EM Daily Focus
China's domination in Europe's solar industry
By Alka Bala

Europe faces strong Chinese competition as it tries to balance the installation of renewable solar energy with the growth of local solar manufacturers. China is accelerating the green transition in Europe with its imports of cheap solar panels flooding the European markets. Europe’s expenditure on the import of Chinese solar photovoltaics increased from 5.5 billion euros in 2018 to 20 billion euros in 2022. Ambitious solar energy goals set by the EU Green Deal Industrial Plan (GDIP), RePowerEU, and the Net Zero Industry Act, have made it difficult for local European companies to manufacture solar panels and sustain the demand without imports. EU Solar Energy Strategy as part of the RePowerEU plan aims at increasing the deployment of photovoltaic energy, where it targets to deploy 320GW by 2025 and 600GW by 2030. The EU finds itself in a difficult position, as supply chains are Chinese-dominated and any proposed de-linking would mean hampering the pace of green transition and a delay in achieving solar deployment targets. The Net Zero Industry Act aims at net-zero technologies manufacturing capacity to reach 40 per cent of deployment across Europe by 2030 and reach the EU’s target of achieving climate neutrality by 2050.

Why is Europe’s solar industry faltering?
China’s solar industry which produces the cheapest solar panels and photovoltaic modules has challenged the European solar power industry as it struggles with oversupply and “unfair competition” from inexpensive Chinese products. European companies demand the EU for favourable policies that will enable local production and hinder imports to save them from bankruptcy while making Europe resilient in the long term about renewable energy production.

The availability of cheap Chinese imports has also pushed European countries to stockpile solar photovoltaic (PV) panels. A stark increase in demand for Chinese solar PVs was evident as imports in 2022 increased by 112 per cent reaching more than 20 billion euros, and in July 2023, 7 billion euros worth of uninstalled panels were present in European warehouses; as a result of overstocking when the prices are low. The oversupply of solar panels by China in the global market is eliminating the opportunities and space for European solar production companies, that charge higher prices, almost two-thirds compared to their Chinese counterparts. The reliance on imports is fuelled by the bloc’s target to achieve 45 per cent of energy generation from renewable sources by 2030.

How did China manage to dominate the global supply of solar PVs (photovoltaics)?
China dominates the global solar PV supply chain and in manufacturing capacity as it invested over USD 50 billion in developing the industry, while also successfully creating 300,000 jobs across the value chain. Solar PV products are a vital export for China and its provision of affordable products has allowed it to dominate the global supply chain. Chinese manufacturing of solar PVs is centred in Xinjiang and Jiangsu provinces where 75 per cent of energy production is via coal, as fossil fuels are an essential requirement for electricity-intensive solar PV manufacturing. Although emissions from solar PV manufacturing only account for 0.15 per cent of global emissions, innovations and investment in the industry would enable production to be more sustainable. China’s share of the global production of polysilicon, ingot and wafers will soon touch 95 per cent, indicating the Chinese dominance in the green energy sector and highlighting concerns about price manipulation that the monopoly allows.

What measures can the EU opt?
Solar manufacturing companies are urging the EU to adopt immediate measures to keep the local firms running, which the price pressure heavy from its Chinese competition. European Solar Manufacturing Council (ESMC) in a letter addressed to Ursula von der Leyen, President of the European Commission, highlighted the plausible steps of adoption to safeguard domestic industries such as buying up excess inventories to ease the problem of oversupply, coupled with the introduction of protectionist and state aid policies such as tariffs and quotas to avoid risking the closure of a majority of its solar photovoltaic module manufacturing firms. In contrast, there have been demands from the SolarPower Europe group, along with 18 manufacturers and 28 national associations that the EU should not go ahead with tariffs as it would derail the path of “European solar re-industrialisation,” as stated by Walburga Hemetsberger, CEO of SolarPower Europe. They also voiced that tariffs would delay the achievement of the EU’s target of 600 gigawatts of solar installations by 2030 and have suggested reshoring manufacturing units to reach the EU target of 30 gigawatts of production capacity by 2025. Without imports, the EU would struggle to achieve its targets and fears Chinese retaliation if it goes ahead with its de-linking strategy with China in the solar industry. A Franco-German divide is also evident in these negotiations as the latter opposes such a strategy due to its reliance on China for green energy. 

The support for protectionist measures is put forward considering the EU’s Net Zero Industry Act target to achieve 40 per cent domestic production of solar manufacturing by 2030. However, factors such as the technological competencies of the current European companies and global market dynamics must be considered. Europe should reframe this target logically, shift its focus from increasing production to ensuring deployment and increasing employment at this stage, and engage in import diversification over time and not immediately. The current level of stockpiling is enough to mitigate the geopolitical tensions that Europe faces regarding price control and supply from China, if Europe is to face a similar test in the area of solar power, as seen in the case with Russia for natural gas. Considering the economic gain and faster achievement of green goals, policy trade-offs for Europe would indicate an inclination towards a strategic continuation of affordable Chinese imports.

References
Kate Abnett and Nina Chestney, “With the solar industry in crisis, Europe in a bind over Chinese imports,” Reuters, 06 February 2024
“European solar power companies warn against import curbs,” Reuters, 29 November 2023
“Europe is importing a solar boom. Good news for (nearly) everyone,” The Economist, 08 February 2024
Finbarr Bermingham, “EU’s plans for tougher China stance risk coming off the rails as splits emerge on multiple issues,” South China Morning Post, 09 February 2024
Ben McWilliams, Simone Tagliapietra and Cecilia Trasi, “A smart solar strategy for Europe,” Bruegel, 06 February 2024
“Europe hoarding Chinese solar panels as imports outpace installations; €7 billion sitting in warehouses,” Rystad Energy, 20 July 2023
Yujie Xue, “How China’s solar panel price war could drive renewable energy installations globally,” 02 January 2023
“Solar PV Global Supply Chains Executive Summary,” International Energy Agency, 17 February 2024 (Accessed date)
Alice Hancock, “Europe’ssolarindustry warns of bankruptcies over Chinese imports,” Financial Times, 11 September 2023