Europe tries to escape China’s shadow with solar power

This month’s annual meeting of Europe’s Solar Power Lobby in Brussels celebrated the rapid rollout and success of solar panels in the region following the withdrawal from Russian gas.

Walburga Hemetsberger (CEO of SolarPower Europe) stood behind a DJ deck and said that it should be “the greatest party ever”. She also stated that the European solar industry had set new records last year. However, EU officials spoke at the same event and focused their attention on a bigger challenge.

“Switching to fossil fuels to renewables shouldn’t mean replacing one dependence,” said Kadri SIMSON, energy commissioner who has overseen the bloc’s effort to get rid of Russian gas over the past year.

By 2030, the EU hopes to make solar energy its largest source of electricity. This would almost triple the EU’s solar power generation capacity in the next seven years. Simson reminded the delegates that more than three quarters of EU’s 2021 solar panel imports “were from one country”.

China is an important supplier to Europe’s green transition. However, European companies and officials are becoming more wary of relying upon one country for their generation equipment needs in the aftermath of the Russian fuel crisis and pandemic supply chain disruptions. This is especially true when production is concentrated in an area where there have been numerous allegations of human rights violations.

The US Inflation Reduction Act grants hundreds of billions of dollars to clean energy. Some EU officials argue for an industrial revival at home, as well as the fact that the Biden administration has poured hundreds of millions of dollars in subsidies under its auspices.

Raphael Glucksmann (a European parliament member) says that it’s a Hamiltonian moment. He is referring to the creation a strong American federal government. Ironically, the triumphs of China’s Communist party have been made possible by the thirty years of European deregulation and free trade policy.

“Europe must produce again. We can’t be a continent full of consumers. We have learned from the war and the pandemic that when there is a disruption in the market, we are naked and lost.”

The response of the commission was to introduce a Net Zero Industry Act to encourage “strategic technologies,” such as solar energy and other renewable energy infrastructures, to be manufactured on their home turf. Last week’s law proposed that the EU have sufficient clean energy manufacturing capacity to supply at least 40% of its generation needs.The continent is producing less than half as much at the moment, and there are warnings that these proposals are unrealistic. “We can’t scale quickly enough to meet European demand,” says Steven Xuereb, director of solar quality assurance company PI Photovoltaik-Institut Berlin. “Everyone is excited about the new Enel plant in Sicily which will produce 3GW. Chinese giants have announced new factories of 20GW.

European solar companies believe that the industry needs more funding. The proposed act’s priority for local production in public procurement contracts, and consumer subsidies, could lead to increased costs that could impact take-up.

“If poorly designed, the NZIA could send the sector back 20-years,” Kareen Boutonnat (chief executive for Europe and Asia Pacific, Lightsource bp), one of the largest regional solar developers, said. “No one is interested to purchase expensive renewables.”

There is some historical irony in the EU’s conundrum. Europe was the original world’s largest manufacturer of solar power, producing 30% of all photovoltaic panel production in 2007. China’s industrial policy push in Beijing caused Chinese production to rise and prices to fall, just as Europe was reeling from the 2008 financial crash.

The European Commission opened an anti-dumping probe into Chinese solar panel imports in 2012. It imposed a nearly 50 percent duty the next year.That decision pitched the EU into its biggest trade dispute with China yet. Beijing threatened retaliatory tariffs on wine and luxury cars. The European Commission climbed down from its initial proposals, instead agreeing a price floor on solar panels with Beijing, to the dissatisfaction of the European solar manufacturer lobby. The price floor was later dropped in 2018.

The 2012-13 trade dispute revealed some elements of Europe-China tensions that still exist today. The proposal of the Commission divided the member states. They did not want to risk their trade relationship with China and they also wanted cheap solar panels, which took the pressure off their green-energy subsidies.

The level of Chinese planned industrial strategy was a major concern for policymakers. . . “We were not necessarily giving European production enough to stop the Chinese out,” Dries Acke, policy director at SolarPower Europe, says.

China emerged as the undisputed global leader in solar-power technology. According to the International Energy Agency, China has invested more than $50 billion in solar panel manufacturing capacity since 2011. This is 10 times more than Europe.

This capacity growth has resulted in the low prices that have enabled Europe to achieve record-breaking solar installations. The IEA reports that although Europe imported 26GW of photovoltaic module in 2021, it was only a third of the price of 2010. In 2010, Europe imported just 15GW.

European governments and businesses are already worried about over-reliance on one country. But, they also worry about the risk of being dependent on small producers in other countries. GCL-Poly Energy’s major Chinese polysilicon plant was hit by a series of explosions in 2020. This wiped out about 10% of global supply, and drove prices up by 50%.

The ethical issues surrounding China’s main source of solar panel material, polysilicon (the main ingredient in the production of solar panels), are also very serious. Approximately two-fifths global production is concentrated within Xinjiang in the northwestern region, where the government has launched a massive crackdown against Uyghurs and other Muslim residents. Satellite imagery, interviews with detainees released by journalists and researchers have shown how prisoners are forced to work in detention centers.While Beijing says its policies in Xinjiang are to counter terrorism and promote development, the high levels of coercion in its policies to “assimilate” Uyghur Muslims mean that it is difficult to disentangle forced labour programmes from voluntary ones. Research from Laura Murphy at Sheffield Hallam University has found that at least two major companies in the silicon supply chain, Xinjiang Hoshine and JinkoSolar, have plants in industrial parks that also house prisons or internment camps. Neither company responded to an emailed request for comment.

Despite criticism from solar-panel installer companies, the US began blocking imports containing content made or Xinjiang in 2022. The European parliament is currently considering two policies that could block solar panel imports from China. They are the corporate sustainability due diligence directive (or forced labour regulation). Each will require agreement from the parliament and 27 EU member states.

Glucksmann is responsible for the drafting of one of the European Parliament’s positions on forced labour regulation. He proposes an approach similar that the one preferred by Maria Manuel Leitao Marques (a Portuguese lawmaker who leads the parliament’s negotiations about the forced labor issue). This requires companies that operate in high-risk areas and industries to show they are not working in poor conditions. It is a mirroring the US “presumption denial” model for Xinjiang exports.

Activist groups working under the Coalition to End Forced Labour within the Uyghur Region have also brought lawsuits in the UK and Ireland to stop imports from Xinjiang.

In anticipation of the US’s import block last year, many Chinese solar panel manufacturers have been shifting their polysilicon supply to Inner Mongolia from Xinjiang. Astronergy, a manufacturer of solar panels, has opened a plant in Thailand for US customers. It uses polysilicon from Wacker Chemie in Germany.Gunter Erfurt, chief executive of Swiss solar technology manufacturer Meyer Burger, says smaller companies in the solar supply chain fear that the forthcoming EU rules “might block supply and not do enough to ensure alternative resources are being provided”.

China’s government has begun to restrict the export of certain technologies that are used in the production wafers for solar cells. This is similar to the US trade blacklists to stop China from developing its own semiconductor industry.

Rebecca Arcesati is an analyst at Merics who focuses on China-Europe innovation. She says Beijing’s proposal to limit technology transfer was a “counter” against the US and EU’s efforts to create alternative supply chains for clean-tech products.

She said that China, like the US wants to be able defend and weaponize the tech chokepoints they control.

However, Europe faces formidable obstacles to its plans for greater self sufficiency in solar technology, despite possible restrictions from China.

Johannes Bernreuter, co-founder of Bernreuter Research, said that Europe’s biggest bottleneck in the supply chain is the production and distribution of silicon wafers and ingots, which are used to make solar cells. Norsun and Norwegian Crystal still operate two such plants in Norway.

Meyer Burger’s Erfurt describes the Norwegian producers in the same way as Bernreuter. Bernreuter says that as long as their annual output is below 1GW, there is no incentive for upstream polysilicon suppliers like Germany’s Wacker Chemie, to increase their production. Wacker, Europe’s only polysilicon producer on any scale, has already begun to concentrate more on silicon production for the semiconductor industry.

China is not only the world’s largest producer of polysilicon, but it has also been a leader in technology that converts the raw material into wafers and ingots. Bernreuter says that European equipment makers retreated from solar markets because they found the Chinese more cost-effective. It would be a huge hurdle for them to offer competitive equipment if they had to return to the market.

It is now up to the EU to create new supply chains quickly enough for its renewable energy goals. Industry players believe that bringing Chinese companies aboard would accelerate the transition.

Mario Kohle is the chief executive officer of Enpal solar panel installers. He says that “Chinese manufacturing capabilities are absolutely exceptional and way ahead west manufacturing capacities when it come to solar and battery production.”Another industry executive comments that “if we really want to be successful in re-establishing the value chain in Europe, we need China . . . Chinese companies should be welcome to invest in Europe.”

They warn that energy prices will have to drop before this can happen. According to the IEA, ingot fabrication and polysilicon production are both energy-intensive. China’s industrial electricity prices range from $60-$80 per MWh without subsidies. The average EU power price was $130/MWh before Russia invaded Ukraine.

A senior executive of a major European company involved in the solar supply chain said, “We are not going to spend billions [in Europe] without knowing we’re going get competitive, predictable electricity costs.”

California-based think tank The Breakthrough Institute says that China’s high carbon production is an argument to shift supply chains to more renewable regions of Europe.

Seaver Wang, codirector of the institute’s Climate and Energy Program, said that the continent would also require foreign partners. “Based on their industrial experience and low energy prices, Scandinavia, Canada, Korea, Malaysia, and the US could be promising areas for new polysilicon production.”

Solar module assembly, which is a wider goal of the EU net zero legislation, requires less energy and can be done at smaller investment scales. Wang says that cell and module assembly could be done anywhere with relatively low public incentives.

This is where industrial policy comes in. It could help to drive vertical integration, which has helped make the Chinese giants so successful. The EU would need to bridge the large price gap; modules made in Europe are about a third as expensive as those made in China.

Companies will onshore if there is demand for an European onshore supply network. “The question is whether people are willing to buy it,” says a European executive from a Chinese solar company.

The EU’s goal of producing 40% of clean energy generation equipment by 2020, the Commission has suggested measures to encourage investment in clean tech industrial plants. It also allowed member states to ignore environmental protections while allowing certain facilities to be built.

Frans Timmermans, the EU’s Green Deal Commissioner, said that he did not want to see the same solar panels being made again.

Xuereb of PI-Berlin says that because of the time and challenges involved in building infrastructure closer to home, the EU’s next 420GW capacity “will primarily come out of China”.

Jan Krueger is a partner and managing director of Pelion, a Munich-based firm that finances green investments. He complains about Europe’s slow implementation and the slow approval process for subsidies to renewable energy.

He says, “There is more than enough capital. There’s also commitment from investors and industry.” Now it’s up to the EU to incentivise this re-industrialisation.”