MUNICH : Europe faces almost insurmountable hurdles in the hoped-for rebuilding of a solar industry, according to industry estimates. The cost and scale advantage of Chinese manufacturers in particular is now so great that the EU’s “green deal” can only succeed with concerted political and financial support, according to the report. In addition, the U.S. is luring the remaining European companies across the Atlantic with immense subsidies, according to industry representatives. “If we want to keep up in Europe, we now need a double whammy in terms of energy and industrial policy,” argues Carsten Kornig, chief executive of the German Solar Industry Association.
“In the production of solar cells and solar modules, the Asians have gained a scaling advantage in recent years,” Kornig says. “The U.S. is also looking to bring solar gigafabs into its own country with the Inflation Reduction Act.” Scaling means that the more a company produces, the cheaper it can produce: A large factory generally produces more cheaply than a small one.
Currently, the European solar industry’s annual production capacity amounts to modules with a total output of just over 8 gigawatts. The Fraunhofer Institute for Solar Energy Systems estimates that Europe accounts for one percent of global production and China for 75 percent.
One group growing faster than European industry
The EU’s goal under its Green Deal is for the domestic solar industry to be producing modules with 30 gigawatts of capacity again by 2030. But according to an analysis by management consultants PWC, China’s largest manufacturer Jinko alone is currently already producing 45 gigawatts. According to Jinko’s website, capacity was already much higher at 70 gigawatts at the end of 2022. By the end of this year, it is expected to be 90 gigawatts. The group has made provisions for the hoped-for rapid growth in the coming years and is obviously increasing its capacity faster than the entire European industry.
Even if costs were otherwise comparable, for example for personnel, energy or preliminary products, companies like Jinko can produce more cheaply than smaller competitors simply because of their advantage of scale. “Since 2011, China has invested over $50 billion in new photovoltaic supply capacity – ten times more than Europe – and created 300,000 manufacturing jobs in the solar value chain,” according to a November report by the International Energy Agency.
The production cost of solar modules is expressed in cents per watt of electrical output. China’s solar industry is estimated at 17 to 18 U.S. cents per watt, according to industry sources. The Chinese target for 2025 is 15 cents, French entrepreneur and solar expert Gaetan Masson told the Intersolar trade show in Munich. “When the Chinese say something like that, they do it.”
Costs twice as high in Europe
European costs are about twice as high, according to a rough formula estimated by one expert. “We are much more expensive than the Chinese,” Masson said. “This is not just a question of investment and operating expenses, but a lack of competitiveness.”
There are five main production steps in making a solar module: Silica sand is used to make polysilicon, the basic material of photovoltaic cells. The polysilicon is formed into ingots, which are then sawn into wafer-thin slices to make the photovoltaic cells, and finally the module is assembled. The first production steps in particular are very energy-intensive. Manufacturing in Europe is made more expensive by electricity prices.
“Without an industrial electricity price, a renaissance of the solar industry in Europe will hardly succeed,” says BSW head Kornig. But cheaper electricity alone would not be enough, according to Kornig’s assessment – hence the plea for a “double whammy” with simultaneous industrial policy assistance for the solar industry.
Apart from cheaper electricity, the U.S. offers solar companies major tax benefits under the Inflation Reduction Act. Since there are no comparable incentives in Europe, there is currently no question for solar companies where money would be better invested.
“Trabi with a broken engine”
“If nothing is done to protect European module manufacturers, no one will invest here either,” summed up Gunter Erfurt, CEO of module manufacturer Meyer Burger, at Intersolar. Compared to the non-European competitors, the domestic industry is in the situation of a “Trabi with a broken engine”.
At the same time, virtually all the managers involved say that they would like to manufacture or order more European modules. No one feels happy about the dependence on Chinese imports in particular.
“We want to diversify our supply chains regionally,” says Matthias Taft, CEO of Baywa RE, a major project developer of solar power plants. “There is an overriding interest in this – not only from us as developers, but also from manufacturers or utilities. We want to position ourselves more broadly along the entire PV value chain.”
In any case, it’s not due to a lack of sales opportunities. The market is large enough to establish a European photovoltaic industry with a capacity of 30 gigawatts, says Taft.
Asian manufacturers have achieved a competitive advantage with better framework conditions and a large production volume, he says. “But we still have a technology advantage,” the manager says. “A product made in Europe, where we have full transparency on the supply chain, where we can bring green power to bear, I think would go down well with a lot of end customers.”
But the consensus in the industry is that a renaissance of the European solar industry will not be possible without government demand and support. “But to become competitive in the industry, you need predictable financial incentives,” says Taft – pointing to the U.S.’s Inflation Reduction Act.