European solar manufacturers need state aid exemptions – now

If Europe is to come up with its own Inflation Reduction Act moment, and incentivize a return of EU solar manufacturing leadership, it must lift state-aid related restrictions on the PV manufacturers who have announced a willingness to build 30 GW of production lines.

European solar manufacturing is witnessing the emergence of a new, strategically important instrument – the European Solar PV Industry Alliance (ESIA), a long-awaited framework for better coordination of policy incentives and practical arrangements to bring PV manufacturing back to Europe. ESIA was launched in Brussels on Dec. 9 and the months ahead will be a litmus test for the European political and industrial community to check the seriousness of intent for a PV manufacturing renaissance in Europe.

The ambition evident in the EU Solar Energy Strategy adopted by the European Commission in May, and developments in global solar equipment production, bear witness to huge expectations related to European solar demand. The US has seriously entered the race to re-establish PV manufacturing, with the support measures in the Inflation Reduction Act (IRA). That policy package offers incentives ranging from $0.127 per Watt-peak of solar generation capacity manufactured to $0.197/Wp, to be applied to US-made equipment until 2029, with the figures then tapering down until 2033. That equates to US-made panels being 30% to 50% cheaper than before the IRA’s provisions. The $369 billion legislation – which dedicates $40 billion to PV manufacturing – is a game-changer.

Act now

European solar ambitions cannot be viewed in isolation from the US policy drive but the EU is a hostage to its commitment to leveling the trade playing field among its member states, without reference to external markets. The energy crisis is further threatening the competitiveness of European industry. European solar manufacturers want an IRA moment in the EU, to avoid the continent becoming totally dependent on a mix of the current Chinese imports and future, made-in-America PV products.

The European Solar Manufacturing Council (ESMC) in December made overtures to the European Commission about what the bloc’s planned ESIA organization should address. The fundamental dilemma for Brussels is whether to stick to its internal-market fair-trade principles, and thus surrender any chance of competitive renewables manufacturing in Europe, or to distance itself from its long-held approach to trade. The ESMC says the answer is to take temporary, emergency action to help European solar manufacturing get onto its feet without abandoning, in the longer-term, the EU’s core values.

The ESMC has pointed out the severity of the energy crisis is, in part, down to sluggish deployment of clean energy facilities – the EU should avoid moving too slowly again when it comes to legislating for European solar manufacturing. European companies stand ready to develop 30 GW of solar production capacity – along the supply chain – within three years, but only if the right conditions are put in place for finance, and help is provided with capital investment and operational costs. Manufacturers would also need to believe demand will exist for their products.

Emergency measures

The EU has already invoked article 122 of the Treaty on the Functioning of the European Union to introduce emergency measures to protect energy consumers and to keep its clean energy targets viable. The ESMC wants policymakers to use the same approach to exempt solar manufacturers from clearly-defined parts of the bloc’s state aid rules, for a temporary period.

EU member states should be allowed to support PV manufacturing with financial support from the bloc’s funding frameworks, such as the Covid-related Recovery and Resilience Facility, the Just Transition Fund, the Cohesion Fund, and other instruments. At the same time, the European Commission could temporarily abandon its state aid procedures for PV manufacturing.

For Europe, now, it is of the utmost importance to scale up solar manufacturing. That 30 GW of production capacity will enable European companies to become globally competitive. Current EU funding for solar manufacture is earmarked for innovative products. Such substantial support is important to raise European competitiveness in the long term but, right now, Europe needs to mobilize finance to scale up manufacturing capacity. Activation of emergency support measures for solar production, using article 122, is the fastest, most sustainable way to scale up production to the extent needed.

The European Commission has already taken actions in response to the IRA legislation. The Clean Tech Europe framework was endorsed weeks ago, to build bridges between companies and policymakers, and ESIA has been launched with the target of endorsing a strategic action plan for European PV manufacturing.

The ESMC understands the holistic approach taken by the commission while evaluating potential European solar support measures. However, the current situation requires extraordinary measures to be applied by ESIA, in close cooperation with the commission. There is an immediate threat that, unless measures are put in place in the first three months of the new year, European companies, specialists, and capital will move to the US to build production lines, rendering a build-up of European industry impossible.

Trade imbalance

The EU solar trade deficit has reached an average of €10 billion ($10.6 billion) to €12 billion. If European PV manufacturing challenges are not addressed with a clearly defined emergency plan of financial support, that figure will rise to at least €15 billion to €20 billion annually in the years ahead. Investing the equivalent of a year or two of such deficits into emergency support measures for PV now can save European solar manufacturing and help it build long-term competitiveness. As European Commission president Ursula von der Leyen told the College of Europe on Dec. 4, “Our state aid frameworks exist to preserve our precious single market. But if investments in strategic sectors leak away from Europe, this would only undermine the single market. And that is why we are now reflecting on how to simplify and adapt our state aid rules.”

The European PV manufacturing industry, ESIA, and the European Commission should operationalize emergency measures as soon as possible with an open mind, a dedicated effort, and concrete breakthrough proposals for scaling up European solar manufacturing.

About the author: Former Lithuanian minister of energy Žygimantas Vaičiūnas influenced regional energy policy while in office and his renewables initiatives determined a clear direction for a green, decentralized, prosumer-oriented future. He is policy director for the ESMC and a board member of Lithuanian solar developer and module manufacturer BOD Group.

This post appeared first on PV Magazine.

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