Solar package is a long time coming: “Subsidization can quickly get out of hand”

Solar package is a long time coming
“Subsidization can quickly get out of hand”

March 23, 2024, 5:02 p.m

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Cheap imports from China are a problem for many European solar manufacturers. Factory closures are on the table, and government aid is seen as the answer. In an interview, energy economist Andreas Löschel warns of a subsidy race. The discussion shouldn’t just be about money.

ntv.de: The draft law on “Solar Package 1” presented and passed in August 2023 was actually supposed to come into force at the turn of the year 2023/24. The patience of everyone involved has probably run out by now, right?

Andreas Löschel: There is a certain general dissatisfaction in the energy industry. Companies actually want to move faster. A lot of time passes from the draft bill, to the hearing with companies and business representatives, to the parliamentary negotiations. This can’t only be observed with the solar package.

How important is the solar package for the expansion of renewable energies and compliance with climate goals?

A look at how the climate goals are to be achieved becomes clear: renewable energies play a very central role here. Last year, more than 50 million tons of CO2 were saved – in the electricity sector alone. Last year, the advanced expansion of renewables massively pushed coal out of the market amid lower demand – and this expansion will continue to take place to a large extent in solar energy. That’s why it’s important to think about: How can this be achieved? Small areas, bureaucratic obstacles and hesitant network expansion are currently slowing things down.

Several solar companies want to stop their production in Germany. What’s so bad about companies moving their production facilities abroad? Why do we need a competitive solar industry in Germany?

First of all, it should be noted that solar energy will be one of the key technologies of the next decades. However, it will probably be very difficult to create a competitive solar industry in Germany. That doesn’t mean that it’s a good idea to let PV know-how flow away. Germany is a leader in PV technology, including in mechanical and plant engineering. The question is rather: Can this lead be secured without us also producing large quantities of PV modules ourselves on site? This may be difficult in the long term. That’s why it makes sense to continue to have a certain amount of production in Europe in order to maintain the solar value chain. But we don’t necessarily need production in Germany or greater coverage of demand from domestic production. Germany has not done badly with modules from abroad in the past. Ultimately, this reduced the costs of the expansion.

Meyer Burger has shut down its production in Freiberg. If there are no subsidies, the manufacturer wants to close the factory completely. Do you think the company will take it seriously if the worst comes to the worst?

This decision should be made with a cool head. From a state perspective, a subsidy race doesn’t seem to make sense to me, nor should companies get too involved in subsidy promises. It is therefore equally important that the discussions are not just about more money, but generally about better conditions for investments.

The solar package also includes the introduction of a so-called resilience bonus. This stipulates that domestic consumers receive a higher feed-in tariff after purchasing German or European solar modules. Is this the right answer to the cheap competition from Asia?

From a short-term economic perspective, the resilience bonus is not a good idea. At least not if it is thought of too broadly and nationally. If the view is European and the scope of this segment is not too large, then it can make sense in the sense of increased resilience. If supply chains break, we could quickly build up stronger European production today. Without European production, this will likely be difficult in the medium term.

The FDP is opposed to the resilience bonus. The party is convinced that the market will solve the problem. Some economists also warn against permanent subsidies. Domestic manufacturers couldn’t compete with the competition from China anyway. What do you say?

I can understand the arguments well. Essentially, we should in fact use international markets as much as possible and procure from different countries in a more diversified manner. However, completely foregoing domestic and European production is also dangerous in the medium term. A balanced middle ground is needed here that weighs up short- and long-term costs and benefits.

Christian Lindner is optimistic: Even if deliveries from China were stopped, production facilities would quickly be set up elsewhere on the world markets. He is convinced that the supply chains in Germany will not break either.

In turbulent times, it becomes clear how powerful markets are and the extent to which they can absorb any delivery problems. We just saw this in the gas crisis. Few actors believed that the major upheavals could be overcome. By making extensive use of global markets, we managed to get through the last two winters well. And the high prices have triggered many projects that will come onto the market in the next few years. These mechanisms are also likely to be relevant in the event of a delivery stop. Nevertheless, we should take the existing dependencies seriously and arm ourselves in Europe too.

In 2030, the EU wants to supply at least 40 percent of solar energy from its own production. How realistic is that?

First of all, the question is whether this is even necessary. It is currently clear: the more we provide from our own production, the more expensive solar expansion becomes. This is not good news for climate protection. Or the member states will subsidize the expansion even more. Extensive, broad-based subsidies in order to achieve a 40 percent target can quickly get out of hand. After all, many government budgets are under severe pressure. Therefore, it should not be about quantity, but rather about securing the know-how in order to be able to react confidently in turbulent times and to be able to maintain the option of competitive European production through innovations.

Juliane Kipper spoke to Andreas Löschel