Solar industry

EU mum as solar industry time bomb ticks

Brussels is considering aiding local producers, but didn’t announce anything in a Monday statement.

BY VICTOR JACK

The EU is racing to save its ailing solar producers as the industry warns it has just weeks before it implodes. 

Yet you might not have known such a crisis was at hand from the tone the European Commission took on Monday. The EU executive issued a muted and bureaucratic statement on the situation that anxious industry executives parsed for any semblance of a lifeline.

EU solar manufacturers say they face an existential crisis due to Chinese subsidies, which they blame for flooding the EU with dirt-cheap solar panels and creating a supply glut that is causing a wave of bankruptcies. Not everyone agrees, however, that Brussels should challenge China over its solar practices, given that it might ultimately restrict much-needed solar imports. Others wonder whether emergency cash wouldn't be wasted on a sector that may already be terminal.  

For local companies, though, their livelihoods are on the line. 

“The situation is really, really, really troublesome,” said Johan Lindahl, secretary general of the European Solar Manufacturing Council (ESMC), which represents local producers. “We might lose a majority of the European industry in the next couple of months if there's no strong political signal.” 

That signal didn’t come on Monday. 

While the Commission has begun early-stage talks on options to help producers, it made no commitments during a hotly anticipated debate in the European Parliament that many in the industry had hoped would show the bloc was taking immediate action.

Low prices are “clearly a challenge to EU solar panel producers,” EU financial services chief Mairead McGuinness told MEPs in Strasbourg, adding the EU executive would “work closely with the EU industry to deploy every effort at the technical and political level” to help manufacturers.

MEPs from all the Parliament’s main parties expressed dismay.

“Our market is being attacked by cheaper imports from third countries fueled by huge subsidies,” said center-right lawmaker Liudas Mažylis of the European People's Party group. “We have to think about providing immediate support to solar manufacturers.”

“I expect more from the Commission … because otherwise, we're not going to be able to achieve our [industrial policy] objectives,” added center-left MEP Matthias Ecke of the Socialists and Democrats.

Dark skies ahead

The debate over how — and whether — to save Europe’s solar industry comes as Brussels takes an increasingly assertive stance toward Beijing. 

Last fall the EU opened a probe into whether Chinese subsidies for electric vehicles — another key next-generation technology — were unfairly harming EU manufacturers. The investigation triggered a tit-for-tat response from China targeting French brandy.

At the same time, the EU wants to avoid overreliance on a single country for its energy supplies — having been stung when Russia suddenly cut off gas exports in 2022 amid the war in Ukraine, sending prices skyward.

The solar industry, represented in Brussels by SolarPower Europe and ESMC, has for months urged Brussels to spearhead an EU-led buyout of manufacturer stocks; to further relax state aid laws for solar initiatives; and to adopt rules favoring local producers for green energy projects.

Such initiatives could tide the industry over for “two to three years,” said ESMC’s Lindahl, when new EU laws favoring local manufacturing and penalizing foreign products made with forced labor take effect. The rules will make EU producers more competitive, Lindahl said, given that Beijing faces accusations of human rights abuses in its solar production chain.

But others argue that EU support for solar producers is futile given that the bloc’s tiny industry can't compete with China in the long term. Beijing controls over 80 percent of global solar manufacturing capacity, while the EU produced just 3 percent of the solar panels it installed last year.

“Unless you absolutely pour money into this … anything you do will just be very, very short term and give breathing space to manufacturers,” said Lara Hayim, head of solar research at BloombergNEF. “I can't help but feel that these are all efforts that are a bit in vain.”

In the meantime, many of the bloc’s solar firms have already gone bust, with Dutch panel producer Exasun and Austrian module manufacturer Energetic filing for insolvency in recent months.

Germany — home to more than half of the EU’s 5 gigawatt solar module production capacity — will likely suffer most. 

The Berlin government is in last-ditch talks with Meyer Burger after the Swiss solar firm said it would halt production of modules in the country by April. Two other solar producers, Solarwatt and Heckert Solar, have also threatened closures and investment pauses.

The China enigma

At the heart of local producer complaints is that copious Chinese subsidies are distorting the market, leaving EU manufacturers unable to compete.

Beijing began to experiment with solar production in the early 2000s, but it wasn’t until the 2008 financial crisis and the EU's slapping tariffs on Chinese solar panels a decade ago that the government built up local capacity, said Alexander Brown, an analyst at the Mercator Institute for China Studies.

After labeling solar a “strategic emerging industry” in 2010, Beijing pumped cash into the sector via state-owned banks, while private firms invested heavily into research and development, Brown said. 

Solar cells now form part of China’s self-professed “new three” export pillars, alongside lithium-ion batteries and electric vehicles. The term has come to symbolize Beijing’s push to swap its historically labor-intensive economy for a technology-intensive upgrade.

But whether the country’s current solar dominance is owed to distortive state aid isn’t clear. 

ESMC argues that Chinese module prices — which are up to three times cheaper than their European equivalents — are sold below the cost of production, indicating significant state aid. 

But low prices also derive from fierce internal competition among Chinese manufacturers, as well as from lower labor costs, economies of scale, and rapid innovations in solar technology, said Hayim, the solar researcher at BloombergNEF.

“Subsidies might be helping,” she said. “But I don't think that's the reason why China can produce at the rates that they can do.”

China’s mission to the EU didn’t respond to a request for comment, but Beijing envoy Fu Cong told Bloomberg last month that blaming Chinese subsidies was “a bit unfair,” given that EU capitals also dole out support.

As if in confirmation, Italian Prime Minister Giorgia Meloni announced on Saturday that €90 million in EU post-pandemic recovery cash would be used to expand the 3Sun solar factory in Sicily, already one of the bloc’s largest manufacturers. 

Impossible tradeoff

But penalizing China's solar industry represents a conundrum for the EU.

Brussels wants to bring 30 GW of solar manufacturing capacity back to Europe by 2030, but will also need to deploy 750 GW of solar panels across the Continent by then to meet EU climate goals.

Not only does the bloc need Chinese imports, but any trade measures against China’s solar industry could prompt retaliation. 

Europe has a “crucial dilemma when it comes to green industrial policy,” said Simone Tagliapietra, a climate policy specialist at the Bruegel think tank. “How to strike the right balance between economic efficiency and geopolitical resilience, without slowing down the green transition.”

ESMC, representing EU manufacturers, called on the Commission last week to apply “provisional safeguarding measures” such as a partial import ban on Chinese solar panels “as a last resort.” 

But SolarPower Europe CEO Walburga Hemetsberger told POLITICO such moves “would really be detrimental for the solar sector,” and could slow deployment by up to 50 percent.

That split is also apparent among countries. At a December meeting of EU ministers on solar manufacturing, five out of seven countries appeared resistant to any trade defense measures — but that opinion wasn’t universal, according to a person who took part in the meeting, and was granted anonymity to speak candidly.

“[The] situation is worrying ... there is an obvious trade imbalance and dependence on China here,” said a diplomat from an EU country, who was also granted anonymity to speak freely. But “tariffs against China are probably a bad idea.”

“We need to start making strategic choices,” the diplomat said. “Maybe solar is not the battle we should fight.”