Written by Kjeld van Wieringen with Julia Hüntemann.
Within the scope of the European Union’s new industrial strategy, the European Commission acknowledges the need for a more strategic approach to renewable energies. Following up on the presentation of the strategy, the European Parliamentary Research Service organised a webinar, in cooperation with Parliament’s Directorate-General for External Policies of the Union, to assess developments in the global solar photovoltaic (PV) industry. The event identified opportunities as well as challenges – not only for the EU – but also for India, to reduce their dependence on solar PV technologies manufactured in China.
China emerged as the dominant producer of PV modules by 2008. By 2012, it accounted for 64 % of worldwide production, and as of 2017, 8 of the top-10 solar manufacturers were Chinese, supplying ca. three quarters of the world’s solar panels. China’s unprecedented surge as a global provider of solar panels was also enabled by a 75 % decline in production costs. While China’s success in this industry has been deemed a result of Beijing’s commitment to establish market leadership, the country has not always dominated the supply chain. In 2007, 30 % of PV manufacturing was in Europe, making the region the initial front-runner in the solar revolution. However, the swift price decreases achieved by cost reductions among Chinese PV manufacturers in combination with significant state subsidies allowed them to outcompete their European counterparts, driving them into bankruptcy. In 2012, a proposal by the Commission to implement anti-dumping duties of up to 67.9 percent was aborted, following Chinese threats to retaliate with tariffs on French wine and German cars, and thus failed to save the European solar panel industry. Currently, Europe holds less than 0.2 % of PV cell production capacities. While PV manufacturers in the EU can no longer match the cheap prices offered by Chinese competitors, Indian PV manufacturers were never able to do so, as the country joined the ‘solar race’ at a time when the China had already established market leadership.
Solar installation companies have been incentivised to rely on the cheap equipment exported from China, both in Europe and in India. Without them, solar installations – and therefore green transition plans – could not have advanced at the pace they did. Nevertheless, an unpleasant aftertaste lingers, as the dependency on Chinese solar equipment is increasingly deemed a cause for concern both in the EU and in India.
Both Europe and India consider a domestic PV manufacturing industry important because it would provide lucrative employment opportunities, and a source of technological leadership and international prestige. More importantly however, in-house PV manufacturing would make the solar sector a source of energy security, allowing the EU and India to cut the unwanted dependencies that accompany imported oil and gas. With Europe importing 80 % of its solar panels from China, and India up to 90 % of its required solar equipment, dependencies are simply shifting from imported oil or gas to imported solar equipment, leaving much to be desired when it comes to the solar sector as a genuine source of energy security.
In May 2020, India’s Prime Minister Narendra Modi deemed this dependence on foreign suppliers untenable and proclaimed a new policy focus on domestic (solar) manufacturing, through the ‘Atmanirbhar Bharat Abhiyan’ (Self-Sufficient India) and ‘Make in India’ initiatives. Around the same time, a letter signed by Ministers from Austria, Estonia, Greece, Latvia, Lithuania, Luxembourg, Poland and Spain called on the Commission to consider solar PV to be a strategic value chain, to receive more support under Covid‑19 recovery packages. Similarly, in the summer of 2020, 90 organisations from the European solar sector urged for solar PV manufacturing and research and development (R&D) to be at the core of the Green Deal.
With pleas to re-shore PV manufacturing capacities to Europe gaining renewed momentum, the question remains how Europe will go about providing its domestic manufacturers with a business environment in which they can compete with their Chinese counterparts, without igniting another round of solar trade disputes, as experienced in 2012‑2013. The Commission’s anti-dumping and anti-subsidy investigation, valued at more than €20 billion but cut short following Chinese threats to increase tariffs on European wines and luxury cars, became one of the largest EU-China trade disputes. The European Union could consider diversifying its supply of solar equipment, a process which will require the navigation of domestic and international pressures, and thus demands – first and foremost – a careful study of mid- to long-term trends in the global solar industry. In an attempt to help the EU anticipate these pressures, the webinar concluded with an assessment of scenarios for cooperation and competition between the EU and its Indian and Chinese counterparts respectively. These scenarios were presented within a foresight ‘Best Case’, ‘Anticipated Case’ and ‘Worst Case’ framework.
| Best Case | Anticipated Case | Worst Case | |
|---|---|---|---|
| EU-India | India and the EU find effective ways of cooperating more closely within the framework of the already existing EU-India Clean Energy and Climate Partnership. The EU has been collaborating closely with India in deployment of climate friendly energy sources, collaboration that could be extended to include the manufacturing, as well as the research and development arm of the supply chain. Energy cooperation could also be embedded deeper in the recently ratified EU-India Connectivity Partnership to find investment opportunities for automated production lines. This could be particularly valuable in trying to bring next generation solar technologies onto the market (see below). | Narendra Modi has pledged to achieve self-sufficiency, cutting dependencies on PV imports irrespective of their country of origin. Under current circumstances, this goal seems unfeasible given that: 1) PV manufacturing companies in India have poor access to debt capital, meaning they have difficulties in securing loans (unlike their Chinese competitors); 2) PV manufacturing companies in India face high electricity prices, which make operations expensive in the first place; 3) PV manufacturing companies in India face severe difficulties in establishing economies of scale, owing to strict labour laws enshrined in the Industrial Disputes Act of 1947. If self-sufficiency is an unfeasible goal, we can expect India to diversify its supply of solar equipment away from China, favouring producers in Europe, Japan and the USA. Given the scale of India’s Nationally Determined Contributions, the ambition of its National Solar Mission and the according demand for solar equipment, European PV manufacturers should consider India a promising market. | A number of scenarios could be envisaged. 1) India decides to pursue closer energy cooperation with Quadrilateral Security Dialogue (QUAD) partners, particularly Japan, rather than the EU. 2) In an attempt to offer its PV manufacturers a more competitive environment, India decides to launch a safeguard duty on solar equipment imports, irrespective of their country of origin, including those imported from Europe. (NB: India already imposed such a duty in 2018. This was gradually phased out in 2020.) India’s solar energy ambitions are seriously slowed due to a government that creates an insecure investment climate while trying to negotiate between the incompatible interest of two stakeholder groups. On the one hand, the Government of India is committed to fast and cheap solar installations, an objective which requires cheap inputs from China. On the other hand, the Government of India has pledged verbal support to domestic PV manufacturers that compete with precisely those supplying cheap equipment to India. This policy flip-flop has resulted in the imposition of trade defence instruments, e.g. the safeguard duty in 2018‑2020, which was too low to support PV manufacturers in becoming globally competitive, but high enough to create bureaucratic hurdles and confusion, discouraging investors in solar installation. |
| EU-China | Imports of subsidised Chinese solar panels are regulated by country-neutral instruments such as anti-subsidy rules or safeguard duties. This creates opportunities to diversify solar panel imports through partnerships with India, Japan, South Korea and Association of Southeast Asian Nations (ASEAN) countries. Other European green energy industries (wind, hydrogen etc.) are not out-competed. | Increased regulation of solar panel imports from China cause tensions but not a trade war. The possible introduction of the Carbon Border Adjustment Mechanism raises tariffs on Chinese solar panels using energy from coal. Possible measures following human rights concerns about the solar panel value chain in Xinjiang and worsening EU-China relations could also raise further barriers. Increased price of solar panels due to tariffs and increased reliance on domestic manufacturing slow solar installations in Europe to a small extent. | Chinese counter measures cause another massive dispute or trade war. Tariffs cause internal divisions and civil society protest in the EU, in light of economic and climate interests. Higher solar panel prices (domestically or foreign manufactured, but hit by tariffs), slowing solar installations significantly. Alternatively, a lack of (carbon emission) tariffs on solar panel imports and other protective measures to protect European solar panel industries against unfair competition result in next generation European solar technologies and production being out-competed and supplanted. The same could be true for other green energy industries such as hydrogen and wind energy. |
Conclusions:
The webinar discussion led to the participants suggesting a number of options for further EU action.
- Monitoring the supply chain: The European Parliament could monitor the solar PV supply chain, an exercise that could help the European Commission identify energy partnerships with countries sharing compatible production capabilities, manufacturing processes and quality systems. Similar scenarios of cooperation and competition could be conducted with regard to the USA, Taiwan, Malaysia and Japan.
- Steer strategic discussions on the trade-off between strategic autonomy and Green Deal: Regular exchanges of views could be held between Parliament and the relevant Commissioners, to discuss the trade-off between strategic autonomy versus an uninterrupted implementation of the Green Deal that necessitates access to cheap solar equipment imported from China. The EU could take a clear stance in this trade-off, to avoid creating confusing signals for investors.
- Encourage access to international investors and R&D institutes: At the European level, PV manufacturing companies have already joined forces with Europe’s leading R&D institutes to develop state-of-the-art solar technologies. Now, the EU needs to ensure that European PV manufacturers also have access to international R&D institutes as well as investors. Here, the International Solar Alliance, spearheaded by India and France, could be extremely important in advancing technology transfer and finding appropriate funding sources for R&D. Parliament could look into how multiannual financial framework (MFF) instruments, such as Horizon Europe, could help achieve investment partnerships beyond the EU.
- It is unclear whether PV manufacturing companies in the EU, or those anywhere else, could catch up with China in this generation of solar PV technologies (i.e. crystalline silicon PV which currently still accounts for 90 % of all installed solar panels globally.). However, Japanese, US and EU companies are still on a relatively equal footing with China when it comes to R&D in ‘next generation’ solar technologies, including perovskite and organic PV. Given that these solar technologies are largely still in the ‘lab’ stage and have not yet been commercialised, scope remains for European companies to enter the market. Oxford Photovoltaics, for instance, recently set a world record, with a 29.52 % conversion efficiency using a solar cell combining perovskite and silicon. Its investments of over €150 million and the expansion of its manufacturing by 2022 indicate that future next generation technology solar panel production in Europe is still within reach.
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