USA and China are leaving Europe behind
Solar industry sees insurmountable production hurdles
6/18/2023 7:53 am
Three quarters of all solar modules come from China. In order not to risk new dependency, the EU therefore wants to establish a domestic industry by 2030. But the industry is skeptical about a renaissance. In Europe, Chinese production advantages and American tax incentives are missing.
According to the industry, Europe is facing almost insurmountable hurdles in the hoped-for reconstruction of a solar industry. The cost and size advantage of Chinese manufacturers in particular is now so great that the EU’s “Green Deal” can only succeed with concerted political and financial support. In addition, the USA is luring the remaining European companies across the Atlantic with immense subsidies.
“If we want to keep up in Europe, we now need an energy and industrial policy double whammy,” argues Carsten Körnig, General Manager of the German Solar Industry Association. “The Asians have gained a scaling advantage in the manufacture of solar cells and solar modules in recent years,” says Körnig. “The USA also want to bring solar gigafabs into their own country with the Inflation Reduction Act (IRA).” Scaling means that a company can produce more cheaply the more it produces: a large factory usually produces more cheaply than a small one.
The annual production capacity of the European solar industry currently amounts to modules with a total output of a good 8 gigawatts. The Fraunhofer Institute for Solar Energy Systems estimates the European share of global production at one percent and the Chinese at 75 percent.
One group trumps the whole of Europe
The aim of the EU as part of its Green Deal is for the domestic solar industry to produce modules with an output of 30 gigawatts again by 2030. But according to an analysis by management consultancy PWC, the largest Chinese manufacturer Jinko alone already produces 45 gigawatts a year. By the end of this year, the production capacity should be 90 gigawatts: The group has made provisions for the rapid growth in the coming years and expanded its capacity faster than the entire European industry.
Even if labor, energy, or input costs were comparable, companies like Jinko can produce more cheaply than smaller competitors simply because of their economies of scale. “Since 2011, China has invested over $50 billion in new photovoltaic supply capacity – ten times more than Europe. This has created 300,000 manufacturing jobs in the solar value chain,” according to a November report by the International Energy Agency (IEA).
The production costs of solar modules are given in cents per watt of electrical output. According to information from the industry, the Chinese solar industry is estimated at 17 to 18 US cents per watt. The Chinese target for 2025 is 15 cents, as reported by French entrepreneur and solar expert Gaetan Masson at the Intersolar trade fair in Munich. “When the Chinese say something like that, they do it too.”
The European costs are about twice as high. “We are much more expensive than the Chinese,” Masson said. “It’s not just a question of investments and operating expenses, but of a lack of competitiveness.”
Twice as high costs in Europe
There are five main production steps in the manufacture of a solar module: Polysilicon, the basic material of photovoltaic cells, is made from quartz sand. The polysilicon is formed into ingots, which are sawn into wafer-thin slices so that the photovoltaic cells can be manufactured and the module assembled at the end.
The first production steps in particular are very energy-intensive. Production in Europe is made more expensive by electricity prices. “Without an industrial electricity price, a renaissance of the solar industry in Europe will hardly succeed,” says the German solar boss Körnig.
According to him, cheaper electricity alone will not be enough, hence his plea for a “double boom” with simultaneous industrial policy help for the solar industry. Apart from cheaper electricity, the US offers solar companies major tax advantages under the IRA. Since there are no comparable incentives in Europe, there is currently no question for solar companies where money would be better invested.
“Trabi with a broken engine”
“If nothing is done to protect European module manufacturers, no one will invest here,” summed up Gunter Erfurt, CEO of module manufacturer Meyer Burger, at Intersolar. Compared to non-European competitors, the domestic industry is in the situation of a “Trabi with a broken engine”. At the same time, almost all managers involved say that they would like to produce or order more European modules. Nobody sees the dependence on Chinese imports in particular as fortunate.
“We want to regionally diversify our supply chains,” says Matthias Taft, CEO of Baywa RE, a large project developer of solar power plants. “There is an overriding interest in this – not only from us as developers, but also from manufacturers or electricity suppliers. We want to position ourselves more broadly along the entire PV value chain.”
It’s not due to a lack of sales opportunities. According to Taft, the market is big enough to establish a European photovoltaic industry with a capacity of 30 gigawatts. Asian manufacturers would have achieved a competitive advantage with better framework conditions and a large production volume. “But we still have a technological lead,” says the manager. “In my opinion, a product ‘Made in Europe’, where we have full transparency with regard to the supply chain and where we can use green electricity, would be well received by many end customers.”
However, there is consensus in the industry that a renaissance in the European solar industry will not be possible without state funding and support. “In order to become competitive in the industry, however, plannable financial incentives are needed,” says Taft – and refers to the IRA in the USA.