Despite a promising start a decade ago, European production of solar power infrastructure has had mixed fortunes. Amid rising geopolitical tensions with China, and supply chains disrupted by the Covid-19 pandemic, the case for a domestic solar manufacturing industry in Europe today is strong. Experts agree the time is now to build on Europe’s technological leadership and industrial sovereignty, and the actions of European companies and investors increasingly reflect this.
Both authors are employed by pv magazine, a trade publication supporting the solar industry
Cross-posted from the Green European Journal
At the beginning of the last decade European solar manufacturing was at its pinnacle, though few knew it at the time. The 2010 EU Solar Energy Conference and Exhibition, held in Valencia, was far from the dowdy affair of previous years, where the results of scientific endeavours to increase the efficiency and reduce the cost of solar photovoltaic (PV) cells, panels, and rooftop or free-field solar systems were discussed in academic detail. Instead, a host of innovative, fast-growing and profitable solar manufacturing companies hosted lavish parties at port-side venues in the Spanish city. The companies were riding high on the rapid growth of the European solar industry, benefiting from generous subsidies first in the Czech Republic, then Spain, Italy, and most significantly, Germany – which saw high tariffs paid for solar electricity fed back into the nations’ electricity networks for 10, 15, and even 20 years.
Early promise fizzles out
Some of the subsidy programmes were undoubted success stories in that they spurred the development of solar systems and provided the opportunity for solar manufacturing to reach the scale it required to realise significant cost reductions. However, when the tariffs remained high and PV production and installation costs fell, it led to excess and a degree of hubris. For the European manufacturers of solar cells and panels, the transition from profitable to profligate was a rapid one.
Germany-based manufacturer Q-Cells is a telling example. In 2010, the company’s leadership presented themselves as captains of this new, green industry. Yet in a little over two years, Q-Cells declared bankruptcy – with its market valuation having collapsed from almost 8 billion euros in 2007, to less than 35 million euros in 2012.
The reasons behind the rapid decline in fortunes of Europe’s PV manufacturers are numerous, but primarily they lost out in the face of fierce competition from aggressive Chinese rivals. Compounding matters, the European solar market experienced a sharp decline in 2013, followed by a multi-year trough – from which it did not recover until 2018. This period saw many European national governments winding up or scaling back subsidy measures – primarily the generous feed-in tariffs (FITs) paid to solar parks for the electricity they fed into the grid. More egregious policy changes were also a feature in countries such as the Czech Republic and Spain, where FITs were altered retroactively or taxes on solar power exports introduced.
The series of bankruptcies that swept across European manufacturers in the following years have left Europe, in 2021, at somewhat of a crossroads. As the energy transition away from fossil fuels intensifies, a bright dawn for solar installations across the EU is breaking, but the capacity of the bloc to supply these with products manufactured in Europe has been diminished.
Inside the solar supply chain
The solar panels that sit atop homes, businesses, agricultural buildings, and in free fields were formerly comprised of largely made-in-Europe components and technology. The dominant PV technology today is known as crystalline silicon PV, and some of its supply chain mirrors the semiconductor industry – which drives the ICT devices, like laptops and smartphones, that have transformed our lives.
A little over a decade ago, Europe was home to much of the solar supply chain; materials required for each stage of production were all developed and produced in Europe. And the continent’s manufacturing engineers had developed production machinery that allowed solar cells and panels to push their efficiencies ever higher – transferring the technological solutions presented by European researchers into efficient machines that were increasingly accurate and could deliver the world’s best quality at declining costs.
However, Europe was not alone in fostering its solar manufacturing sector. China too had spotted the opportunity for a fast-growing “sunrise industry” and several young entrepreneurs had been developing the country’s solar manufacturing, deploying predominantly Australian PV technology and knowhow, since 2002. Suntech is the most notable example, with its pioneering founder Dr Shi Zhengrong, for a time known as “the sun king” having applied the solar skills he had developed at Sydney’s UNSW back to China to establish Suntech and go on to change solar manufacturing forever.
While Dr Shi has pointed to China’s low labour costs as behind his decision to establish Suntech’s manufacturing in his home country, there were likely other factors informing his choice. European and US solar manufacturers have claimed that regional Chinese authorities have deployed a range of subsidies, in a bid to create manufacturing jobs in their provinces, but this remains uncertain. It was suggested that these subsidies came in the form of cheap loans, free land for manufacturing facilities and/or heavily subsidised energy – the latter, somewhat ironically, largely from coal-fired generators.
Undoubtedly the Chinese solar engineers’ entrepreneurial spirit and ability to drive costs out of PV production also played a role. As a result, the cost of a solar module fell by close to 90 per cent over a decade. China’s young manufacturers also had considerable success in attracting the foreign capital required to build new factories, with Suntech and others listing on the NASDAQ and raising vast sums. Modern solar technology pioneer Professor Martin Green argued that it was the combination of Australian technology, US capital and Chinese entrepreneurial endeavour that laid the foundations for of success Suntech and a number of other companies that remain dominant forces in today’s PV industry.
In 2021, more than 80 per cent of the global production of PV cells is now housed in Asia. Europe is home to around 8-10 gigawatts (GW) of solar module assembly capacity, but it is heavily reliant on China for solar cells and other materials such as glass and aluminium frames. As a result, Europe is the technology and price taker, rather than leader, despite the continent’s long track record in developing and deploying solar technology.
European production equipment suppliers had done brisk business throughout the 2000s, providing high-margin solar manufacturing equipment to the Chinese manufacturers. However, it was a business that was not to last, as domestic producers quickly developed their own capacities. While many European production equipment suppliers have made claims of intellectual property infringements, with their equipment designs and processes often appearing in made-in-China tools, the Chinese technology suppliers have worked closely with the manufacturers, often located in the same region or even the same city, to develop new production techniques and to design, produce and supply the machines at remarkably low costs – itself a key factor in delivering the cheap and efficient PV panels available today.
The potential for a return to EU solar production
To investigate whether there could be a future for Europe’s PV manufacturers, German manufacturing equipment industry association VDMA Photovoltaic Equipment tasked one of the country’s leading solar research institutes, the Fraunhofer Institute for Solar Energy Systems (ISE) to conduct an analysis. The study, published in August 2019, concluded that: “A chance still exists … for Europe to play a role in this big future market”.
However, the Fraunhofer ISE team found that European market competitiveness depends on a number of important conditions. For instance, transport costs of panels from China to Europe must be taken into account – which the analysis calculates at totalling around 10 per cent of the cost of a panel. Other conditions include the capacity of European production to achieve the necessary economies of scale, the production of essential materials for solar panels at a “locally competitive price” in Europe, and the reduction of “CO2 and other environmentally harmful emissions to a minimum” to ensure a sustainable “cycling economy, cradle-to-cradle”. “This is not only a big opportunity for high-tech manufacturing in Europe,” Franhofer ISE’s report found, “but also a change to ensure energy security by reducing dependency on imports in the sensitive field of energy generation.” Of course, these conditions depend upon one overwhelming consideration: that European solar manufacturing can attract the investment required. Investors, previously burned by massive losses resulting from a host of solar manufacturing bankruptcies, have been reticent to back European solar manufacturing a second time. In the decade after 2007, when Europe was the market leader in PV production, the global solar market expanded by a factor of seven, according to Fraunhofer ISE. “The required financial flows for investments were provided in China,” the report states, “European companies could not keep up and have therefore disappeared from the market.”
However, Europe has remained one of the R&D leaders when it comes to PV, with research centres such as Germany’s Fraunhofer ISE, Belgium’s imec, and Switerland’s CSEM, among others, routinely publishing innovations in solar materials and more efficient production technologies.
Covid-19 related global supply chain disruptions and an increased emphasis on Environmental, Social, and Governance (ESG) criteria in investor priorities has resulted in improved conditions for aspiring local solar manufacturers in Europe. Since the beginning of 2020, there has been a roughly 8-to-10-fold increase in container shipping costs from Shanghai to Rotterdam. A report from the Fraunhofer ISE released in April 2021 notes, “buyers are placing more value on sustainable production criteria than they did just a few years ago. Regional production has become affordable.”
In terms of European manufacturers being able to achieve the scale required for competitiveness, Fraunhofer ISE points to Spanish start-up Greenland, whose strategy is to establish “a highly-automated photovoltaic production line with an output of 5 GW per year” and have devised a plan that involves not only the assembly of imported PV cells from China into panels, but also a cell-to-panel production facility.
Dr Jutta Trube, head of VDMA Photovoltaic Equipment, concluded “With the worldwide increasing demand of PV installations, the production has to follow… As we have seen during the corona pandemic, it is appropriate to have several supply options. The dependence of the photovoltaic value chain should be avoided or eliminated as soon as possible.”
Alongside Greenland’s plans in Spain, other European firms such as Switzerland’s Meyer Burger are also pursuing gigawatt-scale plans. In Italy, energy company Enel is rumored to be developing cell and module production of 2 GW in Sicily, and Singapore-headquartered manufacturer REC has previously announced its intention to build 3 GW of solar manufacturing capacity in France.
The politics of making solar
Besides the market movers and drivers, energy sovereignty is an increasingly important issue, highlighted by the current energy price crisis, with spot electricity prices high across many European marketplaces largely driven by a squeeze on natural gas. Furthermore, if Europe is to meet its stated climate goals and the required solar and wind buildout, a heavy reliance on imported solar cells and panels could conceivably become an energy security issue.
Energy security and renewables are issues Michael Bloss, a German Green member of the European Parliament, is passionate about. For him, the central question when it comes to energy sovereignty will be: “who is actually able to produce solar panels, who has all the intellectual property rights? Currently we have the unfortunate situation in that we have a lot of knowledge, research and expertise happening in Europe, but all the manufacturing is not happening in Europe.”
At present, there appears to be much attention being paid to battery cell and module manufacturing in Europe and rightly so, with energy storage a crucial part of the energy transition. However, in contrast with the dominant battery cell chemistries being produced today, PV cells and modules require very few scarce and rare earth materials in production. As solar manufacturing has grown in scale, PV producers have proven adept at reducing material consumption as the industry expands – another factor behind the remarkable cost reductions that have been achieved.
In order to take advantage of this pivotal moment, the European Solar Initiative (ESI) is seeking to strike while the panels are hot, in order to re-establish a strong PV industry in Europe. Solar panels were in short supply in late 2021 and prices have soared to highs not seen since late last decade, according to Martin Schachinger of pvXchange – with prices not expected to return to a downward trajectory for much of 2022.
“The ESI brings together all stakeholders in the complete PV value chain,” explains Dr Jutta Trube, “as well as political actors, to work towards a strong PV industry and clean energy in Europe.” What the ESI is trying to achieve, continued Trube, is “a suitable level playing field”. Given this levelling process, Trube believes European manufacturing can scale up PV manufacturing in the manner required “to reach the goals of the Paris Agreement.”
The question of potential support measures is a crucial one; tariffs are often blunt, permeable, and, when it comes to the already cost-competitive PV market, distorting. Manufacturing subsidies and aid are more effective, though a flat subsidy is also too heavy-handed a measure for such a complex supply chain.
Another option is the use of European Recovery funds following the Covid-19 pandemic. For Michael Bloss, “Reconstruction funds can and must be used for solar energy deployment and manufacturing in Europe. We are financing a renovation wave of 35 million buildings and there should be solar panels on the roof of every one of those buildings.” However, adds Bloss, in order to provide the necessary stability for investment in solar manufacturing, “We need to create this market, and I believe there are tools of the EU’s industrial policy that can be used to support renewable energies and create an important project of European interest for solar manufacturing, like we have for hydrogen. That would be important to kickstart and reassure the solar industry in Europe.” Such industrial policy can be as straightforward as making it easier for solar parks in Europe to receive their required development and grid connection permits, and as basic as standardising solar on rooftops for this coming “wave” of renovation.
A done deal?
The success of policies around solar and the plans to build the large industrial facilities required in Europe will hinge on a number of factors. Stability, both in terms of the European market and the political foundations, will be a crucial prerequisite. One project seeking to foster market stability is the European Technology and Innovation Platform for Photovoltaics (ETIP PV) “Solar Manufacturing Accelerator” project, coordinated by SolarPower Europe, Europe’s peak solar-industry body, which aims to facilitate the rapid development of solar manufacturing projects. It is an open platform aimed at companies and organisations interested in de-risking their solar supply chains or finding local partners and investors. With a coordinated effort, the development of a competitive solar supply chain and manufacturing base in Europe could be seen to carry less risk than 10 years ago, in light of the current demand for renewables. And with supply chains across a wide range of industries under pressure due to the Covid-19 pandemic and current geopolitical circumstances, the value of shorter supply chains has become more evident.
Speed is another important factor: “We have to be much faster and I think that also creates demand,” says Bloss, “there are already people investing, there is already a solar manufacturing site in Saxony [Germany] with Meyer Burger, so it is already happening it just needs to be accelerated. The future solar energy deployment in Europe is massive, and we can produce it here in Europe. I am quite sure that we will see much bigger investment in the future.”
What is more, new industry means new jobs, and the European jobs that will be created by enabling a competitive solar manufacturing industry, and its associated supply chain, will likely bring auxiliary benefits. Communities are likely to be more supportive of both rooftop and, more importantly, free-field solar arrays if more people found employment in the PV industry – essentially enhancing solar’s social license. At present, according to The Renewable Energy and Jobs Annual Review 2021, only one European nation (Germany) features in the top 10 countries for solar employment. Europe holds 6 per cent of the world’s solar jobs (with EU member states accounting for 4.9 per cent). In 2020, PV employment in Europe was estimated at 239,000 jobs, of which 194,000 were in the EU. The latest proposals for expanded solar production capacity in Europe could see thousands of new jobs added throughout the European manufacturing chain, and 3,500 full-time installation jobs for each additional GW of capacity. Given that SolarPower Europe conservatively forecasts the European market will continue to expand by approximately 14 per cent each year up to 2024, it would seem that there will be no shortage of demand for homegrown solar cells and modules – if, that is, there are investors that are willing to deliver supply.
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