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A European solar manufacturing industry: a dream or a concrete possibility?

Diversification has been a keyword over the past couple of years. Following the eruption of a global energy crisis, the Russian war in Ukraine and the record-high prices, all countries in the world have tried to diversify their energy sources. Governments tried to secure diverse liquified natural gas (LNG) supplies, new agreements were signed to diversify imports and new routes have been put into operation.

However, diversification is also a word that applies to the renewable energy world. In particular, for the green energy transition to be just and fair, the production of solar panels cannot be heavily concentrated in one place only: China.

According to a special report by the International Energy Agency (IEA), China’s share in all the key manufacturing stages of solar panels exceeds 80 per cent today and for key elements including polysilicon and wafers, this is set to rise to more than 95 per cent in the coming years, based on current manufacturing capacity under construction.

“China has been instrumental in bringing down costs worldwide for solar PV, with multiple benefits for clean energy transitions,” commented IEA Executive Director Fatih Birol. “At the same time, the level of geographical concentration in global supply chains also poses potential challenges that governments need to address. Accelerating clean energy transitions around the world will put further strain on these supply chains to meet growing demand, but this also offers opportunities for other countries and regions to help diversify production and make it more resilient.”

The secret of China: is it just a cheap labour force?

“Today, China has the world’s largest renewable power capacity as it quickly made the commitments, the last decade, required to increase significantly its solar power production by enacting the appropriate policies and laws,” recognises RECOM, a France-based renewable energy company and the only Bloomberg Tier 1 PV module manufacturer in Europe.

“Huge infrastructure investment, generous government subsidisation, skilled labour force at low cost and larger-scale manufacturing have resulted in numerous supply-chain benefits,” explains Hamlet Tunyan, CEO of RECOM.

For Bartosz Majewski, CEO of the Polish distributor of PV modules and inverters Menlo Electric, it is not a matter of one or two advantages.

“Chinese manufacturing industry benefited from easier access to capital, allowing companies to scale quickly and then reap benefits of scale,” he tells CEENERGYNEWS. “This was complemented by direct and indirect subsidies, including in the form of land for manufacturing facilities. One of the frequently overlooked advantages is well-developed institutions supporting exporters. Sinosure is a prime example – a provider of export credit insurance at a scale unmatched by Western institutions. This allows Chinese manufacturers to extend credit limits to their clients quickly and at a larger scale than their European counterparts would be able to.”

He also mentions some internal advantages, like the fact that the major manufacturers were founded by smart, hard-working and entrepreneurial people, who have used those support mechanisms to build corporations of global reach.

So why choose Europe? “Renewable energies like solar are key to reducing emissions in the electricity sector, which is the single largest source of global CO2 emissions,” explains Mr Tunyan. “Low carbon footprint, product quality, fast delivery and national pride were the key drivers of our decision to become a European producer.”

Meeting a growing demand: a winning recipe for a solar manufacturing industry in Europe

Global production capacity for the key building blocks of solar panels – polysilicon, ingots, wafers, cells and modules – would need to more than double by 2030 from today’s levels and existing production facilities would need to be modernised, in order to meet growing demand. Can also Europe scale up its production to meet the growing demand?

“Solar development has reached unprecedented levels,” notes Mr Tunyan. “Forty gigawatts (GW) of green energy was deployed in Europe in 2022 and 640 GW are expected to be reached by 2030. To do this we need to ramp up solar manufacturing in the region avoiding dependency on one country. Markets in Europe, China and the United States are competing to attract talent, companies and industry.”

He refers to the Net-Zero Industry Act, decisions on State Aid revision, Electricity Market Design and Raw Materials Supply as important upcoming tools corner to accelerate the energy transition in Europe.

“Faster and simpler planning and approval permits must be a top priority for a successful transformation of the European economy,” he tells CEENERGYNEWS.

“If we want to build an industry that will last, Europe needs to regain its former advantages,” says Menlo Electric’s Mr Majewski, pointing out that Europe is no longer the R&D powerhouse that it used to be.

“We should focus more on cooperation between science and industry, by providing venture and scale-up funding, introducing favourable regulations and frameworks for cooperation, strengthening institutions akin to Sinosure that I mentioned earlier,” he says. “It is a much more difficult and time-consuming path – but I don’t believe in shortcuts when it comes to development policies.”

Producing solar panels in a green way

However, one could wonder if Europe has enough green energy to build a PV supply chain that is not only local but also sustainable. The IEA’s report found that the electricity-intensive manufacturing of solar PV is mostly powered by fossil fuels today because of the prominent role of coal in the parts of China where production is concentrated. So, not only Europe needs to scale up its production, but it cannot forget to do it in a sustainable way.

“Europe must partly if not completely follow the Chinese model,” highlights RECOM’s CEO. “First the key to success is that Europe be able to produce in a scale, meaning to produce in big numbers (in huge thousands of gigawatts). Achieving this will require serious government involvement in terms of subsidies to help the manufacturers to achieve production in scale.

The other advantage that Europe could have is to focus on innovation and move ahead from China in terms of new technologies and excellence. Thirdly, the local carbon footprint requirement can be one of the incentives for the European manufacturers to gain an advantage over the Chinese producers.”

1 million jobs globally by 2030

Another huge incentive could be the incredible job creation. The IEA says that new solar PV manufacturing facilities along the global supply chain could attract 120 billion US dollars of investment by 2030. And the solar PV sector has the potential to double the number of PV manufacturing jobs to 1 million by 2030, with the most job-intensive areas in the manufacturing of modules and cells.

Mr Majewski quotes the European Commission whose forecasts estimate around 50 GW of solar installations to be added in the EU every year until 2030, which means creating around 20,000 new jobs.

“If the extra cost for locally produced modules was 0.20 US dollar/Wp, as it seems to be in the US, then manufacturing 50 GW of modules in Europe would cost developers, C&I and residential investors an extra 10 billion US dollars,” he highlights “Of course, if we move back to EU not only module manufacturing but also preceding steps in the supply chain (polysilicon, wafer and cell production), then the number of jobs created could be much higher. But so would the extra bill to pay be, too.”

In terms of impact in CEE, Mr Majewski believes that the aspirations set by the European Commission are feasible: in Poland, for example, at the height of the residential installations boom, more than 100,000 people were employed in PV installation, sales, operations and managerial roles.

“Moreover, the industry attracted many entrepreneurs and investors, who continue to drive the energy transition forward,” he adds.

What will happen in the future?

RECOM is in the process of upgrading and upscaling its facility in France and setting up two new facilities in the US and Europe. Menlo Electric is committed to entering new regions with its offering, as it did with South Africa earlier this year. In 2023, it plans to significantly ramp up its presence across the entire Europe, Middle East and Africa (EMEA) region.

However, as it happens with other sources, like LNG, it has been underlined that we cannot just move from one dependency to another, switching one supplier with another. But the diversification must be real and count on different players. Here a question that, for Bartosz Majewski is often overlooked is: what will happen when we grant our industry access to almost-unlimited, almost-free renewable energy? How do we manage the fact that at that stage we could profitably run mining, refining and manufacturing in ways and at a scale that is not financially viable now? An “odd thought” as he himself defined it, but which underlines the need to analyse not only the opportunities but also the challenges, learning how to manage and overcome them.

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