The EU is 97% dependent on solar panel imports, mainly from China, according to Mairead McGuinness, European Commissioner for Financial Stability, Financial Services and Capital Markets Union, in a statement in early February to the European Parliament on the ‘state of the EU solar industry in light of unfair competition’.

‘Global oversupply and a surge of imports into the EU has put under strong pressure [European] solar supply chains,’ said McGuiness. For buyers and consumers, however, this is good news – given that solar panel prices have plummeted by over 40%.

However, McGuinness stressed that the EU was not giving up on developing European solar panel manufacturing, highlighting support programmes for the solar industry, notably via its EU solar energy strategy (May 2022), which targets more than 320 GW of installed solar photovoltaics (PV) by 2025 and almost 600 GW by 2030. While imports are key here, the strategy includes a private-public EU skills partnership to train and upskill workers in manufacturing as well as installation management. It also includes the EU Solar PV Industry Alliance which is aiming for 30 GW of annual European solar PV manufacturing capacity by 2025.

New green subsidy rules 
The European Commission (EC) also adopted new green subsidy rules under its Temporary Crisis and Transition Framework (TCTF) loosening EU rules on national subsidies following Russia’s invasion of Ukraine in March 2023, targeting strategic sectors at risk of relocation to third countries, including solar PV manufacturing.

McGuinness pointed to nine resulting projects with €12bn’s worth of subsidies budget – including some supporting EU solar panel manufacturers.  

Dries Acke, Policy Director at trade association SolarPower Europe, believes that these rules only allow subsidies for the capital expenditure (capex) of building solar factories. ‘This falls short of supporting operational expenditure (opex) of running solar factories, which is a key competitive challenge,’ says Acke, noting that EU solar manufacturers face energy costs twice as high as China, and three times higher than the US.

McGuinness also pointed to a February 2023 EU Green Deal Industrial Plan for the Net Zero Age, and the March 2023 proposal for a Net Zero Industry Act (NZIA) – an EU regulation imposing common rules across the EU, not a looser directive. The Green Deal is in the final stretches of negotiations, with EU lawmakers now close to announcing a provisional agreement.

Mairead McGuinness, European Commissioner for Financial Services, Financial Stability and Capital Markets Union, speaking at an EU Sustainable Investment Summit in Brussels in January 2024
Photo: European Commission, Jennifer Jacquemart
 

Strategic manufacturing scale-up planned 
NZIA aims to scale up manufacturing of strategic net zero technologies, including solar PV and solar thermal, in the EU by 2030, through a 40% domestic production benchmark and measures such as faster permitting. Crucially, the NZIA will boost market access of EU-made solar PV equipment by allowing member states to use non-price criteria to procure energy capacity in auctions.

‘It’s a no-brainer to use criteria like resilience and sustainability to leverage the competitive edge of European products in some of these auctions,’ comments Acke. He argues that the EU ‘should start small with resilience auctions, around 5 GW in 2025 across the EU, in reflection of the small capacities of EU solar production, and gradually grow the volumes of resilience auctions towards the goal of 30 GW by 2030.’

‘The problem for Europe’s manufacturers is that the NZIA will only have an effect in one or two years, with many EU solar producers facing financial problems now,’ notes European Solar Manufacturing Council (ESMC) Secretary General Johan Lindahl. ‘What we’re asking for is emergency measures to cover these one to two years.’

The ESMC wrote to the EU Executive European Commission on 30 January 2024 warning: ‘Over the next 4–8 weeks, major EU PV module producers and their European suppliers are poised to shut down manufacturing lines unless substantial emergency measures are promptly implemented.’ The letter pointed to the loss of 180 MW of PV module manufacturing capacity in recent months, and said without immediate action, there was a ‘looming danger of forfeiting an additional 3.5 GW of operational PV module production capacities within the coming weeks’, equal to more than 50% of current operational EU PV module manufacturing capacity.

US and China subsidies tip the balance 
Lindahl emphasises that China has been offering ‘very lucrative subsidies’ for nearly a decade, which is how Chinese manufacturers have been able to build up to ‘near monopoly and huge over-capacity’.

The US and India realised this was going to be a big problem and started to close their markets through import tariffs. The US has targeted the 40% of global polysilicon manufacturing that takes place in China’s Xinjiang region (according to the International Energy Agency), through a law that bans imports from the region involving alleged forced labour by its Turkic Uyghur population.

The US Inflation Reduction Act (IRA) has also poured tax credits into US solar panel manufacturers. ‘So China only has two major markets open – domestic and Europe,’ explains Lindahl. Chinese producers exported 80–90 GW in both 2022 and 2023, and the ESMC estimates that current stocks of PV modules in European ports and warehouses stand at 140–170 million modules, the equivalent to 70–85 GW capacity.

EU attempts to level up 
The ESMC letter calls on the EC ‘within the next two months at the latest’ to establish an EU-level buy-out facility for accumulated EU solar PV module inventories, an idea Acke also put forward. And, furthermore, it suggests allowing state aid to cover capex. Both ESMC and Acke also want resilience auctions to start in 2024, even before the NZIA is implemented. The ESMC also wants the EC to apply a proposed EU forced labour regulation (FLR), targeting Xinjiang, in 2024, although that too is still under negotiation.

Acke adds: ‘Member states should consider state guarantees and credit lines for manufacturers struggling to survive.’

But the two trade associations disagree over the need for trade defence mechanisms. Lindahl says anti-dumping duties are ‘a last resort’ failing emergency measures, while Acke insists that ‘trade barriers impact solar deployment and destabilise the investment pipeline for solar projects'. He notes that ‘previous trade barriers contributed to the significant decline in solar installations in the 2010s and that they did not return to 2012 levels until 2019.’

‘Right now, Europe would be able to produce less than 3% of the solar panels needed to meet the annual average target to hit our 2030 solar deployment goals,’ comments Acke.

McGuinness too told the European Parliament: ‘Given that we are currently relying on imports to reach solar targets, any measures need to take account of the need to make climate targets.’

Acke also wants to see ‘clear market access standards that reflect Europe’s ESG [environmental, social and corporate governance] values – like eco-design or supply chain sustainability legislation', which might also boost local production. That move McGuinness also floated on 5 February.

Solar production needs additional funding, including more European Investment Bank (EIB) financing, says Acke, pointing to the €560mn funding for the 3Sun factory in Sicily announced on 24 January as a ‘good example that should be replicated’. He also wants a €8bn EU finance tool for solar manufacturing from now to 2030 modelled on the European Hydrogen Bank subsidy vehicle. Acke points out that ‘there is no dedicated EU solar manufacturing funding, unlike for microchips, hydrogen and wind’.

‘There is no dedicated EU solar manufacturing funding, unlike for microchips, hydrogen and wind.’ – Dries Acke, Policy Director at trade association SolarPower Europe

Supply concerns over wind as well  
Despite this support, Europe’s wind industry is concerned that it could be heading in the same direction as the EU solar manufacturing sector. In 2022, all the largest European wind turbine manufacturers reported significant operating losses. Despite most Europe-located turbines currently being built in the bloc, there are fears that could change.

WindEurope CEO Gilles Dickson sounded the alarm in September (2023) after the biggest projects in an auction in non-EU Serbia went to Chinese firms, which were able to offer lower prices than turbines made in Europe.

As with solar, the EC recognises there is a problem here too. It unveiled a European Wind Power Package last October (2023), which trade association WindEurope sees ‘as a game changer’. The action plan in the package aims to boost EU production by speeding up permitting and boosting EU funding, with a €5bn European Investment Bank (EIB) funded guarantee scheme for wind energy manufacturing.

The EC also pledged to use trade defence mechanisms and EU foreign subsidies regulation, which gives the EU powers to block or restrict deals involving subsidised non-EU competitors to protect European wind producers. All EU governments except Hungary subsequently joined over 300 companies in signing the European Wind Charter on 19 December (2023), committing to take the urgent action outlined in the package.

Firm EU action means Europe’s wind sector could avoid future dependency on Chinese imports, unlike the solar industry.

Martin Baart, CEO of Berlin, Germany-based solar finance company Ecoligo, says Europe needs to build strategic autonomy in renewables. ‘Dependency is a big mistake, because we’re getting into a similar dependency as Russia [regarding natural gas]. Specifically, it’s a big mistake to not do anything against it,’ he warns.

Baart acknowledges that there are some incentives in Europe, including the NZIA and its goal of having 40% of all components from European manufacturers. ‘The problem is that is just a goal, how do you achieve that?’ he asks. ‘You can set out ambitious goals, but if you don’t back it with the right [legislative] instrument, then it will be difficult to achieve.’

Another problem in Europe is very tedious red tape, which means ‘it is time-consuming and bureaucratic to tap into government money’, Bart notes, comparing this to the ‘simple system’ in the US, where ‘if you produced that many watts, you get this amount of tax cut. So much simpler’.

Baart argues that the EU should copy the US IRA. ‘Tax incentives are always easy – if you build the promised factory, you get five years’ tax relief. That’s your investment decision solved.’ And once a company has invested billions, ‘they’re not going to move away after the five years are up!’ he says.

‘The EU shouldn’t re-invent the wheel,’ Baart argues. ‘The IRA is a really good example of a working instrument... maybe not copy it one-to-one, but the good parts of it,’ he suggests.

Despite the EC setting up an Innovation Fund, which has so far granted support to new investments in solar manufacturing projects to the tune of €400mn over two years, and a newly-created Strategic Technologies for Europe Platform (STEP), Ecoligo’s Baart complains: ‘In general, there’s just not enough money freed up for this massive transition.’