THIS ARTICLE IS WRITTEN BY BART LADRU. BART ([email protected]) IS A CONSULTANT FOCUSSING ON BUSINESS INTELLIGENCE AND ESG WITHIN RSM NETHERLANDS BUSINESS CONSULTING SERVICES. 

Solar is booming in Europe; in 2022, 41,4 GW was installed (enough to power 12,4 Million European homes), up 47% from the 28,1 GW installed in 2021. And, given that the EU wants to turn solar power into its single biggest source of energy by 2030, there is no indication that this upward trend of record-breaking solar installation numbers will stop any time soon. To accomplish this ambitious goal, the EU would need to triple its solar power generation capacity over the course of the next seven years.   

There are big steps to be made. The most obvious one would be to scale up the current system from which Europe currently gets their solar energy. However, there is one big caveat with that approach: Europe would be switching from one dependency to another. Europe just managed to halt its reliance on Russia for its fossil fuels and would be exchanging that for reliance on one other single country: China. China is a critical supplier in Europe’s green transition, as it controls about 80% of the global solar PV manufacturing capacity, has a 90% market share in the dominant technology for PV modules, polysilicon, and even has a 97% market share in solar wafer production. Except for one German company, China is home to the top five companies across each step of the solar value chain. 

While European markets have enjoyed the benefits of lower solar-PV costs because of the Chinese solar manufacturing boom, the geopolitical context is changing. As a result of the increased awareness of the consequences of energy dependence due to the Russian energy boycott, ESG concerns, the widespread allegations of human rights abuses in the regions where production is concentrated (Xinjiang) and growing Sino-skepticism in Europe, some EU officials are arguing for an industrial resurgence at home. 

Regulatory and political developments

To accomplish that, the EU has set up several initiatives. One of those is the European Solar Alliance (December 9th, 2022), which was launched to scale up the manufacturing technologies of solar photovoltaic products and components to establish a ’Made in Europe’ solar value chain. 

Furthermore, the EU commission has recently introduced the Net Zero Industry Act (March 16th, 2023), which is part of the EU Green Deal Industrial Plan. It is designed to incentivize the manufacture of ‘strategic’ technologies, which includes solar and other renewable energy infrastructure, within the EU to ensure that the Union is well-equipped for the clean-energy transition. The act states that the EU should have enough clean energy manufacturing capabilities to meet at least 40% of its energy needs. A similar rationale can be identified in the US, where they introduced the US Inflation Reduction Act, which also emphasizes boosting domestic clean energy production. 

Moreover, two policies are currently on the agenda of the European parliament that could lead to obstacles for solar panel imports from China: the forced labor regulation and the corporate sustainability due diligence directive (CSDD).However, even with all those incentives and regulations being put in place that could give a push to European renewable energy production, the continent still has a lot of catching up to do. It produces less than half of that 40% renewable goal right now, and only produces less than 1 percent of the global solar module capacity.  

And, while the US and the EU are emphasizing their desire to have more strategic autonomy in the renewable energy landscape, China might have other plans. Similar to how the US is trying to prevent China from developing a domestic semiconductor industry using trade blacklists (which has also affected the Dutch lithography machine producer, ASML), China is considering safeguarding its global industry dominance in solar technology. The Chinese government would be doing so by limiting the export of certain technologies that are used to produce the wafers that form the foundation for solar cells. 

Operational Hurdles for European solar success 

While the EU has policies in place to incentivize production in the Union and potential restrictions on supplies from China are on the horizon, considerable obstacles stand before Europe’s plans for greater self-sufficiency in solar technology. 

For one, there are now only silicon ingots and wafers producing facilities in Norway. As it is now, Europe, even if it scaled up its production, still relies on China for these components used to manufacture solar cells, which would stand in the way of the desired autonomy. 

Secondly, while it is true that the new EU rules are there to incentivize European renewable energy production, according to the Swiss solar technology manufacturer Meyer Burger, smaller EU companies active in the solar supply chain that rely on Chinese imports could potentially also be negatively impacted because of blocked supplies and limited guarantees for provision of supply of alternative resources. 

Lastly, the previously successful European equipment manufacturers left the solar market because the Chinese ones were more cost-effective. To be able to make their entrance again, they would need to be able to get to that level of competitiveness. Take for example Polysilicon production and ingot fabrication. Both are energy-intensive fabrication processes. Pricewise, Europe just cannot compete on this front, as China's industrial electricity prices are within the range of $60-$80 per MWh (excluding subsidies), while in the EU, even before the Russian invasion of Ukraine, the average price was $130 per MWh. Investing billions in European solar producing capacity without being certain about whether there will be competitive and predictable energy costs is difficult to justify. 

European renewable energy companies could take advantage of initiatives like the European Solar Alliance or the Net Zero Industry Act. Another option to consider is to seek cooperation with industry leaders and explore whether they can help re-establish the value chain in Europe. While to avoid dependence, this might not be the preferred option, but it might be necessary to speed up the transition to achieve the ambitious renewable energy goals in 2030. 

Concluding remarks

As the world becomes increasingly aware of the consequences of energy dependence and climate change, companies have a unique opportunity to lead the way towards a more sustainable future. Investing in renewable energy, such as solar power, can not only help companies reduce their carbon footprint, but also ensure greater energy independence and security. By diversifying their energy sources and investing in domestic production capabilities, companies can help break free from dependence on foreign suppliers and navigate geopolitical tensions. The transition towards renewable energy requires bold and innovative thinking, and companies that embrace this challenge will not only reap the benefits of a more sustainable future, but also position themselves as leaders in the fight against climate change.