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The EU must provide far greater subsidies to protect its solar manufacturing industry from competitors in the US and China, experts say, arguing the bloc’s latest action plan lacks “concrete” support measures.

On the sidelines of an informal meeting of member state energy ministers this week, the EU unveiled a European Solar Charter aimed at tackling market distortions driven by a surplus of cheap Chinese imports.

The pact – signed by the European Commission, EU solar companies and industry groups, and ministers from 23 member states – includes a series of “voluntary” actions that should be taken as a “matter of priority”.

Among the measures was a promise of additional investment from the European Investment Bank (EIB) to support solar manufacturers, as well as from member states, which agreed to “consider” all available EU funding opportunities and implement a temporary policy allowing state aid for renewable projects until 2025.

Yet analysts suggest a revamp of the EU’s financing approach is needed to protect its nascent solar industry – especially given the bloc’s 2030 target of 40% self-sufficiency across the supply chain.

Today, more than 97% of the panels deployed in Europe are imported, EU officials say, the bulk of which come from China. The US is also emerging as a manufacturing power after pledging substantial tax credits to renewable energy manufacturers through its Inflation Reduction Act (IRA).

“This [charter] is a step in the right direction,” says Marius Mordal Bakke, a senior analyst at intelligence firm Rystad. “But what are the manufacturers getting?

“The EU really wants to secure its solar supply chain, there’s no doubt about that, but there’s still not enough concretes if you compare it to India’s subsidies or section 45X of the US Inflation Reduction Act.”

Johan Lindahl, secretary general of the European Solar Manufacturing Council, an industry lobby group, says the charter is a “good step to align the member states and the Commission” and shows “everyone agrees this topic needs to be addressed”.

“But it does not include the specific measures the industry needs,” he tells GTR. “This charter needs to be followed up by concrete commitments from certain member states and the Commission.”

A 40% drop in panel prices in 2023 amid a global supply glut has caused chaos in Europe’s solar manufacturing industry, and European producers – unable to compete with highly subsidised Chinese panels – have warned of an “existential crisis”.

Roughly half of the solar panels made in Europe in 2023 are estimated to be languishing in storage, and since August, several European firms have reduced or stopped factory operations. Critics argue the EU has been slow to develop incentives, or trade restrictions, that would protect its manufacturing base.

“The US is subsidising through the IRA and is also better than Europe currently at protecting domestic manufacturers through forced labour legislation and import tariffs. They have established both mechanisms, but currently Europe does not have either,” Lindahl tells GTR.

Last month, Swiss firm Meyer Burger closed a panel factory in Germany as it prepares to shift operations to the US. The closure affected 500 jobs at the plant in Freiberg, eastern Germany, and according to analysts, reduced European solar panel production by 10% overnight.

 

Opex incentives?

In the past two years, the EU has taken various steps to boost funding within its solar manufacturing supply chains.

In early 2023, the bloc approved a two-year amendment to its state aid rules, which in theory allows EU countries to provide subsidised funding to solar companies building new factories in Europe.

And the EU’s lending arm, the EIB, has already extended substantial financing in aid of solar manufacturers.

In January, the EIB approved a €560mn financing package with a pool of Italian lenders for Enel Green Power, in a deal that was backed by Italy’s export credit agency (ECA), Sace. Funds are supporting the expansion and day-to-day operations of a solar gigafactory in Sicily.

Yet European solar manufacturers are urging greater – and more targeted – support from the EU and its member states.

European ECAs say they are currently limited in their ability to fund manufacturers of solar panels, cells or wafers, given China’s near total dominance of the market.

GTR understands that due to the limited size of Switzerland’s solar manufacturing industry and because most EU panels are imported from China, the Swiss ECA, Serv, is not considering support for any manufacturers.

There is also a question around operational expenditure (opex) subsidies, European solar firms say.

Industry body SolarPower Europe wrote to EU leaders in May 2023 raising “concerns about the effectiveness and adequacy of the initiatives on the table, which risk missing the reshoring and resilience ambitions.”

“First and foremost, the critical issue of financing for solar production sites has not been adequately addressed,” it said, as the state aid rule changes do not allow aid for operational expenditures.

This puts European firms at a disadvantage to global competitors “for example in China and the United States where energy costs are two to three times lower and where industries can benefit from opex related state aid”, it argued.

In 2023, Meyer Burger successfully applied for €200mn in funding from the EU’s Innovation Fund for a 3.5GW project, while NorSun secured a grant worth €54mn from the same fund to expand its ingot and wafer facility in Norway. However, both firms are now expanding their North American operations.

“A lot of these companies are now moving to the US instead, because there are better defined incentives,” says Mordal Bakke.

“It’s easier to make a good business proposition for starting up manufacturing in the US because of opex incentives. As long as you’re producing, you’re still getting paid.”

He tells GTR that creating opex incentives would be the “easiest way” for Europe to better compete with rival economies.

“Even if you were to receive large amounts of [EU] funds, and you open a factory almost for free, you still have to compete with very low-cost Chinese products, and in the future you may have to compete with US or India-made products as well, because they are ramping up domestic manufacturing,” he says.

“Demand in those regions itself will not be enough, they will have to export, [and] Europe could very well be a target.”