The solar markets in Germany and Europe is booming. That's good news for the economy, for small and medium-sized businesses and for the climate! It all sounds good, as if things are finally getting back on track after tough years. But suddenly a sword of Damocles hangs over this success story again. The same one that already stifled the boom in the 2010s: protectionism. Some players at the German and European level are calling for Chinese photovoltaic imports to be made relevantly more expensive or restricted. If this were to succeed, the goals of the German energy transition, the EU Green Deal and those of climate protection would be wastepaper overnight.
Many companies along the entire supply chain are in danger of being driven into ruin, even though they have many times more jobs than the numerically much smaller solar module manufacturers. When the EU Commission imposed tariffs years ago, the damage was immense. Just how damaging protectionism can be for PV can currently be seen in the US and India, among others, which have so far fallen well short of their potential.
Protectionism makes the energy transition more expensive
Depending on the form it takes, protectionism would also at least make all PPA projects in Germany more expensive or completely clear the PPA market. This would directly result in higher costs for the industry.
EEG incentives would have to be increased significantly to compensate for the higher costs. If there were even a module shortage, bidding volumes would have to be reduced. All considerations of receiving refunds via Contracts for Diffenrences (CfDs) would turn into utopia. Neither solar PPAs nor CfDs could play a role in the context of an industrial electricity price, which, which is supposed to benefit from low solar power prices.
Dumping allegations are contrived
It is right and important from a resilience perspective that the US and the EU want to build their own PV industry. At the same time, it is obvious that this is difficult in times of overcapacity. The European Photovoltaic Manufacturers Council (ESMC) has accused Chinese manufacturers of alleged dumping in competition against European competitors in a Tagesspiegel Background article.
BNE considers these dumping allegations to be contrived, especially since ESMC does not substantiate the allegations. Even more, the dumping allegations are mixed up with the issue of inventories of European distributors. Indeed, modules were delivered on a large scale at times, as Asian analysts – above all PV Infolink from Taiwan – had predicted very strong market growth for Europe in 2023. But this has nothing to do with dumping, but with normal market behavior. Inventories were and are adjusted to market expectations and market developments. It is also perfectly normal for obsolete stock items such as PERC modules to be sold at reduced prices. Some confusion on solar product stock levels were the result of strongly different estimations from analysts of Rystad Energy, which, in the meantime, have been put into perspective by German PV analyst Karl-Heinz Remmers.
A look at the other arguments put forward, for example "forced labor", is worthwhile. However, the most modern and efficient Chinese production capacities of recent years were built in provinces other than Xinjiang, where forced labor is assumed. Another is the allegedly inferior environmental standards. But here, too, it is important to note that there are now TÜV-certified modules that have low carbon footprints. There is also plenty of wind and solar power in China, which enable low CO2 footprints. Far-sighted manufacturers have been producing with electricity from renewable sources, especially those who also want to export modules.
Above all: Why should the large Chinese manufacturers have an interest in dumping prices against a European industry, which they consider to be a customer to a relevant extent at upstream market levels? The solar cells and to some extent even the modules of European manufacturers come to a relevant part from China. The unfortunately very few cells that are actually made in Europe represent only a minimal fraction of the EU market, not to mention the world market.
Compared to the production facilities of Chinese manufacturers, the lines in Europe are 'pilot lines' with significantly higher costs. The only producing European cell manufacturer had just about 300 MW of cell production capacity in the first half of 2023. This would have covered just about the PV capacity addition of Germany in one week in June. Ground-mounted modules with solar cells from European production do not exist. The dumping accusations are therefore absurd for lack of motive alone. In plain language: The weakness of the European manufacturers is the problem, not the strength of the Chinese competition.
Fierce competition between the Chinese PV giants
What's more: module prices in 2023 are just below module prices in 2019 – 15 ceuro ents per watt compared to 16 euro cents at the time. Since then, time has not stood still. Chinese manufacturers have significantly expanded their production capacities, relying on latest cell technologies such as TOPCon, HJT or back-contact cells,and thus massively reduced costs. By 2024, China is expected to reach 1 TW of cell and module production capacity. Module efficiencies have increased significantly in recent years.
Yes, there is fierce competition, but between the Chinese PV giants, some of which are expanding to production capacity levels of around 100 GW. We all benefit from this competition. Falling module prices lead to higher demand, more installations, more climate protection and more jobs in the solar industry – worldwide, but also in Germany and the EU. It is the medium-sized companies, the craftsmen, that install, maintain and take care of everything on site – and earn money from the solar market expansion. In this respect, protectionist measures harm them and thus regional value creation most strongly and directly.
Protectionism has already done massive damage once before
The protectionism proposals against China carry high risks. European manufacturers could not even begin to cover the EU market for many years, especially since European manufacturers also rely on upstream products from China – especially cells. When the EU Commission imposed tariffs about 10 years ago, the damage was immense. The attempt to save the European solar industry with this failed miserably. Worse still. The high tariffs had made modules so expensive that the market in the EU imploded. This cost masses of jobs and companies in the solar industry. A blog post by Karl-Heinz-Remmers is worth reading. Today, just one percent of PV jobs are in the module production supply chain. It would be short-sighted to put the other 99 percent at risk.
Lage scaling of PV production capacities necessary
At the end of the first decade of this century, there were still strong European PV manufacturers active in the sector. Unfortunately, those days are over. The current players are far from competitive and in some cases still sell modules at prices that were common 10 years ago. They could only achieve competitiveness if they can play on a par with Chinese manufacturers, both technologically and in terms of scale. The BNE has been a strong advocate for building a solid European PV economy. However, our approach of creating large-scale PV manufacturing capacities was not adopted. Both Berlin and Brussels first met endlessly and then launched inadequate programs that are not sufficient to establish big players that can compete with the major Chinese players.
If policymakers really want to help the European PV industry in the short term, they must create framework conditions under which it can significantly reduce its costs. Since European companies are not competitive for the time being, they could be helped in the short term in a transitional phase by privileges, for example with special tenders in the roof segment. However, these tenders must be designed in such a way that the companies nevertheless perceive cost pressure and quickly increase their competitiveness. In the medium and long term, Berlin and Brussels must pursue a strategy to make the European PV industry large and competitive.
The worst thing that could happen now would be for Berlin and Brussels to simply pass the buck to China to distract from their lack of activity in building up the PV industry. This would result in immense damage to climate protection, the energy transition, resilience and the PV industry, but also to electricity customers, who would have to bear higher electricity costs. The boomerang would thus come back to policymakers, who would have to explain why yet another future project is being slowed down instead of being given momentum.
Addendum:
This article is an updated version of an op-ed published in German energy newsletter Tagesspiegel Background Energy & Climate on Oct. 4, 2023. In a replica to the article, also in Tagesspiegel Background, Meyer Burger CEO Gunter Erfurt responded in his own op-ed on Oct. 12, 2023, accusing Chinese competitors of dumping, as well as continuing to invest in building PV generation capacity despite existing overcapacity. He even speaks of a solar bubble. The overcapacity argument is remarkable, as Meyer Burger also wants to build up capacities and demands extensive subsidies from the German government and the EU Commission for this purpose.
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