriﬁcation).Conversely,aviationandshippingde-carbonizeataslowerpace,giventhestilllargelyundevelopedorearlystagedevelopmentde-carbonizationalternativesinboth(sustainableaviationfuels,syntheticfuels,cleanhydrogenandammonia/methanol),whichweexpecttoenjoyalargeuptakeinadoptionandaccountforanotablepartoftheﬂeetonlypost2030.WefurtheraddresshowthefuelmixoftheenergyconsumptionoftransportevolvesovertimeinourEuropeanenergyevolutionmodelandpresenttheresultsinExhibit61.Overall,electricityincreasesitsshareintotaltransportenergyconsumptiontoc.40%by2050(>60%ifweexcludeinternationaltransport).Bioenergy,cleanhydrogen&hydrogen-derivedfuels(syntheticfuels,ammonia/methanol)allemergeasimportantenergysourcesfortransportation,particularlyforshipping,aviationandheavylong-haulheavytransport(lorries).Exhibit60:InourEuropeanenergyevolutionmodel,weaddresstheenergyevolutionofeachtransportmode...EU27+UKtransportﬁnalenergyconsumptionbytransportmode(PJ)Exhibit61:...andofeachfuel,includinginternationalaviationandshipping(wherefueldemandstemsfromEurope)EU27+UKtransportﬁnalenergyconsumptionbyfuel(PJ)02,0004,0006,0008,00010,00012,00014,00016,00018,00020,000200920112013201520172019202120232025202720292031203320352037203920412043204520472049TransportEU27+UKfinalenergyconsumption(PJ)CarsOtherLDVBusesandHDtrucksMotorcyclesDomesticaviationRailDomesticnavigationInternationalaviationInternationalbunkers05,00010,00015,00020,000200920112013201520172019202120232025202720292031203320352037203920412043204520472049TransportEU27+UKfinalenergyconsumption(PJ)Gasoilanddieseloil(exclbiofuel)Motorgasoline(exclbiofuel)Kero/jetfuelLPGElectricityNaturalgasFueloilRoadbiofuelsSAFSynfuelAmmoniaHydrogenBiogasSource:Eurostat,GoldmanSachsGlobalInvestmentResearchSource:Eurostat,GoldmanSachsGlobalInvestmentResearch20July202231GoldmanSachsCarbonomicsWenotethatwhilstfueldemandforinternationalaviationandmaritimebunkers(deﬁnedinasectionearlierinthisreport)isnottypicallyincludedinthedeﬁnitionof‘ﬁnalenergyconsumption’butisratherpartof‘grossavailableenergy’forEurope,weincludeitintheexhibitswhichfollowtoprovideabetteroverviewoftheultimatetransportationfueldemandstemmingfromtheregion(evenifthatfueldemandisultimatelyusedforinternationaltripactivities).Chargingandrefuelinginfrastructurecriticalforthetransformationoftransport:Weestimateac.€0.6trninfrastructureinvestmentopportunityinEuropeTheabilitytofacilitatetheenergyevolutionoftransportenvisaged,withrapiduptickofelectriﬁcationandalternativefuels,callsforsubstantialinfrastructureinvestments,whichweestimateat€0.6tncumulativelyto2050.Thisisimperativefortheincreasingnumberofpublicbutalsoprivatechargersaswellasalternativefuelsrefuelingstations.Exhibit62:Electricity,bioenergy,hydrogenandhydrogen-derivedfuels(ammonia,synfuels,methanol)dominateEurope’stransportationenergymixinthecomingdecades...EU27+UKtransportfuelmix-incl.internationalaviationandtransport(%)Exhibit63:..anddrivetherequiredemissionsreduction,mostlyacceleratingfrom2030.EU27+UKtransportCO2emissions(MtCO2)0%20%40%60%80%100%202120222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050EU27+UKtransportfuelmix-incl.internationalaviationandmaritime(%)Gasoilanddieseloil(exclbiofuel)Motorgasoline(exclbiofuel)Kero/jetfuelLPGElectricityNaturalgasFueloilRoadbiofuelsSAFSynfuelAmmonia/methanolHydrogenBiogas02004006008001,0001,2001,400200920112013201520172019202120232025202720292031203320352037203920412043204520472049TransportEU27+UKCO2emissions(MtCO2)CarsOtherLDVBusesandHDtrucksMotorcyclesDomesticaviationRailDomesticnavigationInternationalaviationInternationalbunkersSource:GoldmanSachsGlobalInvestmentResearchSource:Eurostat(EEA),GoldmanSachsGlobalInvestmentResearchExhibit64:Theenergyevolutionoftransportrequiresonourestimatesc.€0.6tninchargingandrefuelinginfrastructureinvestmentsChargingconnectionsforEurope(mnunits)02040608010012014016020222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050Europechargingconnections(mnunits)FastpublicchargersSlowpublicchargersPrivatechargersSource:GoldmanSachsGlobalInvestmentResearch20July202232GoldmanSachsCarbonomicsLight-dutyroadtransportvehicles:ElectriﬁcationattheheartofthetransportevolutionWebelieveroadtransportisatthestartofitsmostsigniﬁcanttechnologicalchangeinacentury,withelectriﬁcation,autonomousdrivingandcleanhydrogenatthecoreofthede-carbonizationchallenge.Forlight-dutyvehicles(LDVs)transport(primarilyconstitutingpassengervehicles,specialpurposevehicles,motorcycles,commercialvehiclesandshort/medium-haultrucks),weconsiderelectriﬁcationthekeyde-carbonizationtechnology.Overall,weestimatethatthetotalLDVsEuropeanroadﬂeet(includingpassengervehicles,shortandmedium-haultrucks)willincreasec.5%by2050(froma2019base),withnewenergyvehicles–NEVs(includingallofBEVs,PHEVsandFCEVs)reachingalmost100%penetrationintheroadtransportﬂeet,asshowninExhibit67,forapathconsistentwithnetzeroemissionsby2050.OurmodelingoftheLDVsenergyevolutionforEuropeisconsistentwiththeregion’sambitionslaidoutin‘Fitfor55’,whichhadintroducedEU-widereductiontargetsfor2030andsetatargetof100%carbonintensityreductionforcarandvanvehiclesalesby2035.Thisimpliesallsalesfrom2035(100%)inEuropewillbeNEVsandourmodelsassumes>65%ofnewLDVsaleswillbenetzeroby2030,aspresentedinExhibit66.Whileweprojectconsiderablegrowthinpurebatteryvehiclesintheultimatede-carbonizationsolutionforlightroadtransport(essentialforanetzeropath),weexpectmulti-energypowertraintoalsoplayaroleinthefacilitationofthistransition,accountingforaconsiderableportionofsalesandtheﬂeetoverthenext20years.Multi-energyvehiclesincludeplug-inhybridEV(PHEVs),range-extendedEVs,andlightemissionhybridcars(HEVs).Overall,consideringallNEVtypes,ournetzeropathrequiresaNEVpenetrationinthelight-dutyroadtransportﬂeettoreach>25%by2030,closeto>65%by2040,andalmost100%by2050.NEVssalesmakeup>35%/>65%and100%oftotalLDVsalesby2025/30/35Erespectively,effectivelyreachingzerocarbonintensityinLDVsalesby2035,asshowninExhibit66.Weprimarilyfocusontheevolutionoftheﬂeetforthepurposeofemissionaccountinginthisanalysis,withtheﬂeetevolutionreliantonbothvehiclessalesandretirements,asitisultimatelythepenetrationintheﬂeetthatdirectlytranslatesintotransportemissions.Exhibit65:Europe’senergyevolutionmodelcallsforatransformationalshiftinthemixoftheLDVsﬂeetto2050..EU27+UKpassengerLDVsﬂeet(kvehicles)Exhibit66:..withtheshareofNEVsinthesalesmixreaching100%by2035and>60%by2030..EU27+UKpassengerLDVssalesmix(%)050,000100,000150,000200,000250,000300,000350,000400,0002017201820192020202120222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050EU27+UKpassengercars(kvehicles)PetroleumproductsLiquefiedpetroleumgases(LPG)DieselNaturalGasBEVPHEVOther0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%100.0%2020202120222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050PassengerLDVssalesmix(%)BEVPHEVOtherpetroleumproductsLiquefiedpetroleumgases(LPG)DieselNaturalGasOtherNEVs100%ofsalesby2035NEVs>65%ofsalesby2030NEVs>35%ofsalesby2025Source:GoldmanSachsGlobalInvestmentResearchSource:GoldmanSachsGlobalInvestmentResearch20July202233GoldmanSachsCarbonomicsHeavy-dutyroadtransport:AcomparativelysmallerpartoftheEuropeantransportenergysystemwithamorecompetitivelandscapeencompassingelectriﬁcation,bioenergyandpotentialcleanhydrogenWhilewebelievethatelectricvehiclesscreenasthemostattractivede-carbonizationsolutionforLDVapplications,includingshortandmedium-haultransport,webelievethatthespacebecomesmorecompetitiveoncewelooktoaddressheaviersegmentsofthetransportationmarket,primarilybusesandlorries.Weacknowledgehowever,thattheshareofheavy-dutytransportinthecaseofEuropeiscomparativelysmallcomparedtolight-dutygivenrequiredmileagestoppageandrecharging/refuelingfrequency.Nonetheless,wenotethatbothbioenergyandcleanhydrogencouldbekeycompetingtechnologieswhenlong-haulheavytransportisconsidered(primarilylorries),givenitshighenergycontentperunitmassandshorterrefuelingtime.AlthoughtheFCEVs(fuelcellelectricvehicles)globalstockwasestimated(byIEA)tobearound25,000attheExhibit67:...anddrivingthetransformationoftheﬂeetwithac.12-15yeardelaygiventhereplacementcycleofaveragevehicles.EU27+UKpassengerLDVsﬂeetmixevolution(%)Exhibit68:LDVsandrailareachievingthemostrapidenergytransformationandde-carbonizationrelativetoothertransportationmodesgiventhetechnologicalreadinessandcostoftheavailabletechnologiesEU27+UKtransportemissionsreductionbymoderelativetothe2019base(%)0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%100.0%2017201820192020202120222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050EU27+UKpassengercarsfleetevolution(%)OtherpetroleumproductsLiquefiedpetroleumgases(LPG)DieselNaturalGasBEVPHEVOtherNEVs>25%offleetby2030NEVs>65%offleetby2040-120%-100%-80%-60%-40%-20%0%20%2020202120222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050Transportemissionsreductionbymode-changevs2019base(%)LDVs(passengercarsandother)BusesHDVs(lorries)RailAviationShippingTotaldomestictransportSource:GoldmanSachsGlobalInvestmentResearchSource:GoldmanSachsGlobalInvestmentResearchExhibit69:Despitetheirde-carbonizationandefﬁciencyimprovementpotential,wenotethatinEurope,theaverageBEVretailsfor>30%morethanICEvehiclesAverageretailpriceICEvsBEV(€),2021Exhibit70:..andweforecastagradualimprovementinbatterycellcostswillmaterializepost2023Source:GoldmanSachsGlobalInvestmentResearchSource:GoldmanSachsGlobalInvestmentResearch20July202234GoldmanSachsCarbonomicsendof2019,owingtoalimitedproductoffering,non-competitivepricepointsandlittleinfrastructure,weseetherecentpolicydrivetowardsde-carbonizationasareasontoreconsiderthepotentialforFCEVs.Despitesmallabsolutevolumes,thegrowthofFCEVscouldacceleratenotably,particularlyinheavylong-haultransportapplications,busesandforklifts.OverallwemodelconsiderablegrowthinbothelectricvehiclesandFCEVsasthepenetrationofbothovertakesinternalcombustionenginevehiclesinthecomingdecadesforbusesandheavy-dutylorries,aspresentedinExhibit71andExhibit72.However,theshiftintheﬂeetmixforheavy-dutyvehiclesstartslaterthanthetransitioninLDVs,giventhelowerproductofferingandtheneedforfurthertechnologicalinnovation(inthecaseoflong-haullargecapacitybatteries)andcostdeﬂation(inthecaseoffuelcells).Exhibit71:WeexpecttheevolutionofthebusesﬂeetinEuropetobedominatedbyelectriﬁcationandcleanhydrogen...EUR27+UKbusesﬂeetevolution(%)Exhibit72:...withasimilartrendobservedinheavy-dutylorries,withagreaterroleforcleanhydrogeninamorenichetransportationendmarketinEuropeEU27+UKHDVs(lorries)ﬂeetevolution(%)0%10%20%30%40%50%60%70%80%90%100%2013201520172019202120232025202720292031203320352037203920412043204520472049EU27+UKbusesfleetevolution(%)Diesel&otherpetroleumproductsElectricityHydrogenFC0%10%20%30%40%50%60%70%80%90%100%2013201520172019202120232025202720292031203320352037203920412043204520472049EU27+UKHDVs(lorries)fleetevolution(%)Diesel&otherpetroleumproductsNaturalgas(CNG)ElectricityHydrogenFCSource:GoldmanSachsGlobalInvestmentResearchSource:GoldmanSachsGlobalInvestmentResearchExhibit73:HydrogenoutperformssigniﬁcantlywhenwecomparetherefuelingtimesofFCEVsversusBEVsatdifferentkWchargingratings...minstorefuel/rechargeExhibit74:...andalsoprovidesarangeadvantage,particularlyusefulforlong-haultruckapplicationsZEVClass8trucksandrange(km)3330150020406080100120140160ICEFCEVBEV-DC(100kW)BEV-AC(22kW)Timetorefuel(measuredinminutes)200km200km210km300km400km483km500km805km1,000kmMaxEUdailytruckdistacnce:c.800kmSource:Companydata,GoldmanSachsGlobalInvestmentResearchEUmaxdailydrivingtimeat9hours(assumingaveragespeedof90km/h)Source:Transport&Environment,EU,GoldmanSachsGlobalInvestmentResearch20July202235GoldmanSachsCarbonomicsIntheexhibitsbelow,wecomparethetotalcostofownershipforICE,BEVandFCEV,forheavy-dutylong-haultrucks.Aswelookintoheavy-roadlong-haultransport,weﬁndthehydrogenpropositionpotentiallycompetitive,withaTCOthatissimilartothatofBEVbutbeneﬁtingfromlowerweightandfasterrefuelingtimes.WhilebothoptionsremainmorecostlythanconventionaldieselICEtrucks,weexpecttechnologicalinnovationandcostdeﬂationthatgenerallycomesonthebackofeconomiesofscaletoreducethecostsofbothtechnologiesovertime.Exhibit75:Long-haulheavytransportcouldbeanewpotentialendmarketforhydrogen,withFCEVtrucksbecomingcostcompetitive,yetwenotetheshareoflonghaulHDVsinEuropeantransportisrelativelysmallTotalcostofownershipofaClass8truck(15yearsassumedusefullife)Exhibit76:Longerterm,weestimateahydrogenpricearoundUS$4-4.5/kgH2wouldbesufﬁcientforcostparitywithdiesel(normalizeddieselprices)Hydrogenpriceatthepumprequiredforcostparitywithdiesel00.20.40.60.811.21.41.61.82ICEDieselBEVFCEVICEDieselBEVFCEVCurrentLong-termTCOforlong-haulheavytruck($/km)CostofthetruckMaintenance&operationsFuel/electricitycost0.01.02.03.04.05.06.07.08.09.02.02.53.03.54.04.55.05.56.06.57.07.5Hydrogenpriceatthepumpforcostparitywithdieseltrucks($/kgH2)Dieselpricepergallon(US$/gl)Long-termFCEVTCOCurrentFCEVTCODieselpriceassumptionofUS$6.5/gl,retailpowerpriceassumptionof$0.6/kWh($0.4/kWhlong-term),hydrogenpriceatthepumpof$12/kg($5/kglong-term)Source:Companydata,GoldmanSachsGlobalInvestmentResearchSource:GoldmanSachsGlobalInvestmentResearch20July202236GoldmanSachsCarbonomicsAviation&Shipping:Harder-to-abatesectors,withnewgenerationaircraft/ﬂeetrenewal,sustainableaviationfuels(SAFs)andhydrogen-basedfuelsandnewpropulsiontechnologiespavingthewayfortechnologicalinnovationandtransformationAviationsitsatthetopofourCarbonomicscostcurveforEurope,andisoneofthetoughestsectorstode-carbonize.Wenotethatdomesticaviationaccountedforonlyc.2%ofthetotaltransportenergyconsumptionforEurope;however,withtheinclusionofinternationalaviation,thissharerisestoc.14%(2019),makingitanimportantandchallengingpartoftheenergysystemtotransform.Sustainableaviationfuels(SAFs),syntheticfuelsandimprovedaircraftefﬁciencyareinourviewallkeypartsofthesolution.Inthenearterm,weviewthenewgenerationofaircraftandﬂeetrenewalaslikelytoachievethelowest-costaviationemissionsabatement.Newgenerationaircraft,whichcanburnc.15%-20%lessfuelthantheirpredecessors,currentlyhavelimitedpenetrationacrosstheglobalﬂeet,yetwithfuelcostsaccountingfor>30%ofairlinesfuelopexwebelievetheongoingshiftwillaccelerateinthecomingyears.AlthoughlowerinvestmentcapacityamidweakenedbalancesheetspostCovidhadresultedinaircraftdeferrals,wedonotexpectmedium-andlong-termﬂeetrenewalplanstochange.Fromhere,weseeagradualandongoingimprovementinaviationactivitywithefﬁciencyanimportantpillarforthesustainabilityandultimateenergydemandprogressionofthissub-segmentoftransportation.Havingsaidthat,ultimately,inthemediumandlongtermweexpectthefuelswitchfromcurrentkeroseneandjetfuelintosustainableaviationfuel(SAF)andlonger-termsyntheticandotherfuelstodrivethemostmeaningfulchangeintheenergyevolutionoftheaviationindustryinEurope,withthetwofuelsmakingupc.63%/37%ofthemixlongerterm,respectively.WhilsttheeconomicsofSAFremainmorechallengingrelativetotraditionaljetfuelatpresent,wenotethattheﬁrstlegoftheenergyswitchwilllikelybedrivenbyEU-wideblendingmandates,withtheReFuelEUproposalincorporatingthecommencementfrom2025for2%SAF,graduallyincreasingto63%in2050,consistentwithourmodel.Exhibit77:Theswitchtomoreefﬁcientaircraftshasthepotentialtoleadtoc.15%-20%fuelburnimprovement...Fuelburnimprovementvs.previousgenerationaspercompanydataExhibit78:...andisakeytoolfortheenergyevolutionofaviationinthenearandmediumtermgiventheongoingincreaseinactivityweexpectinthesector...Aviationpkmandfuelconsumption25%25%20%20%14%10%0%5%10%15%20%25%30%A330neoA350A320neo787737MAX777X02,0004,0006,0008,00010,00012,00014,00016,0000500,0001,000,0001,500,0002,000,0002,500,000Passengerairtransportovernationalterritory(inclterritorialsea)-mnpkm-LHSFreighttonnekmairtransportovernationalterritory(includingterritorialsea)-tnkm(RHS)Source:CompanydataSource:IATA(historical),GoldmanSachsGlobalInvestmentResearch20July202237GoldmanSachsCarbonomicsDomesticnavigation(coversthequantitiesdeliveredtovesselsnotengagedininternationalnavigation)accountedforc.2%ofthetotalEuropeanﬁnalenergyconsumptionintransport,butsimilarlytoaviation,consideringalsointernationalmarinebunkers,thissharerisestoc.11%.Shippingisanothersectorwithhard-to-abateemissionsgivenalackofwidespreadadoptionoftheavailablelow-carbonde-carbonizationtechnologiesatscale,andtherelativelylongoperatinglifeofvessels.Similartoaviation,wedonotexpectgrossemissionsinshippingtoreachabsolutezeroin2050,yetwedomodelanotablereductioninemissions,asalternativefuelsbecomemorewidelyadopted.Amongsttheseisliqueﬁednaturalgas(LNG),which,whilstnotazero-emittingfuel,canplayakeyroleasatransitionfuelfortheshippingsector,aswellasadvancedbiofuels,andcleanhydrogen-derivedfuelssuchasammonia/methanolcanplayalargerroleastheultimatede-carbonizationtechnologiesforthesector.InourEuropeanenergyevolutionmodel,cleanammoniaoralternativecleanhydrogen-basedfuels(suchasmethanol)accountforc.69%ofthetotalenergyinshippingin2050,sustainablebiofuelsprovidec.20%oftotalshippingenergyneeds,withtheremainingenergyprovidedbyLNG.Exhibit79:..butultimately,fuelswitchisnecessary,withSAFs,syntheticandotherfuelspavingtheenergyevolutionofaviationinthemediumandlong-term..EU27+UKaviation(domesticandinternational)energyconsumption(PJ)Exhibit80:..accountingforc.63%/37%oftheaviationfuelmixrespectivelyby2050EU27+UKaviation(domesticandinternational)energymixevolution(%)05001,0001,5002,0002,5003,000201020122014201620182020202220242026202820302032203420362038204020422044204620482050EU27+UKdomesticandinternationalaviationfinalenergyconsumption(PJ)Kerosene/jetfuelSAFSyntheticfuels0%20%40%60%80%100%2020202120222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050Domesticandinternationalnavigationenergyconsumptionmix(PJ)OilandpetroleumproductsBiofuelsLNGAmmonia/methanolorotherhydrogen-basedfuels)Source:Eurostat,GoldmanSachsGlobalInvestmentResearchSource:GoldmanSachsGlobalInvestmentResearchExhibit81:Fuelswitchingwillbekeyfortheenergyevolutionofmaritimebunkers...EU27+UKdomesticandinternationalmaritimebunkersenergyconsumption(PJ)Exhibit82:..withcleanammonia/methanol,advancedbiofuelsandLNGallplayingaroleintheenergytransitionEU27+UKdomesticandinternational050010001500200025003000201020122014201620182020202220242026202820302032203420362038204020422044204620482050EU27+UKdomesticandinternationalmaritimebunkersenergyconsumption(PJ)Ammonia/methanolorotherhydrogen-basedfuelsLNGBiofuelsOilandpetroleumproducts0%20%40%60%80%100%2020202120222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050Domesticandinternationalnavigationenergyconsumptionmix(PJ)OilandpetroleumproductsBiofuelsLNGAmmonia/methanolorotherhydrogen-basedfuels)Source:Eurostat,GoldmanSachsGlobalInvestmentResearchSource:GoldmanSachsGlobalInvestmentResearch20July202238GoldmanSachsCarbonomicsIndustry:Anewindustrialtechnologyrevolutioncenteredaroundefﬁciency,electriﬁcation,hydrogen,circulareconomyandCCUSTheindustrialsectoraccountsforc.25%ofEurope’sﬁnalenergyconsumption,makingitthethird-largestenergyconsumingindustryintheregion(afterbuildingsandtransportation).ThesectornonethelesscontributesthehighestEuropeannetGHGemissions,atc.33%in2019.Theindustrialsectorforthepurposeofthisanalysisincorporatesallofindustrialcombustion,industrialprocesses,wasteandotherfugitiveemissions(includingthoseassociatedwiththeextractionandreﬁningoffossilfuels).Whiletheexactsplitofallthedifferentindustrialsub-sectoremissionsissubjecttouncertainty,withdifferencesbetweensources,weestimatethatc.50%oftheEuropeanindustryenergyconsumptionstemsfromthekeyheavyindustriesasshowninExhibit85(ferrousandnon-ferrousmetalsmanufacturing,non-metallicmineralssuchascementandchemicals).WebelieveEuropeanindustry,similartothetransportandbuildingssectors,willhavetoundergoatechnologicalrevolutiononitspathtonetzerowiththekeyleversofthistransformationbeingenergyefﬁciency,electriﬁcation,hydrogen,circulareconomyandCCUS(forsectorswhereanalternativeenergysourcedoesnotdrivethecompleteabatementofemissions,suchasinprocessessuchascementproduction).Overall,ourmodelforEuropeanindustrypointstoalong-termshareofelectricityofc.58%,directrenewables(renewablewasteandbioenergybothintheformofbiogasandbiomass)c.24%,cleanhydrogenc.10%,asshowninExhibit84,withthelattertwo(bioenergyandcleanhydrogen)beingvitalforheavyindustrieswheredirectelectriﬁcationisnotpossiblegiventhehightemperaturesinvolvedintheseindustrialprocesses.Exhibit83:Weseeenergyefﬁciency,electriﬁcation,hydrogen,circulareconomy,bioenergyaskeydriversoftheenergytransformationofEuropeanindustry..EU27+UKindustryﬁnalenergyconsumption(PJ)Exhibit84:..requiredtode-carbonizeanddiversifytheenergyofbothlowtemperatureconventionalmanufacturingprocessesbutalsoheavyindustryEU27+UKindustryﬁnalenergyconsumptionfuelmix(%)-2,0004,0006,0008,00010,00012,000200920112013201520172019202120232025202720292031203320352037203920412043204520472049EU27+UKIndustryfinalenergyconsumption(PJ)SolidfossilfuelsManufacturedgasesElectricityNaturalgasHeatOilandpetroleumproducts(excl.bio)PeatandpeatproductsRenewablesandbiofuelsNonrenewablewasteHydrogen0%10%20%30%40%50%60%70%200920112013201520172019202120232025202720292031203320352037203920412043204520472049EU27+UKindustryfinalenergyconsumptionfuelmix(%)SolidfossilfuelsManufacturedgasesElectricityNaturalgasHeatOilandpetroleumproducts(excl.bio)PeatandpeatproductsRenewablesandbiofuelsSource:Eurostat(historical),GoldmanSachsGlobalInvestmentResearchSource:Eurostat(historical),GoldmanSachsGlobalInvestmentResearch20July202239GoldmanSachsCarbonomicsTheenergyevolutionandtechnologicalmixofeachsub-segmentofindustrywilldifferdependingonthecharacteristicsoftheprocessinvolved,callingfortheneedofcontributionsfromallofelectriﬁcation,circulareconomy,efﬁciency,hydrogen,bioenergy,CCUSTheenergyevolutionofEuropeanindustrywilldifferbothinpaceandintechnologicalandfuelmixdependingonthespeciﬁcprocessanditscharacteristics.Morebroadly,Europeanindustrialenergyconsumptionissplitfairlyevenlybetweenlowandmediumtemperatureheatprocessessuchasbroaderequipmentmanufacturing,andhightemperatureheatprocesses,primarilyheavyindustrysuchasiron&steel,non-metallicmineralsandnon-ferrousmetalsmanufacturing,aswellaspetrochemicals,asshowninExhibit85.Whilstenergyandmaterialefﬁciency(includingcirculareconomyandwastemanagement)willlikelyberelevantforallindustrialsub-segments,wenotethatthedominanttechnologiesandultimateenergymixwilldifferforeachtypeofindustrialprocess.Overall,weviewelectriﬁcationaslikelytobethedominantsourceofenergyforlowtemperatureheatprocesses(suchasbroaderequipmentmanufacturing),asthosedeﬁnedinExhibit85,whilstmolecularsourcesofenergyincludingbioenergy,hydrogenandhydrocarbonsretroﬁttedwithcarboncapturearelikelytodominatehightemperatureprocessesforwhichfullelectriﬁcationisnotpossiblewithexistingtechnologiesatscale.Exhibit85:Europeanindustryissplitbetweenlowandhightemperatureprocesses,makingtheneedforbothelectriﬁcationbutalsomolecularenergysourcesforitsde-carbonizationandenergyevolutionHeattemperatureExamplesofprocessesAvailablecleantechnologiesc.24%Veryhigh-temperatureheat>1,000degreesCalcinationoflimestoneforcementproductionMeltinginglassfurnaceReheatingforslabinhotstripmillFossilfuels+CCUSBioenergyCleanhydrogenElectricityc.25%High-temperatureheat400-1,000degreesSteamreformingandcrackinginpetrochemicals(ammonia,methanol)Fossilfuels+CCUSBioenergyCleanhydrogenElectricityc.28%Medium-temperatureheat100-400degreesDrying,evaporation,distillationactivationBroadermanufacturingFossilfuels+CCUSBioenergyCleanhydrogenElectricityc.13%Low-temperatureheat<100degreesandotherunclassifiedWashing,rinsing,foodpreparationBroadermanufacturingFossilfuels+CCUSBioenergyCleanhydrogenElectricityEuropeanindustryfinalenergyconsumptionsplitbysub-industryandtypeofprocess,2019ApplicableandcurrentlyavailableatlargescaleApplicablebutnotyetatlargescaleNotapplicableIron&steel,10%Nonmetallicminerals,14%Nonferrousmetals,4%Chemicalandpetrochemical,21%Machinery,transportequipment,construction,14%Paper,pulpandprinting,13%Food&beverage,tobacco,12%Other,12%Veryhightemperature,23%Hightemperature,25%Mediumtemperature,28%Low-temperatureandother,24%Source:GoldmanSachsGlobalInvestmentResearch20July202240GoldmanSachsCarbonomicsOverall,ourEuropeanindustryenergymodelisconsistentwithanotableaccelerationofindustrialGHGemissionsreduction(includingindustrialcombustion,processes,fugitiveandwasteemissions).WenotenonethelessthatgrossindustrialGHGemissionsneverreachabsolutezero,giventheharder-to-abateprocessemissionsacrosskeysectors,makingtheneedforLULUCF(deﬁnedearlierinthisreportandincludingnaturalsinks)importantfornetzerofortheregion,consistentwiththeframeworkofemissionsreductionsuggestedby‘Fitfor55’.TheoverallproﬁleofEuropeanindustrialemissionsispresentedinExhibit87,includingfugitiveandotherwasteemissions.Exhibit86:TheenergyevolutionofEuropeanindustrydiffersdependingonthespeciﬁcprocessanditsenergyandheatrequirements,withanecosystemofenergysourcesandtechnologiesrequiredtoaddressthefullspectrumofprocessesEU27+UKindustryﬁnalenergyconsumptionbysub-industry(%-topchart,PJ-bottomchart)OthernotspecifiedTextileandleatherMiningandquarryingWoodandwoodproducts0%20%40%60%80%100%20202030204020502020203020402050202020302040205020202030204020502020203020402050202020302040205020202030204020502020203020402050Iron&steelNon-metallicmineralsNon-ferrousmetalsChemicalandpetrochemicalMachinery,transportequipment,consructionPaper,pulpandprintingFood&beverage,tobaccoOther(textiles,miningandquarrying,woodproducts,unspecified)Europeanindustryfinalenergyconsumptionmix(%)SolidfossilfuelsManufacturedgasesElectricityNaturalgasHeatOilandpetroleumproducts(excl.bio)PeatandpeatproductsRenewablesandbiofuelsNonrenewablewasteHydrogen05001,0001,5002,0002,50020202030204020502020203020402050202020302040205020202030204020502020203020402050202020302040205020202030204020502020203020402050Iron&steelNon-metallicmineralsNon-ferrousmetalsChemicalandpetrochemicalMachinery,transportequipment,consructionPaper,pulpandprintingFood&beverage,tobaccoOther(textiles,miningandquarrying,woodproducts,unspecified)Europeanindustryfinalenergyconsumptionmix(PJ)SolidfossilfuelsManufacturedgasesElectricityNaturalgasHeatOilandpetroleumproducts(excl.bio)PeatandpeatproductsRenewablesandbiofuelsNonrenewablewasteHydrogenSource:Eurostat(historical),GoldmanSachsGlobalInvestmentResearch20July202241GoldmanSachsCarbonomicsExhibit87:Industrialemissionsstemfromaverydiverserangeofsourcesandindustries,requiringanecosystemofde-carbonizationtechnologies,includingcarbonoffsets,toachievenetzeroGHGemissionsby2050EU27+UKindustrialGHGemissions(MtCO2eq)-2004006008001,0001,2001,4001,600200920102011201220132014201520162017201820192020202120222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050EU27+UKindustrialemissions(MtCO2eq)Iron&steelNonmetallicmineralsNonferrousmetalsChemicalandpetrochemicalMachinery,transportequipment,constructionPaper,pulpandprintingFood&beverage,tobaccoOtherCO2emissionsWasteemissionsOthernonCO2emissionsSource:Eurostat(EEA),GoldmanSachsGlobalInvestmentResearch20July202242GoldmanSachsCarbonomicsEurope’senergyevolutionandtheneedformolecularenergysources:HydrogenandBioenergyAswehavehighlightedearlierinthisreport,webelieveEurope’senergytransformationandpathtonetzerocallsforanevolutionofthede-carbonizationprocessfromonedimensional(renewablepower)toamulti-dimensionalecosystem.Whilstrenewablepoweristhemostcriticalpartoftheenergysystemweenvisage(withc.50%ofthede-carbonizationoftheregionrelyingonaccesstocleanpower),wenotethatthenatureofitposestwokeychallenges,intermittencyandseasonality,increasingtheimportanceofmolecularsources.Inthissectionofthereport,wefocusonaddressingthepotentialroleandopportunityforthetwomolecularenergysourcescomplementingrenewablepower:cleanhydrogenandbioenergy.TheriseoftheEuropeangreenhydrogeneconomy:BridgingthegapbetweenenergysustainabilityandenergyresilienceHydrogenhasacriticalroletoplayinanyaspiringenergyevolutionpathwhichlargelyreliesontheresilienceofanincreasinglyelectriﬁedenergysystemdependentonrenewablesources.Hydrogenhasawiderangeofapplicationsacrosssectorsincluding,butnotlimitedto,itspotentialuseasanenergyvectorandstorage(seasonal)solutionthatcanextendelectricity’sreach,industrialenergysourceandindustrialprocessfeedstockincludingitspotentialuseinreplacingcoalinsteelmills,servingasabuildingblockforsomeprimarychemicalsandprovidinganadditionalcleanfueloptionforhightemperatureheat,andlong-haulheavytransport.Weestimatethatcleanhydrogencanconstitutec.15%ofEurope’stotalﬁnalenergyconsumptionwithitsaddressablemarket,growingtoc.66Mtpaby2050inascenarioconsistentwith‘Fitfor55’.Exhibit88:OurEuropeanenergyevolutionmodelseestotalhydrogendemandincreasingtoc.66Mtpaby2050,withfurtherpotentialupsidefromthe‘REPowerEU’proposalHydrogenconsumptionforEU27+UK(Mtpa)andshareofcleanhydrogen(%)0%20%40%60%80%100%0.010.020.030.040.050.060.070.0202120222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050%CleanhydrogenpenetrationHydrogenconsumptionforEU27+UK(MtH2)BlendingingridTransport-road(HDVs,buses)Transport-railTransport-domesticaviationTransport-domesticshippingTransport-internationalaviationTransport-internationalshipping(ammonia)Industry-steelIndustry-heatRefineriesChemicalfeedstockPowergenstorageSource:GoldmanSachsGlobalInvestmentResearch20July202243GoldmanSachsCarbonomicsFurthermore,webelieverecentgeopoliticaleventshavechangedtheEU’spriorityinrelationtoitsenergypolicy,withtheEuropeanCommissionpublishingthe‘REPowerEU‘planoutliningasetofjointactionstoreduceEurope’sdependenceonRussiangasimportsandunlockincreasedinvestmentsandreformsformoreaffordable,sustainableandsecureenergysupply.Whiletheenergypolicyfocusappearstohaveshiftedtoenergysecurity,onekeyprioritywhichremainsintactandisgainingmomentumfortheEUistheneedtoacceleratetherenewablesbuild-upandelectriﬁcationaswellasfast-tracktheroll-outofrenewablegases:hydrogenandbiogas.Green(renewable)hydrogenisidentiﬁedasacriticaltechnologyinhelpingtounlockfurtherdiversiﬁcationawayfromnaturalgasinthecomingyearsandtheproposalincludesanotableupgradeofthe‘Fitfor55’targetof5.6Mtpaofrenewablehydrogenby2030to20Mtpaoverthesametimeframeonacombinationoflocallyproducedandimportedvolumes.ThisposesfurtherupsidepotentialforthetechnologythanourEuropeanenergyevolutionmodelsuggests(consistentwiththe‘Fitfor55’target).Cleanhydrogencreatesac€0.74trncumulativeinvestmentopportunityforthedirectdomesticEuropeancleanhydrogensupplychainOverall,ourEuropeanenergypathconsistentwiththe‘Fitfor55’ambitionslaidoutforhydrogencallsfor€0.74tnofcumulativeinvestmentsinthedirectdomesticEuropeanhydrogenvaluechainto2050,evenwhenaccountingforc.50%ofvolumesbeingimportedfromneighboringregions.Thisﬁgurecapturesinvestmentsinthedirectsupplychainofcleanhydrogen,includinginvestmentsrequiredforitsproduction(electrolyzersandCCUSforgreenandbluehydrogen,respectively),storage,distribution,transmissionandglobaltrade(regasiﬁcationterminals).WenotethisissolelydomesticEuropeancapexinvestmentsinthedirectsupplychainofcleanhydrogenanddoesnotincludecapexassociatedwithendmarkets(industry,transport,buildings)orupstreamcapexassociatedwiththepowergenerationplantsrequiredforelectricitygenerationforgreenhydrogen.Exhibit89:Weestimatec.€0.74tnofcumulativedomesticEuropeaninvestmentswillberequiredinthecleanhydrogensupplychainto2050...CumulativeinvestmentsinthedomesticEuropeancleanhydrogenvaluechainto2050(EURbn)Exhibit90:...withelectrolysiscapacitymakingupthelargestshareoftheseinvestmentsInstalledelectrolysiscapacityrequiredforEurope’shydrogenconsumption(splitbetweendomesticandthatrequiredforhydrogenimportedvolumes),(GW)Electrolysisequipment,€325CCUS,€88Localdistribution,€127Storage,€38Transportandinternationaltrade,€158€740bncumulativeinvestmentsonthedomesticEuropeancleanhydrogenvaluechain02004006008001000120020222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050InstalledelectrolysiscapacityrequiredforEurope'shydrogenconsumption(GW)Importedhydrogeninstalledwaterelectrolysiscapacity(GW)Domesticinstalledwaterelectrolysiscapacity(GW)Source:GoldmanSachsGlobalInvestmentResearchSource:GoldmanSachsGlobalInvestmentResearch20July202244GoldmanSachsCarbonomics(1)Greenhydrogenakeyenablerofelectriﬁcation,unlockingseasonalenergystorageandhavinggridbuffercapabilitiesHydrogencurrentlyhasanicheroleinpowergeneration.However,aspowergenerationundergoesacompletetransformation,hydrogencouldemergeasacriticaltechnologyinthisindustry,complementingrenewablepowerasitunlocksseasonalenergystoragecapabilitiesandenhancestheresilienceofanincreasinglyelectriﬁedenergysystem.Theseasonalnatureofnaturalgasconsumption,withEUaveragemonthlyconsumptionofc.20bcminJun/July/Augvs.c.45-50bcminDec/Jan/Feb,willmakeitverydifﬁcultfornaturalgastobesubstitutedwithrenewablepower–especiallysolarpower,whichhasoppositeseasonality.Asgrowthinrenewablepoweraccelerates,intradayandseasonalvariabilityhastobeaddressedthroughenergystoragesolutions.Theroleofpowergenerationis,inourview,onlylikelytoincreaseinthecomingdecades,asthepenetrationandpaceofelectriﬁcationrapidlyincreaseacrosssectors(includingroadtransport,buildingheating,industrialmanufacturingprocessesandlow-temperatureindustrialheat)astheyprogressivelyfollowtheirownde-carbonizationpath.Acceleratedelectriﬁcationofheatingislikelytoresultinlargepowerdemandandsupplyimbalances,makingtheroleofamolecularseasonalenergystoragesolutionvital.Weidentifythreekeyrolesofcleanhydrogeninthepowergenerationindustrythatcanenhancesystemresilienceandenablehigheruptakeofrenewablepower:(a)Large-scaleseasonalenergystorage:Webelievehydrogenwillbethepreferredsolutionforlong-termenergystoragerequiredtobalancetheseasonalvariationofpowergenerationdemand;particularlyimportantisthatelectricitythroughheatpumpsforresidentialheatingbecomesamoreprominentfeatureandrisesinshareintotalpowergenerationdemand.Whilebatteries,super-capacitorsandcompressedaircanalsosupportbalancing,theylackthepowercapacityorthestoragetimespanneededtoaddressseasonalimbalances,asoutlinedbytheHydrogenCouncilandshowninExhibit91.Whilepumpedhydroinparticularoffersanalternativetohydrogenforlarge-scale,long-termenergystorageandhasbeentodatethepreferredpowerstoragesolution,accountingformorethan95%ofglobalpowerstorage,itsremaininguntappedpotentialissubjecttolocalgeographicconditions.Thekeydisadvantageofhydrogen-basedstorageoptionsremainsitslowround-tripefﬁciency,withtheprocessofelectrolysisandthenconversionofhydrogenbacktoelectricityconsumingc.60%ofthetotalenergy.Yetgiventheabundanceofthemolecule(mostabundantintheuniverse),webelievethat,intheabsenceofalternativemolecular,cleanseasonalenergystoragesolutions,lowerefﬁciencyshouldnotbeaconstraintforitswideradoption.20July202245GoldmanSachsCarbonomics(b)Flexiblepowergeneration:Hydrogen-ﬁredgasturbinesandcombined-cyclegasturbinescouldbeusedasasourceofﬂexibilityinelectricitysystems(substitutingnaturalgas)withincreasingsharesofvariablerenewableenergy(VRE)aidingtheintermittencyproblem.Fuelcellscanalsobeusedwithelectricalefﬁcienciestypicallyexceeding50%-60%(similartothoseofturbines),andthestationaryfuelcellsmarkethasbeengrowingsteadilyoverthepastdecade.However,fuelcellstypicallyhaveshortertechnicallifetimesthangasturbinesandsmallerpoweroutput,makingthemmoresuitedtodistributedpower.Inthepowersector,thetimingofvariableelectricitysupplyanddemandisnotwell-matched,requiringadditionaloperationalﬂexibility.Variousoptionsexisttoresolvethisintermittencyissuesuchasgridinfrastructureupgradesortechnologiesforshort-orlonger-termbalancingofsupplyanddemand(dynamicpowernetworks),ﬂexibleback-upgeneration,demand-sidemanagement,orenergystoragetechnologies.GiventhecurrentfocusonreducingEuropeannaturalgasdemand,hydrogen-ﬁredturbinescanhelpcomplementrenewablepowerinthepowermix,withspotnaturalgaspricesinEuropealreadymakinggas-basedCCGTsandgasturbineslesscostcompetitivecomparedtolow-costgreenhydrogen(producedwithRESﬁxedPPAswithLCOE<US$60/MWh).Exhibit91:Hydrogencouldbetheoptimalsolutionforlarge-scale,long-durationenergystorage,particularlyfordischargedurationsbeyond50hoursCapacityvsdischargedurationforenergystorage1.AshydrogenorSNGSource:HydrogenCouncil20July202246GoldmanSachsCarbonomics(c)Buffer,back-upandoff-gridpowersupply:Hydrogenhasvaluableattributesthatcouldmakeitakeysolutionforpowergenerationsystemback-upaselectrolysiscanconvertexcesselectricityintohydrogenduringtimesofoversupply.Theproducedhydrogencanthenbeusedtoprovideback-uppowerduringpowerdeﬁcitsorbeusedinothersectorssuchastransport,industryorresidential.Hydrogenoffersacentralizedordecentralizedsourceofprimaryorback-uppower.Inaddition,electrolyzersmayprovideancillaryservicestothegrid,suchasfrequencyregulation.Fuelcellstherefore,incombinationwithstorage,arelikelytobeconsideredacost-effectivedecarbonizationalternativetodieselgeneration(currentlyoftendeployedforback-uppower).Exhibit92:Hydrogenturbinesandfuelcellscanbeusedforloadbalancing;theyarebecomingincreasinglycompetitivegiventhehighspotEUgaspricesLevelizedcostofelectricity-LCOE(US$/MWh)-50100150200250300$10/mcf$15/mcf$20/mcf$25/mcf$10/mcf$15/mcf$20/mcf$25/mcf$10/mcf$15/mcf$20/mcf$25/mcf$1.5/kgH2$2.0/kgH2$3.0/kgH2$4.0/kgH2$1.5/kgH2$2.0/kgH2$3.0/kgH2$4.0/kgH2$1.5/kgH2$2.0/kgH2$3.0/kgH2$4.0/kgH2GasturbineNGCCGTNGCCGTNG+CCUSGasturbineH2CCGTH2FuelcellH2LCOE(US$/MWh)CapexOtheropexFuelcostCCUS(all-incost)Carbonprice($100/tnCO2)Source:GoldmanSachsGlobalInvestmentResearch20July202247GoldmanSachsCarbonomics(2)Hydrogenisthenaturalsuccessorofnaturalgasfordiversiﬁcationofenergysupplyinenergy-intenseindustrialprocessesIndustrialuseofnaturalgasaccountsforc.30%ofEurope’stotalnaturalgasconsumption,asthecommodityisusedasbothafuel(forenergyuse)andafeedstock(primarilyforchemicals)acrossindustrialprocesses.Whilemanyoftheseindustrialsub-segmentscouldpotentiallybeelectriﬁed(machinerymanufacturing,transportequipment,textiles,food,beverages&tobacco),>50%oftheregion’sindustrialnaturalgasconsumptionstemsfromheavyindustries,typicallyrequiringhighoperatingtemperaturesmakingdirectelectriﬁcationunfeasible.Wethereforebelievethatrenewablegaseswillbekeyinsubstitutingnaturalgasinthesesub-industrialsegments.Amongthesearehightemperaturechemicalandpetrochemicalsmanufacturing,iron&steel,andnon-metallicminerals(clay,limestone,cement).Whilegreenhydrogen’smovetowardscostparitywithgreyhydrogenisaccelerating,andweexpectthistobereachedbefore2030acrossregionsoflowrenewablepowercosts,wenotethatthecurrentmacroenvironmentofhighercommodityprices,inparticularforEuropeannaturalgas,combinedwithcarbonpricesiscreatingauniquegreenhydrogencostparitydynamicinEurope(asshowninExhibit94).Withmostcurrentlyproducedhydrogenbeingsourcedfromnaturalgasintheregion,thenotablyhighernaturalgaspricetowhichtheregioniscurrentlyexposedistiltingthescaleinfavourofgreenhydrogenfromaneconomicstandpoint.Weestimatethatthecarbonpriceimpliedbythecurrenthighernaturalgaspriceenvironmentintheregionisequivalentto>US$200/tnCO2eq(whenaccountingforthescope1,2,3carbonintensityofnaturalgas)evenwithoutconsideringEuropeanETScarbonprices,whicharecurrentlywellaboveUS$50/tnCO2eqdespitetheircorrectionfromthepeak.ThisismorethansufﬁcienttobridgethecostofgreyhydrogenwithgreenacrossregionsofEuropewheregreenhydrogenisproducedwithdedicatedRESandarenewablepowerLCOElowerthanUS$70/MWh.Exhibit93:Whilsthighercarbonpricesarerequiredatthepointofusetoencouragelarge-scaleadoptionandpenetrationofcleanhydrogeninthehard-to-de-carbonizeendmarkets(assumingnormalizedcommodityprices)..Carbonomicscostcurvecarbonabatementprice(US$/tnCO2eq)forcleanhydrogenapplicationsExhibit94:..thecurrentcombinationofcarbonandcommodity(naturalgas)pricesbringsgreen(atLCOEs<$75/MWh)atcostparitywithgreyhydrogeninEuropeatthepointofproductionLevelizedcostofproductionofhydrogen-LCOH(US$/kgH2)020406080100120140160180200Jan-19Mar-19May-19Jul-19Sep-19Nov-19Jan-20Mar-20May-20Jul-20Sep-20Nov-20Jan-21Mar-21May-21Jul-21Sep-21Nov-21Jan-22Mar-22May-22Jul-22Carboncabatementprice(US$/tnCO2eq)HydrogenDRI-EAFOtherchemsCCUSPowergenenergystorageGreenammonia(electrolysis)Greenchems(electrolysishydrogen)AmmoniaCCUSRefiningFCtrains250300350400450500GreenammoniafuelforshippingFCEVlong-haulheavytrucksFCEVbusesHydrogeninheating(residential)0.01.02.03.04.05.06.0NG:US$5/mcfNG:US$10/mcfNG:US$15/mcfNG:US$20/mcfNG:US$25/mcfNG:US$5/mcfNG:US$10/mcfNG:US$15/mcfNG:US$20/mcfNG:US$25/mcfLCOE:US$15/MWhLCOE:US$30/MWhLCOE:US$45/MWhLCOE:US$60/MWhLCOE:US$75/MWhGreyH2-SMRBlueH2-SMR+CCUSGreenH2Levelisedcostofproductionofhydrogen-LCOH(US$/kgH2)CapexOpexFuel/electricityCarbontax-$50/tnCO2Source:ThomsonReutersEikon,GoldmanSachsGlobalInvestmentResearchSource:GoldmanSachsGlobalInvestmentResearch20July202248GoldmanSachsCarbonomicsBioenergy:Biogas,advancedbiofuels,renewablewasteandbiomassallhavetheirkeyrolesintheenergytransitionofspeciﬁcindustriesBioenergyisalreadyanimportantpartofEuropeanenergyconsumption,mostlyintheformofsolidbiofuels(primarilyusedinbuildingsandindustry)aswellasroadbiofuelsblendedinroadtransport.Weseebiogas,advancedbiofuels(includingbothroadbiofuelsandsustainableaviationfuel-SAF)aswellassolidbiofuelsandRESwasteascontinuingtohaveanimportantroleforEurope’senergysystem.AsshowninExhibit95,weexpectbioenergyandRESwasteconsumptioninEuropetoincreasec.15%,withmostoftheincreasedrivenbyadvancedbiofuels(andinparticularSAF)aswellasbiogas.Exhibit95:WeexpectEuropeanﬁnalbioenergyconsumptiontocontinuetoincreasefromhereonthepathtonetzero..EU27+UKbioenergyﬁnalenergyconsumption(PJ)Exhibit96:..primarilydrivenbygrowthinbiogasandadvancedbiofuels(inparticularSAF)EU27+UKbioenergyﬁnalenergyconsumptionsplitbybioenergyproduct(PJ)0%2%4%6%8%10%12%14%16%18%20%01,0002,0003,0004,0005,0006,000200920112013201520172019202120232025202720292031203320352037203920412043204520472049EU27+UKbioenergyfinalenergyconsumption(PJ)BioenergyShareofbioenergyinEurope'sfinalenergyconsumption05001,0001,5002,0002,5003,0003,500200920112013201520172019202120232025202720292031203320352037203920412043204520472049EU27+UKbioenergyfinalenergyconsumption(PJ)BiogasLiquidbiofuelsSolidbiofuelsandRESwasteIncludinginternationalaviationandinternationalmaritimebunkersSource:Eurostat,GoldmanSachsGlobalInvestmentResearchIncludinginternationalaviationandinternationalmaritimebunkersSource:Eurostat,GoldmanSachsGlobalInvestmentResearch20July202249GoldmanSachsCarbonomicsTheroleofhydrocarbons:SigningLNGcontractsisconsistentwithEurope’sde-carbonizationambitionsandcriticaltoitssecurityanddiversiﬁcationofenergysupplyWhilstEurope’senergytransformationwillundoubtedlyleadtoareductionintheconsumptionofhydrocarbonenergysourcesovertime,wenotethattheoutlookacrosshydrocarbonsdiffersdependingontheendconsumingsectors(markets)theyserveandtheirrespectivepaceofenergytransformation,aswellastherespectivecarboncontent.Inthissectionofthereport,weaddresstheoutlookandimplicationsresultingfromtheenergyconsumptionproﬁlesfornaturalgas,oilandoilproductsandcoalfortheregion,inlightofthecurrentgeopoliticallandscapeanddisruptions.Naturalgas:RemainskeytoEurope’senergysupplyforthenexttwodecadeswiththepotentialforanadditional40mtpaof15-yrLNGcontractstoimprovesecurityanddiversiﬁcationofsupplyWhilstoverallgrossnaturalgasdemandforEuropewillgraduallycomedownovertimeastheenergyevolutionoftheEuropeanenergysystemunfolds,wenotethatnaturalgasremainsacorepartoftheEuropeanenergysystemforanother20years,beingthemostversatileenergysourcefortheregionwithabroaduseacrossapplications(asshowninExhibit97).Despiteitsversatileconsumptionintheregionacrossindustries,thediversiﬁcationofnaturalgassupplyforEuropehasbeenverylow,withEuropeimportingc.83%(2019)ofitsgrossnaturalgasneedsandwiththatsupplylargelydominatedbyahandfulofregions:Russia,Norway,Algeria,Nigeria,theUSandQatar.Moreimportantly,Europe’sreluctancetosignlong-termLNGcontractsoverthepastyearshasresultedinanover-concentrationofnaturalgasimportsreachingtheregionviapipeline.Webelievethatinlightofthecurrentgeopoliticallandscapeandpoliticaldisruptionsthistrendhastochange.Exhibit97:NaturalgasisEurope’smostversatileenergysource,withitsconsumptionintheregionsplitamongstthreekeyenergyconsumingsectors:powergeneration,buildingsandindustry(particularlyheavyindustrysuchaschemicals,steel,nonmetallicmineralsandnonferrousmetals)EU27+UKtotalnaturalgasconsumptionsplit,201943%,Powergeneration6%,Energysector34%,Buildingsresidential14%,Buildingscommercial1%,Transport2%,Agriculture3%,Industry-steel5%,Industry-nonmetallicminerals1%,Industry-othernonferrous12%,Industry-chemicals4%,Industry-machinery2%,Industry-paper&packaging5%,Industry-food&bev2%,Industry-other33%,IndustryEU27+UKtotalnaturalgasgrossconsumptionsplit2019(16,832PJ,471bcm)Source:Eurostat20July202250GoldmanSachsCarbonomicsExhibit100presentsouroverallgrossnaturalgasdemandproﬁleforEurope(EU27+UK).Despiteincorporatinginourmodelanaccelerationoftheshiftawayfromnaturalgas,particularlyinindustrieswherealternativeexistingtechnologieshaveavailablesparecapacity,suchascoalinpowergeneration,andalsoincorporatingsomedegreeofnaturalgasdemandrationingingasintensiveindustries(yetnotalarge-scaleindustrialrecession)forthenearterm,itbecomesevidentthatdemandforthefuelwilllikelypersistforatleastanothertwodecades.ThisisshowninExhibit100,withthereductioninthe2022-23periodincorporatingourviewofthecurrentlyfeasibledemandrationingintheabsenceofalarge-scaleindustrialrecession.Exhibit98:DespitetheversatileuseofnaturalgasanditscorerolefortheEuropeanenergysystem,theimportedsupplyhasbeenlargelyconcentratedinafewregions..EU27+UKnetnaturalgasimportsbyregion(PJ)Exhibit99:..withtheenergyimportdependencyforthefueltrendingupwardsforthepasttwodecades,morethananyotherenergysourceconsumedbyEurope.EU27+UKenergydependencyrate(%)-2,0004,0006,0008,00010,00012,00014,00016,00018,000200020012002200320042005200620072008200920102011201220132014201520162017201820192020EU27+UKNetnaturalgasimports(Pj)RussiaNorwayAlgeriaNigeriaUSTrinidadandTobagoQatarOther0%10%20%30%40%50%60%70%80%90%100%2003200420052006200720082009201020112012201320142015201620172018201920202021EU27+UKenergydependencyrate(%)NaturalgasOilandoilproductsSolidfossilfuelsRESandotherSource:Eurostat,GoldmanSachsGlobalInvestmentResearchSource:Eurostat,GoldmanSachsGlobalInvestmentResearchExhibit100:NaturalgasremainsacriticalpartofEurope’senergysystemforanothertwodecades,evenwhenincorporatingsomelevelofnear-termrationingandaccelerationoftheshiftawayfromitwheretechnologicalreadinessofalternativesisavailable.Naturalgasgrossenergydemandandﬁnalconsumption(splitbetweenenergyandnonenergy)forEU27+UK(PJ)-2,0004,0006,0008,00010,00012,00014,00016,00018,00020,000200320052007200920112013201520172019202120232025202720292031203320352037203920412043204520472049NaturalgasgrossdemandamdfinalconsumptionforEU27+UK(PJ)TotalfinalconsumptionNon-energyconsumptionEnergyconsumptionGrossenergyForecastSource:Eurostat(historical),GoldmanSachsGlobalInvestmentResearch20July202251GoldmanSachsCarbonomicsOverall,basedonthenaturalgasdemandproﬁlethatemergesasanoutputofourEuropeanenergymodel,incorporatingtheEU’sambitionfor2/3reductioninRussiangasimportsbytheendofthisyearandzerogasimportsbytheendofthisdecade(2030),weconcludethattheshortfallbetweengrossnaturalgasdemandandavailabledomesticsupplyplusotherex-RussianimportshastobemetwithincrementalLNGimportedvolumes,asshowninExhibit101.WebelieveitisintheEU+UK’sinteresttosignuptoanadditional40mtpaof15-yrLNGcontractstoimprovesecurityanddiversiﬁcationofsupply,asshowninExhibit102(andpotentiallyuptoanother50Mtpaof10-yrLNGcontracts).Exhibit101:OurEuropeannaturalgasdemandproﬁle,incorporatingtheEU’sambitionfor2/3reductioninRussiangasimportsbytheendofthisyearandzerogasimportsbytheendofthisdecade(2030),leadsustoconcludethattheshortfallhastobemetwithincrementalLNGimports,potentiallythrough15-yearLNGcontractsNaturalgasgrossenergydemandvsdomesticsupply,pipelineimportsandrequiredLNGimportsforEU27+UK(PJ)-2,0004,0006,0008,00010,00012,00014,00016,00018,00020,000200320042005200620072008200920102011201220132014201520162017201820192020202120222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050EU27+UKgrossrequirednaturalgas(PJ))OtherchangeinstockPrimarylocalproductionOtherpipelineimportsRussiaimportsRequiredLNGimportsGrossavailablenaturalgasdemandrequired2/3reductioninRussiangasimportsFeasibledemandrationingintheabsenceofanindustrialrecession100%reductioninRussiangasimportsSource:Eurostat(historical),GoldmanSachsGlobalInvestmentResearchExhibit102:WebelieveitisintheEU+UKinteresttosignanadditional40mtpaof15-yrLNGcontractstoimprovethesecurityanddiversiﬁcationofsupplyinnaturalgasNaturalgasnetimportstoEU27+UK(PJ)-2,0004,0006,0008,00010,00012,00014,00016,00018,00020192020202120222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050NaturalgasnetimportstoEU27+UK(PJ)ExistingLNGcontractsNewLNGcontractsalreadysignedSpotLNGRequiredLNGimportsTotalnaturalgasnetimportsrequiredPotentialforlong-term15-yearLNGcontractsUptoc.40Mtpaof15-yrLNGcontractsandpotentiallyanaditionalc.50Mtpaof10-yrLNGcontractscanbesignedSource:GoldmanSachsGlobalInvestmentResearch20July202252GoldmanSachsCarbonomicsThereturnofLNGwithastrongpipelineofprojectscomingonstreameconomicatUS$8-12/mcfwhichcouldaidEurope’senergysecuritysubjecttothesigningofnecessaryLNGcontractsAsweanalyseindetailinouroil&gassectordeep-dive,TopProjects,thelasttwoyearshavebeencharacterizedbycapitaldisciplineacrosstheindustry,withFIDpostponementsandcapitalexpenditurereductionsasaresultofCOVID-19.Capexin2021remainedatverylowlevelsfortheindustry,bothinoilandLNG.OurTopProjectsanalysissuggeststhataggregatecapexin2021increasedby6%comparedto2020yetremainedc.31%/16%below2015/2016levels,respectively,duringthepreviouscommoditydowncycle,andsufferedamoreabruptchangeastheindustryreactedquickertorebasecapexlevelslower.In2022,weanticipatetheoveralllevelofTopProjectscapextoincreasebyc.13%yoy,yettoremainwellbelowthehistoricalandnormalizedlevels(-12%vs2019).Lookinginto2022-2024,weseeLNGasalikelyareaofcapexincreases;thisisprimarilyowingtoalreadycommittedcapexthatislargelyspentandrampinguponLNGprojectssanctionedoverthepast2-3years,manyofwhichfaceddelaysduringthe2020downturn.LNGbeneﬁtsfromalowercostofcapital,makingitastrongerareaofcapexgrowththatispro-environmentandalignswithEurope’splantodiversifyawayfromRussianoilandgasintheshort-to-mediumterm.OurTopProjectsanalysisindicatesanewwaveofLNGprojectscomingatverycompetitivecostlevelsrelativetohistory(US$1.0-2.1bn/mtpain2022-2025EvsUS$4.0bn/mtpain2015-16)withprojectsinQatar,CanadaandtheUS,amongothers,contributingtoasigniﬁcantlylowercostcurvein2022vs2014.ThereisavastamountofLNGprojectswhichcouldpotentiallybeusedtocontractvolumestoEurope,highlightedinExhibit105.Exhibit103:TheLNGmarketissettoreturntocapacitygrowthpost2022E,withmostofthesupplyadditionscomingin2025-26E.AnnualincreaseinLNGproductionandcapacityinmtpaExhibit104:ThenewwaveofLNGprojectsiscomingataverycompetitivecostrelativetohistory.TopProjectscapexperﬂowingLNGoutput,US$bnpermtpa0510152025303540452010201120122013201420152016201720182019202020212022E2023E2024E2025E2026EmtpaCapacityadditionProductiongrowth0.00.51.01.52.02.53.03.54.04.52010201120122013201420152016201720182019202020212022E2023E2024ECapexperflowingLNGincludinginfra.(US$bn/mtpa)Source:GoldmanSachsGlobalInvestmentResearchSource:GoldmanSachsGlobalInvestmentResearch20July202253GoldmanSachsCarbonomicsOilandpetroleumproducts:Demanddeclineaccelerationpost2030withthenextmajorreﬁneryclosurescycleonlycomingaround2027OurEuropeanenergysystemevolutionmodelshowsoildemandonlyincreasingtothemiddleofthisdecade,largelydrivenbytheongoingrecoveryofcovid-ledreductionintransport(particularlyaviation)anditshighershareinthenearterm(2022-23)acrossapplicationswhereitcanﬂexiblysubstitutenaturalgaswithexistingavailablecapacity,asshowninExhibit106,beforestartingagradualdeclinewhichacceleratespost2030,drivenbythehigherpenetrationofEVsandbettercharginginfrastructure.It’sworthnoting,however,thatoildemanddoesnotreachabsolutezeroby2050,givenitsusesinnon-energyconsumptionapplications,suchasafeedstockforchemicalsmanufacturing,asshowninExhibit107.Exhibit105:ThereisavastamountofLNGprojectswhichcouldpotentiallybeusedtocontractvolumestoEurope,ashighlightedintheexhibitbelowCommercialbreakevenbyproject(US$/mcf)46810121416182002,0004,0006,0008,00010,00012,000Commercialbreakeven(US$/mcf)Cumulativepeakproduction(kboe/d)QatarLNGExpansionElk/AntelopeLNGCanadaSabinePassElbaLNGMambaCameronLNGExpansionGoldenPassDriftwoodLakeCharlesCostaAzulCalcasieuPassCameronPlaqueminesCorpusChristiHilliEpiseyoFreeportLNGSakhalinTortueProsperidadeNigeriaLNGTrain7Golfinho-AtumArcticLNG-2CoralFLNGGreaterSunriseLNGAbadiLNGTanzaniaLNGPreludePortArthurScarboroughVistaPacificoSource:GoldmanSachsGlobalInvestmentResearch20July202254GoldmanSachsCarbonomicsBasedonourEuropeanenergymodelandresultingoilandoilproductsdemandproﬁle,inthissectionofthereportweaddressthetimingofthenextpotentialmajorcycleofreﬁneryclosuresforEurope.Overall,weestimatethatthenextmajorcycleofreﬁneryclosuresinEuropewillonlybeneededby2027,asshowninExhibit108,wherethereﬁningutilisationratefallsbelowthehistoricalaverageEuropeanutilisationrateofc.80%.Forthepurposeofthisanalysis,weonlyincorporateintheEuropean(EU27+UK)capacityproﬁlethealreadyannouncedcapacityclosuresforthecomingyears.Exhibit106:Europeangrossoilandoilproductsdemandpeaksbythemiddleofthisdecadewiththedeclineacceleratingpost2030..EU27+UKoilandoilproductsgrossdemandandﬁnalconsumption(PJ)Exhibit107:...butneverreachesabsolutezerogivenitsuseinnon-energyapplications,primarilyasafeedstockforchemicalsmanufacturing.EU27+UKoilandoilproductsgrossavailableconsumptionsplitbysector(PJ)-5,00010,00015,00020,00025,00030,00035,000200320052007200920112013201520172019202120232025202720292031203320352037203920412043204520472049Oilandoilproductsgrossdemandandfinalconsumption(PJ)TotalfinalconsumptionEnergyconsumptionNon-energyconsumptionGrossavailableenergy-5,00010,00015,00020,00025,00030,000200920112013201520172019202120232025202720292031203320352037203920412043204520472049Oilandoilproductsgrossavailableenergydemand(PJ)Industry-nonenergyBuildings-residentialBuildings-commercialTransport-gasoilanddieselTransport-motorgasolineTransport-kero/jetTransport-LPGTransport-fueloilIndustry-energyAgricultureOtherPowergenerationEnergysectorInternationalbunkersInternationalaviationDistroandotherlossesSource:Eurostat(historical),GoldmanSachsGlobalInvestmentResearchSource:Eurostat(historical),GoldmanSachsGlobalInvestmentResearchExhibit108:BasedonourEuropeanenergymodelandresultingoilandoilproductsdemandproﬁle,weestimatethatreﬁningclosureswilllikelyberequiredaround2027,whentheimpliedutilisationfallsbelowtheEuropeanhistoricalutilisationrateaverage(c.80%)Europeanreﬁningcapacity,throughput,oilandoilproductsgrossdemand(LHS)andutilisationrate(RHS)0%10%20%30%40%50%60%70%80%90%100%-1002003004005006007008009001000200320042005200620072008200920102011201220132014201520162017201820192020202120222023202420252026202720282029203020312032203320342035203620372038203920402041204220432044204520462047204820492050Europeanrefiningutilisation(%)mntoeEUROPEANoilrefiningcapacity(mntoe)-LHSEuropenoilandoilproductsgrossavailableenergy(mntoe)-LHSEuropeanoilrefiningthroughput(mntoe),LHSEuropeanrefiningutilisation-RHSSource:BPStatisticalReview,GoldmanSachsGlobalInvestmentResearch20July202255GoldmanSachsCarbonomicsCoal:Near-termrevivaldrivenbypowergenerationdoesnotderaillong-termstructuraldeclineThegrossdemandforsolidfossilfuelsinEuropehasbeeninstructuraldeclineforthepasttwodecadesonaggregate,asshowninExhibit109,andwhilstweexpectthistocontinueinthemediumandlongterm,wenotethatinthenearterm(2022-23),solidfossilfuels(ie.coal)willpotentiallygothroughashortrevivalinordertosupportEurope’senergysecurity.Speciﬁcally,weassumemostofthenaturalgasdemandswitchintheneartermoccursinpowergeneration,theonlykeynaturalgasconsumingsectorwithavailablesparecapacityinothertechnologiessuchascoalwhichcanprovidenear-termrelieftosomeextent.Nonetheless,wedonotexpectthestructuraldeclinetrendtoreversepermanently,andweseethefuelreturningtoanacceleratedstructuraldeclinethereafter.Theimpactofthenear-termrevivalonEurope’sde-carbonizationpathwilllikelybesmall,withtheregionstillabletoachievetheambitionslaidoutin‘Fitfor55’basedonourmodel.Exhibit109:ConsumptionofsolidfossilfuelshasbeeninstructuraldeclineinEuropeforthepasttwodecades,atrendweexpecttocontinuelongterm..EU27+UKsolidfossilfuelsgrossdemandandﬁnalconsumption(PJ)Exhibit110:..despitethenear-termrevivalofthefuelinpowergeneration,EU27+UKsolidfossilfuelsgrossenergydemand(PJ)-2,0004,0006,0008,00010,00012,00014,00016,000200320052007200920112013201520172019202120232025202720292031203320352037203920412043204520472049EU27+UKsolidfossilfuelsgrossavailableenergyandfinalconsumption(PJ)GrossavailableenergyforsolidfossilfuelsFinalconsumptionofsolidfossilfuels-2,0004,0006,0008,00010,00012,00014,000200920112013201520172019202120232025202720292031203320352037203920412043204520472049EU27+UKsolidfossilfuelsgrossavailableenergy(PJ)Series17DistrolossesIndustry-non-energyAgricultureIndustry-otherIndustry-food&bevIndustry-paper&packagingIndustry-machineryIndustry-chemicalsIndustry-othernonferrousIndustry-nonmetallicmineralsIndustry-steelBuildingscommercialBuildingsresidentialEnergysectorEnergytransformation(cokeovers,blastfurnaces)Source:Eurostat(historical),GoldmanSachsGlobalInvestmentResearchSource:Eurostat(historical),GoldmanSachsGlobalInvestmentResearchExhibit111:..requiredtoaidtheenergysecuritychallengefacingEuropeinlightoftherecentgeopoliticalnaturalgasdisruptions...EU27+UKpowergenerationmix(%)Exhibit112:...which,whilstderailingtheemissionreductionproﬁleinthesectorbyc.2years,doesnotposeamaterialrisktoEurope’sclimateambitionsbasedonourmodelEU27+UKpowergenerationCO2emissions(MtCO2)0%5%10%15%20%25%30%35%20002002200420062008201020122014201620182020202220242026202820302032203420362038204020422044204620482050EU27+UKpowergenerationmix(%)SolidfossilfuelsNaturalgas(incl.CCUSlongterm)-2004006008001,0001,2001,4001,60020002002200420062008201020122014201620182020202220242026202820302032203420362038204020422044204620482050EU27+UKpowergenCO2emissions(MtCO2)Source:Eurostat,GoldmanSachsGlobalInvestmentResearchSource:Eurostat(EEA),GoldmanSachsGlobalInvestmentResearch20July202256GoldmanSachsCarbonomicsAppendix:GlossaryofkeyterminologytermsTerminologyusedinthisreportDeﬁnitionGrossavailableenergyGrossavailableenergyisdeﬁnedastheoverallsupplyofenergyforallactivitiesontheterritoryoftheEuropeanregionconsideredinouranalysis(EU27+UK).Itincludesenergyneedsforenergytransformation(includinggeneratingelectricityfromcombustiblefuels),supportoperationsoftheenergysectoritself,transmissionanddistributionlosses,ﬁnalenergyconsumption(industry,transport,households,services,agriculture)andtheuseoffossilfuelproductsfornon-energypurposes(e.g.inthechemicalindustry).Italsoincludesfuelpurchasedwithinthecountrythatisusedelsewhere(e.g.internationalaviation,internationalmaritimebunkers).Grossavailableenergyforthetotalofallproducts(fuels)isthemostimportantaggregateinenergybalancesandrepresentsthequantityofenergynecessarytosatisfyalltheenergydemands.Itsinterpretationforindividualproducts(fuels)isvaryingandneedstotakeintoconsiderationotherpartsofenergybalances.Grossavailableenergy=Primaryproduction+Recovered&Recycledproducts+Imports–Export+StockchangesFinalenergyconsumptionTheﬁnalenergyconsumptionisthetotalenergyconsumedbytheendusersineachoftheenergyconsumingsectors(buildings,transport,industry,agricultureandother),theenergywhichreachestheﬁnalconsumer’sdoorandexcludesthatwhichisusedbytheenergysectoritself.InternationalmaritimebunkersandaviationBunkersincludesalldutiablepetroleumproductsloadedaboardavesselforconsumptionbythatvessel.Internationalmaritimebunkersdescribethequantitiesoffueloildeliveredtoshipsofallﬂagsthatareengagedininternationalnavigation.Itisthefuelusedtopowertheseships.Internationalnavigationmaytakeplaceatsea,oninlandlakesandwaterways,andincoastalwaters.Internationalmaritimebunkersdonotincludefueloilconsumptionby:(a)shipsengagedindomesticnavigation;whetheravesselisengagedindomesticorinternationalnavigationisdeterminedonlybytheship’sportofdepartureandportofarrival-notbytheﬂagornationalityoftheship;(b)ﬁshingvessels,(c)militaryforces.EnergydependencyrateTheenergydependencyrateshowstheshareofenergythataneconomyisnetimporting.Itisdeﬁnedasnetenergyimportsdividedbygrossavailableenergy,expressedasapercentage.Anegativedependencyrateindicatesanetexporterofenergywhileadependencyrateinexcessof100%indicatesthatenergyproductshavebeenstocked.Itcanbedeﬁnedforallproductstotalaswellasforindividualfuels(forexample:crudeoil,naturalgas).EnergyintensityEnergyintensityisoneoftheindicatorstomeasuretheenergyneedsofaneconomyandisoftenusedasaproxyforenergyefﬁciency.Manyfactorsinﬂuenceenergyintensity.Itreﬂectsonstructureofeconomyanditscycle,generalstandardsoflivingandweatherconditionsinthereferencearea.EnergyintensityiscalculatedasunitsofenergyperunitofGDP.LULUCFTheLULUCF(LandUse,LandUseChangeandForestry)sectorisusedtoreporttheCO2ﬂowsbetweendifferentterrestrialreservoirs(biomass,soils,etc.)andtheatmospherethattakeplaceonthemanagedsurfacesofaterritory.ItcanthusconstituteanetsourceoranetsinkofCO2.Thissector,deﬁnedwithintheframeworkofnationalgreenhousegasemissioninventories,reﬂectsinparticularemissionsandabsorptionslinkedtolanduse(growth,biomassmortalityandwoodremovalinforests;impactsofchangesinagriculturalpracticesoncultivatedsoils,etc.)andtochangesinlanduse(deforestation,afforestation,soilartiﬁcialisation,etc.).ThemethodsforcalculatingtheseemissionsandremovalsaredeﬁnedbytheIntergovernmentalPanelonClimateChange(IPCC),undertheUnitedNationsFrameworkConventiononClimateChange(UNFCCC).20July202257GoldmanSachsCarbonomicsDisclosureAppendixRegACWe,MicheleDellaVigna,CFAandZoeClarke,herebycertifythatalloftheviewsexpressedinthisreportaccuratelyreﬂectourpersonalviewsaboutthesubjectcompanyorcompaniesanditsortheirsecurities.Wealsocertifythatnopartofourcompensationwas,isorwillbe,directlyorindirectly,relatedtothespeciﬁcrecommendationsorviewsexpressedinthisreport.Unlessotherwisestated,theindividualslistedonthecoverpageofthisreportareanalystsinGoldmanSachs’GlobalInvestmentResearchdivision.GSFactorProﬁleTheGoldmanSachsFactorProﬁleprovidesinvestmentcontextforastockbycomparingkeyattributestothemarket(i.e.ourcoverageuniverse)anditssectorpeers.Thefourkeyattributesdepictedare:Growth,FinancialReturns,Multiple(e.g.valuation)andIntegrated(acompositeofGrowth,FinancialReturnsandMultiple).Growth,FinancialReturnsandMultiplearecalculatedbyusingnormalizedranksforspeciﬁcmetricsforeachstock.Thenormalizedranksforthemetricsarethenaveragedandconvertedintopercentilesfortherelevantattribute.Theprecisecalculationofeachmetricmayvarydependingontheﬁscalyear,industryandregion,butthestandardapproachisasfollows:Growthisbasedonastock’sforward-lookingsalesgrowth,EBITDAgrowthandEPSgrowth(forﬁnancialstocks,onlyEPSandsalesgrowth),withahigherpercentileindicatingahighergrowthcompany.FinancialReturnsisbasedonastock’sforward-lookingROE,ROCEandCROCI(forﬁnancialstocks,onlyROE),withahigherpercentileindicatingacompanywithhigherﬁnancialreturns.Multipleisbasedonastock’sforward-lookingP/E,P/B,price/dividend(P/D),EV/EBITDA,EV/FCFandEV/DebtAdjustedCashFlow(DACF)(forﬁnancialstocks,onlyP/E,P/BandP/D),withahigherpercentileindicatingastocktradingatahighermultiple.TheIntegratedpercentileiscalculatedastheaverageoftheGrowthpercentile,FinancialReturnspercentileand(100%-Multiplepercentile).FinancialReturnsandMultipleusetheGoldmanSachsanalystforecastsattheﬁscalyear-endatleastthreequartersinthefuture.Growthusesinputsfortheﬁscalyearatleastsevenquartersinthefuturecomparedwiththeyearatleastthreequartersinthefuture(onaper-sharebasisforallmetrics).ForamoredetaileddescriptionofhowwecalculatetheGSFactorProﬁle,pleasecontactyourGSrepresentative.M&ARankAcrossourglobalcoverage,weexaminestocksusinganM&Aframework,consideringbothqualitativefactorsandquantitativefactors(whichmayvaryacrosssectorsandregions)toincorporatethepotentialthatcertaincompaniescouldbeacquired.WethenassignaM&Arankasameansofscoringcompaniesunderourratedcoveragefrom1to3,with1representinghigh(30%-50%)probabilityofthecompanybecominganacquisitiontarget,2representingmedium(15%-30%)probabilityand3representinglow(0%-15%)probability.Forcompaniesranked1or2,inlinewithourstandarddepartmentalguidelinesweincorporateanM&Acomponentintoourtargetprice.M&Arankof3isconsideredimmaterialandthereforedoesnotfactorintoourpricetarget,andmayormaynotbediscussedinresearch.QuantumQuantumisGoldmanSachs’proprietarydatabaseprovidingaccesstodetailedﬁnancialstatementhistories,forecastsandratios.Itcanbeusedforin-depthanalysisofasinglecompany,ortomakecomparisonsbetweencompaniesindifferentsectorsandmarkets.DisclosuresRegulatorydisclosuresDisclosuresrequiredbyUnitedStateslawsandregulationsSeecompany-speciﬁcregulatorydisclosuresaboveforanyofthefollowingdisclosuresrequiredastocompaniesreferredtointhisreport:managerorco-managerinapendingtransaction;1%orotherownership;compensationforcertainservices;typesofclientrelationships;managed/co-managedpublicofferingsinpriorperiods;directorships;forequitysecurities,marketmakingand/orspecialistrole.GoldmanSachstradesormaytradeasaprincipalindebtsecurities(orinrelatedderivatives)ofissuersdiscussedinthisreport.Thefollowingareadditionalrequireddisclosures:Ownershipandmaterialconﬂictsofinterest:GoldmanSachspolicyprohibitsitsanalysts,professionalsreportingtoanalystsandmembersoftheirhouseholdsfromowningsecuritiesofanycompanyintheanalyst’sareaofcoverage.Analystcompensation:AnalystsarepaidinpartbasedontheproﬁtabilityofGoldmanSachs,whichincludesinvestmentbankingrevenues.Analystasofﬁcerordirector:GoldmanSachspolicygenerallyprohibitsitsanalysts,personsreportingtoanalystsormembersoftheirhouseholdsfromservingasanofﬁcer,directororadvisorofanycompanyintheanalyst’sareaofcoverage.Non-U.S.Analysts:Non-U.S.analystsmaynotbeassociatedpersonsofGoldmanSachs&Co.LLCandthereforemaynotbesubjecttoFINRARule2241orFINRARule2242restrictionsoncommunicationswithsubjectcompany,publicappearancesandtradingsecuritiesheldbytheanalysts.Distributionofratings:Seethedistributionofratingsdisclosureabove.Pricechart:Seethepricechart,withchangesofratingsandpricetargetsinpriorperiods,above,or,ifelectronicformatorifwithrespecttomultiplecompanieswhicharethesubjectofthisreport,ontheGoldmanSachswebsiteathttps://www.gs.com/research/hedge.html.20July202258GoldmanSachsCarbonomicsAdditionaldisclosuresrequiredunderthelawsandregulationsofjurisdictionsotherthantheUnitedStatesThefollowingdisclosuresarethoserequiredbythejurisdictionindicated,excepttotheextentalreadymadeabovepursuanttoUnitedStateslawsandregulations.Australia:GoldmanSachsAustraliaPtyLtdanditsafﬁliatesarenotauthoriseddeposit-takinginstitutions(asthattermisdeﬁnedintheBankingAct1959(Cth))inAustraliaanddonotprovidebankingservices,norcarryonabankingbusiness,inAustralia.Thisresearch,andanyaccesstoit,isintendedonlyfor“wholesaleclients”withinthemeaningoftheAustralianCorporationsAct,unlessotherwiseagreedbyGoldmanSachs.Inproducingresearchreports,membersoftheGlobalInvestmentResearchDivisionofGoldmanSachsAustraliamayattendsitevisitsandothermeetingshostedbythecompaniesandotherentitieswhicharethesubjectofitsresearchreports.InsomeinstancesthecostsofsuchsitevisitsormeetingsmaybemetinpartorinwholebytheissuersconcernedifGoldmanSachsAustraliaconsidersitisappropriateandreasonableinthespeciﬁccircumstancesrelatingtothesitevisitormeeting.Totheextentthatthecontentsofthisdocumentcontainsanyﬁnancialproductadvice,itisgeneraladviceonlyandhasbeenpreparedbyGoldmanSachswithouttakingintoaccountaclient’sobjectives,ﬁnancialsituationorneeds.Aclientshould,beforeactingonanysuchadvice,considertheappropriatenessoftheadvicehavingregardtotheclient’sownobjectives,ﬁnancialsituationandneeds.AcopyofcertainGoldmanSachsAustraliaandNewZealanddisclosureofinterestsandacopyofGoldmanSachs’AustralianSell-SideResearchIndependencePolicyStatementareavailableat:https://www.goldmansachs.com/disclosures/australia-new-zealand/index.html.Brazil:DisclosureinformationinrelationtoCVMResolutionn.20isavailableathttps://www.gs.com/worldwide/brazil/area/gir/index.html.Whereapplicable,theBrazil-registeredanalystprimarilyresponsibleforthecontentofthisresearchreport,asdeﬁnedinArticle20ofCVMResolutionn.20,istheﬁrstauthornamedatthebeginningofthisreport,unlessindicatedotherwiseattheendofthetext.Canada:Thisinformationisbeingprovidedtoyouforinformationpurposesonlyandisnot,andundernocircumstancesshouldbeconstruedas,anadvertisement,offeringorsolicitationbyGoldmanSachs&Co.LLCforpurchasersofsecuritiesinCanadatotradeinanyCanadiansecurity.GoldmanSachs&Co.LLCisnotregisteredasadealerinanyjurisdictioninCanadaunderapplicableCanadiansecuritieslawsandgenerallyisnotpermittedtotradeinCanadiansecuritiesandmaybeprohibitedfromsellingcertainsecuritiesandproductsincertainjurisdictionsinCanada.IfyouwishtotradeinanyCanadiansecuritiesorotherproductsinCanadapleasecontactGoldmanSachsCanadaInc.,anafﬁliateofTheGoldmanSachsGroupInc.,oranotherregisteredCanadiandealer.HongKong:FurtherinformationonthesecuritiesofcoveredcompaniesreferredtointhisresearchmaybeobtainedonrequestfromGoldmanSachs(Asia)L.L.C.India:FurtherinformationonthesubjectcompanyorcompaniesreferredtointhisresearchmaybeobtainedfromGoldmanSachs(India)SecuritiesPrivateLimited,ResearchAnalyst-SEBIRegistrationNumberINH000001493,951-A,RationalHouse,AppasahebMaratheMarg,Prabhadevi,Mumbai400025,India,CorporateIdentityNumberU74140MH2006FTC160634,Phone+912266169000,Fax+912266169001.GoldmanSachsmaybeneﬁciallyown1%ormoreofthesecurities(assuchtermisdeﬁnedinclause2(h)theIndianSecuritiesContracts(Regulation)Act,1956)ofthesubjectcompanyorcompaniesreferredtointhisresearchreport.Japan:Seebelow.Korea:Thisresearch,andanyaccesstoit,isintendedonlyfor“professionalinvestors”withinthemeaningoftheFinancialServicesandCapitalMarketsAct,unlessotherwiseagreedbyGoldmanSachs.FurtherinformationonthesubjectcompanyorcompaniesreferredtointhisresearchmaybeobtainedfromGoldmanSachs(Asia)L.L.C.,SeoulBranch.NewZealand:GoldmanSachsNewZealandLimitedanditsafﬁliatesareneither“registeredbanks”nor“deposittakers”(asdeﬁnedintheReserveBankofNewZealandAct1989)inNewZealand.Thisresearch,andanyaccesstoit,isintendedfor“wholesaleclients”(asdeﬁnedintheFinancialAdvisersAct2008)unlessotherwiseagreedbyGoldmanSachs.AcopyofcertainGoldmanSachsAustraliaandNewZealanddisclosureofinterestsisavailableat:https://www.goldmansachs.com/disclosures/australia-new-zealand/index.html.Russia:ResearchreportsdistributedintheRussianFederationarenotadvertisingasdeﬁnedintheRussianlegislation,butareinformationandanalysisnothavingproductpromotionastheirmainpurposeanddonotprovideappraisalwithinthemeaningoftheRussianlegislationonappraisalactivity.ResearchreportsdonotconstituteapersonalizedinvestmentrecommendationasdeﬁnedinRussianlawsandregulations,arenotaddressedtoaspeciﬁcclient,andarepreparedwithoutanalyzingtheﬁnancialcircumstances,investmentproﬁlesorriskproﬁlesofclients.GoldmanSachsassumesnoresponsibilityforanyinvestmentdecisionsthatmaybetakenbyaclientoranyotherpersonbasedonthisresearchreport.Singapore:GoldmanSachs(Singapore)Pte.(CompanyNumber:198602165W),whichisregulatedbytheMonetaryAuthorityofSingapore,acceptslegalresponsibilityforthisresearch,andshouldbecontactedwithrespecttoanymattersarisingfrom,orinconnectionwith,thisresearch.Taiwan:Thismaterialisforreferenceonlyandmustnotbereprintedwithoutpermission.Investorsshouldcarefullyconsidertheirowninvestmentrisk.Investmentresultsaretheresponsibilityoftheindividualinvestor.UnitedKingdom:PersonswhowouldbecategorizedasretailclientsintheUnitedKingdom,assuchtermisdeﬁnedintherulesoftheFinancialConductAuthority,shouldreadthisresearchinconjunctionwithpriorGoldmanSachsresearchonthecoveredcompaniesreferredtohereinandshouldrefertotheriskwarningsthathavebeensenttothembyGoldmanSachsInternational.Acopyoftheseriskswarnings,andaglossaryofcertainﬁnancialtermsusedinthisreport,areavailablefromGoldmanSachsInternationalonrequest.EuropeanUnionandUnitedKingdom:DisclosureinformationinrelationtoArticle6(2)oftheEuropeanCommissionDelegatedRegulation(EU)(2016/958)supplementingRegulation(EU)No596/2014oftheEuropeanParliamentandoftheCouncil(includingasthatDelegatedRegulationisimplementedintoUnitedKingdomdomesticlawandregulationfollowingtheUnitedKingdom’sdeparturefromtheEuropeanUnionandtheEuropeanEconomicArea)withregardtoregulatorytechnicalstandardsforthetechnicalarrangementsforobjectivepresentationofinvestmentrecommendationsorotherinformationrecommendingorsuggestinganinvestmentstrategyandfordisclosureofparticularinterestsorindicationsofconﬂictsofinterestisavailableathttps://www.gs.com/disclosures/europeanpolicy.htmlwhichstatestheEuropeanPolicyforManagingConﬂictsofInterestinConnectionwithInvestmentResearch.Japan:GoldmanSachsJapanCo.,Ltd.isaFinancialInstrumentDealerregisteredwiththeKantoFinancialBureauunderregistrationnumberKinsho69,andamemberofJapanSecuritiesDealersAssociation,FinancialFuturesAssociationofJapanandTypeIIFinancialInstrumentsFirmsAssociation.Salesandpurchaseofequitiesaresubjecttocommissionpre-determinedwithclientsplusconsumptiontax.Seecompany-speciﬁcdisclosuresastoanyapplicabledisclosuresrequiredbyJapanesestockexchanges,theJapaneseSecuritiesDealersAssociationortheJapaneseSecuritiesFinanceCompany.20July202259GoldmanSachsCarbonomicsGlobalproduct;distributingentitiesTheGlobalInvestmentResearchDivisionofGoldmanSachsproducesanddistributesresearchproductsforclientsofGoldmanSachsonaglobalbasis.AnalystsbasedinGoldmanSachsofﬁcesaroundtheworldproduceresearchonindustriesandcompanies,andresearchonmacroeconomics,currencies,commoditiesandportfoliostrategy.ThisresearchisdisseminatedinAustraliabyGoldmanSachsAustraliaPtyLtd(ABN21006797897);inBrazilbyGoldmanSachsdoBrasilCorretoradeTítuloseValoresMobiliáriosS.A.;PublicCommunicationChannelGoldmanSachsBrazil:08007275764and/orcontatogoldmanbrasil@gs.com.AvailableWeekdays(exceptholidays),from9amto6pm.CanaldeComunicaçãocomoPúblicoGoldmanSachsBrasil:08007275764e/oucontatogoldmanbrasil@gs.com.Horáriodefuncionamento:segunda-feiraàsexta-feira(excetoferiados),das9hàs18h;inCanadabyGoldmanSachs&Co.LLC;inHongKongbyGoldmanSachs(Asia)L.L.C.;inIndiabyGoldmanSachs(India)SecuritiesPrivateLtd.;inJapanbyGoldmanSachsJapanCo.,Ltd.;intheRepublicofKoreabyGoldmanSachs(Asia)L.L.C.,SeoulBranch;inNewZealandbyGoldmanSachsNewZealandLimited;inRussiabyOOOGoldmanSachs;inSingaporebyGoldmanSachs(Singapore)Pte.(CompanyNumber:198602165W);andintheUnitedStatesofAmericabyGoldmanSachs&Co.LLC.GoldmanSachsInternationalhasapprovedthisresearchinconnectionwithitsdistributionintheUnitedKingdom.EffectivefromthedateoftheUnitedKingdom’sdeparturefromtheEuropeanUnionandtheEuropeanEconomicArea(“BrexitDay”)thefollowinginformationwithrespecttodistributingentitieswillapply:GoldmanSachsInternational(“GSI”),authorisedbythePrudentialRegulationAuthority(“PRA”)andregulatedbytheFinancialConductAuthority(“FCA”)andthePRA,hasapprovedthisresearchinconnectionwithitsdistributionintheUnitedKingdom.EuropeanEconomicArea:GSI,authorisedbythePRAandregulatedbytheFCAandthePRA,disseminatesresearchinthefollowingjurisdictionswithintheEuropeanEconomicArea:theGrandDuchyofLuxembourg,Italy,theKingdomofBelgium,theKingdomofDenmark,theKingdomofNorway,theRepublicofFinland,theRepublicofCyprusandtheRepublicofIreland;GS-SuccursaledeParis(Parisbranch)which,fromBrexitDay,willbeauthorisedbytheFrenchAutoritédecontrôleprudentieletderesolution(“ACPR”)andregulatedbytheAutoritédecontrôleprudentieletderesolutionandtheAutoritédesmarchesﬁnanciers(“AMF”)disseminatesresearchinFrance;GSI-SucursalenEspaña(Madridbranch)authorizedinSpainbytheComisiónNacionaldelMercadodeValoresdisseminatesresearchintheKingdomofSpain;GSI-SwedenBankﬁlial(Stockholmbranch)isauthorizedbytheSFSAasa“thirdcountrybranch”inaccordancewithChapter4,Section4oftheSwedishSecuritiesandMarketAct(Sw.lag(2007:528)omvärdepappersmarknaden)disseminatesresearchintheKingdomofSweden;GoldmanSachsBankEuropeSE(“GSBE”)isacreditinstitutionincorporatedinGermanyand,withintheSingleSupervisoryMechanism,subjecttodirectprudentialsupervisionbytheEuropeanCentralBankandinotherrespectssupervisedbyGermanFederalFinancialSupervisoryAuthority(BundesanstaltfürFinanzdienstleistungsaufsicht,BaFin)andDeutscheBundesbankanddisseminatesresearchintheFederalRepublicofGermanyandthosejurisdictionswithintheEuropeanEconomicAreawhereGSIisnotauthorisedtodisseminateresearchandadditionally,GSBE,CopenhagenBranchﬁlialafGSBE,Tyskland,supervisedbytheDanishFinancialAuthoritydisseminatesresearchintheKingdomofDenmark;GSBE-SucursalenEspaña(Madridbranch)subject(toalimitedextent)tolocalsupervisionbytheBankofSpaindisseminatesresearchintheKingdomofSpain;GSBE-SuccursaleItalia(Milanbranch)totherelevantapplicableextent,subjecttolocalsupervisionbytheBankofItaly(Bancad’Italia)andtheItalianCompaniesandExchangeCommission(CommissioneNazionaleperleSocietàelaBorsa“Consob”)disseminatesresearchinItaly;GSBE-SuccursaledeParis(Parisbranch),supervisedbytheAMFandbytheACPRdisseminatesresearchinFrance;andGSBE-SwedenBankﬁlial(Stockholmbranch),toalimitedextent,subjecttolocalsupervisionbytheSwedishFinancialSupervisoryAuthority(Finansinpektionen)disseminatesresearchintheKingdomofSweden.GeneraldisclosuresThisresearchisforourclientsonly.OtherthandisclosuresrelatingtoGoldmanSachs,thisresearchisbasedoncurrentpublicinformationthatweconsiderreliable,butwedonotrepresentitisaccurateorcomplete,anditshouldnotbereliedonassuch.Theinformation,opinions,estimatesandforecastscontainedhereinareasofthedatehereofandaresubjecttochangewithoutpriornotiﬁcation.Weseektoupdateourresearchasappropriate,butvariousregulationsmaypreventusfromdoingso.Otherthancertainindustryreportspublishedonaperiodicbasis,thelargemajorityofreportsarepublishedatirregularintervalsasappropriateintheanalyst’sjudgment.GoldmanSachsconductsaglobalfull-service,integratedinvestmentbanking,investmentmanagement,andbrokeragebusiness.WehaveinvestmentbankingandotherbusinessrelationshipswithasubstantialpercentageofthecompaniescoveredbyourGlobalInvestmentResearchDivision.GoldmanSachs&Co.LLC,theUnitedStatesbrokerdealer,isamemberofSIPC(https://www.sipc.org).Oursalespeople,traders,andotherprofessionalsmayprovideoralorwrittenmarketcommentaryortradingstrategiestoourclientsandprincipaltradingdesksthatreﬂectopinionsthatarecontrarytotheopinionsexpressedinthisresearch.Ourassetmanagementarea,principaltradingdesksandinvestingbusinessesmaymakeinvestmentdecisionsthatareinconsistentwiththerecommendationsorviewsexpressedinthisresearch.Theanalystsnamedinthisreportmayhavefromtimetotimediscussedwithourclients,includingGoldmanSachssalespersonsandtraders,ormaydiscussinthisreport,tradingstrategiesthatreferencecatalystsoreventsthatmayhaveanear-termimpactonthemarketpriceoftheequitysecuritiesdiscussedinthisreport,whichimpactmaybedirectionallycountertotheanalyst’spublishedpricetargetexpectationsforsuchstocks.Anysuchtradingstrategiesaredistinctfromanddonotaffecttheanalyst’sfundamentalequityratingforsuchstocks,whichratingreﬂectsastock’sreturnpotentialrelativetoitscoverageuniverseasdescribedherein.Weandourafﬁliates,ofﬁcers,directors,andemployees,excludingequityandcreditanalysts,willfromtimetotimehavelongorshortpositionsin,actasprincipalin,andbuyorsell,thesecuritiesorderivatives,ifany,referredtointhisresearch.TheviewsattributedtothirdpartypresentersatGoldmanSachsarrangedconferences,includingindividualsfromotherpartsofGoldmanSachs,donotnecessarilyreﬂectthoseofGlobalInvestmentResearchandarenotanofﬁcialviewofGoldmanSachs.Anythirdpartyreferencedherein,includinganysalespeople,tradersandotherprofessionalsormembersoftheirhousehold,mayhavepositionsintheproductsmentionedthatareinconsistentwiththeviewsexpressedbyanalystsnamedinthisreport.Thisresearchisnotanoffertosellorthesolicitationofanoffertobuyanysecurityinanyjurisdictionwheresuchanofferorsolicitationwouldbeillegal.Itdoesnotconstituteapersonalrecommendationortakeintoaccounttheparticularinvestmentobjectives,ﬁnancialsituations,orneedsofindividualclients.Clientsshouldconsiderwhetheranyadviceorrecommendationinthisresearchissuitablefortheirparticularcircumstancesand,ifappropriate,seekprofessionaladvice,includingtaxadvice.Thepriceandvalueofinvestmentsreferredtointhisresearchandtheincomefromthemmayﬂuctuate.Pastperformanceisnotaguidetofutureperformance,futurereturnsarenotguaranteed,andalossoforiginalcapitalmayoccur.Fluctuationsinexchangeratescouldhaveadverseeffectsonthevalueorpriceof,orincomederivedfrom,certaininvestments.Certaintransactions,includingthoseinvolvingfutures,options,andotherderivatives,giverisetosubstantialriskandarenotsuitableforallinvestors.InvestorsshouldreviewcurrentoptionsandfuturesdisclosuredocumentswhichareavailablefromGoldmanSachssalesrepresentativesorathttps://www.theocc.com/about/publications/character-risks.jspandhttps://www.ﬁadocumentation.org/ﬁa/regulatory-disclosures_1/ﬁa-uniform-futures-and-options-on-futures-risk-disclosures-booklet-pdf-version-2018.Transactioncostsmaybesigniﬁcantinoptionstrategiescallingformultiplepurchaseandsalesofoptionssuchasspreads.Supportingdocumentation20July202260GoldmanSachsCarbonomicswillbesupplieduponrequest.DifferingLevelsofServiceprovidedbyGlobalInvestmentResearch:ThelevelandtypesofservicesprovidedtoyoubytheGlobalInvestmentResearchdivisionofGSmayvaryascomparedtothatprovidedtointernalandotherexternalclientsofGS,dependingonvariousfactorsincludingyourindividualpreferencesastothefrequencyandmannerofreceivingcommunication,yourriskproﬁleandinvestmentfocusandperspective(e.g.,marketwide,sectorspeciﬁc,longterm,shortterm),thesizeandscopeofyouroverallclientrelationshipwithGS,andlegalandregulatoryconstraints.Asanexample,certainclientsmayrequesttoreceivenotiﬁcationswhenresearchonspeciﬁcsecuritiesispublished,andcertainclientsmayrequestthatspeciﬁcdataunderlyinganalysts’fundamentalanalysisavailableonourinternalclientwebsitesbedeliveredtothemelectronicallythroughdatafeedsorotherwise.Nochangetoananalyst’sfundamentalresearchviews(e.g.,ratings,pricetargets,ormaterialchangestoearningsestimatesforequitysecurities),willbecommunicatedtoanyclientpriortoinclusionofsuchinformationinaresearchreportbroadlydisseminatedthroughelectronicpublicationtoourinternalclientwebsitesorthroughothermeans,asnecessary,toallclientswhoareentitledtoreceivesuchreports.Allresearchreportsaredisseminatedandavailabletoallclientssimultaneouslythroughelectronicpublicationtoourinternalclientwebsites.Notallresearchcontentisredistributedtoourclientsoravailabletothird-partyaggregators,norisGoldmanSachsresponsiblefortheredistributionofourresearchbythirdpartyaggregators.Forresearch,modelsorotherdatarelatedtooneormoresecurities,marketsorassetclasses(includingrelatedservices)thatmaybeavailabletoyou,pleasecontactyourGSrepresentativeorgotohttps://research.gs.com.Disclosureinformationisalsoavailableathttps://www.gs.com/research/hedge.htmlorfromResearchCompliance,200WestStreet,NewYork,NY10282.©2022GoldmanSachs.Nopartofthismaterialmaybe(i)copied,photocopiedorduplicatedinanyformbyanymeansor(ii)redistributedwithoutthepriorwrittenconsentofTheGoldmanSachsGroup,Inc.20July202261GoldmanSachsCarbonomics

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