Why the EU should avoid PV protectionism

Rather than pondering the introduction of trade measures against solar imports, Europe should be pragmatic about its short-term reliance on Asian panels while moving now to nurture and incentivize a domestic supply chain of the future.

The current debate about whether European Union trade measures should be put into effect to defend against low-priced solar imports has led to disagreement between manufacturers and policymakers.

Otovo CEO Andreas Thorsheim.

Image: Otovo

Europe must maintain its momentum in deploying new renewable energy generation assets, necessitating imports, while also prioritizing energy resilience by committing to the development of domestic value chains. Two sides of the same coin, Europe is facing increasing pressure to achieve net zero commitments amid a difficult market environment and an unstable geopolitical landscape.

Asia dominates the market when it comes to solar panels. By contrast, the manufacture of inverters – the “smart” part of a solar project – is quite evenly divided between Asia, the United States, and Europe.

Tensions are running high with lobby group the European Solar Manufacturing Council emphasizing that the European Union is inundated with an excess of PV panels – some analysts estimate as much as 70 GW to 85 GW of unsold stock – and with European solar manufacturers struggling to break even.

Pragmatism

It is essential to develop a more local supply chain but we have to be realistic about that aim. European Union imports from China exceed 80% of products in certain early segments of the solar supply chain, including rare earth and polysilicon production, according to the International Energy Agency. We need to be pragmatic about the changes needed to reduce our dependency on imports and that includes having a long-term vision for the market alongside actionable short-term plans.

At Otovo, we have positioned ourselves in favour of a global trade system without trade barriers. On Feb. 6, 2024, Otovo entered a strategic partnership with manufacturer Meyer Burger to promote and sell European solar modules together. At the same time, we signed a petition calling for a “resilience” bonus in the Solarpaket 1 legislation being discussed by the German government. The proposed bonus would be an additional payment for solar projects developed under tender and which use European components. Thus, we have aligned ourselves with both upstream producers and a broad spectrum of manufacturers despite many downstream solar players expressing reservations about the policy.

The fact certain companies owned by Asian entities are producing inexpensive panels is, broadly speaking, positive. International trade relies on everyone specializing in what they do comparatively well and exchanging their goods for mutual benefit. In 2022, Europe added more than 40 GW of solar generation capacity, as reported by pv magazine, but despite our best efforts, no part of the value chain in Europe could supply as much as 5 GW, meaning a reliance on imports to the ratio of seven-to-one. If Europe wants to maintain the pace of solar deployment needed to reach net zero commitments, global cooperation is pivotal.

Price volatility

Such cooperation and European energy resilience are not mutually exclusive. Recent wars and crises have disrupted Europe’s solar energy industry and caused severe shortages in clean energy infrastructure and generation capacity. Market instability has created wild fluctuations in panel, inverter, and battery prices which quickly reversed cost gains made in previous years. In such a context, having incentives to strengthen local value chains can obviously be smart for building alternatives over time. It is a critical time. Those value chains must include raw materials, refining, and manufacturing. The aim is to maintain European knowhow, ensure shorter supply routes, and reduce reliance on a handful of providers.

The difficulty lies in developing a European solar supply chain without damaging the roll-out of PV in the short-term. This balancing act requires global collaboration as much as domestic policy support, to create resilience. We must create a system with two lanes, one supporting free global competition to favor rapid deployment and another to create a resilience bonus that would benefit consumers who buy European-made solar and battery equipment. That is why Otovo supports the inclusion of a resilience bonus in the proposed German legislation.

It is time for European companies and manufacturers to both embrace collaboration with manufacturers outside the European Union and to adopt strategic domestic partnership efforts. To accelerate the energy transition in Europe, companies and policymakers alike must increasingly adopt a “Made in Europe” solar energy mindset. This is a crucial step in strengthening resilience within the European solar industry while not excluding trade partners.

Priorities

In the meantime, the priority for the downstream solar industry should be to increase efficiency and reduce costs. In Otovo’s latest market data, from January 2024, Germany’s total cost per system sits 16% higher than in the Netherlands, and 54% above Polish prices. A United Kingdom system costs twice that of a Polish one, and 60% more than one installed in Sweden. That represents a lot of consumer surplus that German and British households are missing out on. Furthermore, labor costs for solar installations in Germany and the United Kingdom still exceed those in the Netherlands, Poland, France, and Austria – with only Switzerland ranking higher in Europe. There is definitely room for improvement.

To protect its plans to establish a European solar supply chain while maintaining solar momentum in the short term, the European Union must adopt a strategy that balances immediate needs with future objectives. Competition is healthy and, by reducing Europe’s current level of import dependency, we could really embrace the challenge of competition as an opportunity, rather than a threat. We should not shy away from the reality of import dependency but we must also accept that, in the short-term, we still need to import supplies at the same time as we build out domestic production capacity.

The European Union must strive to streamline regulatory processes, collaborate with industry stakeholders, ensure the development of a skilled renewables workforce and, most importantly, must incentivize domestic production. Introducing trade barriers would only hinder the progress currently being made across Europe and reduce our chances of meeting net zero commitments.

About the author: Andreas Thorsheim is co-founder and chief executive officer of European solar and battery marketplace Otovo. He has a diverse background, having spent time in the Norwegian army as well as having been a business journalist, newspaper executive, and technology senior vice president.

This post appeared first on PV Magazine.

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