It is encouraging to see Europe’s focus on investing in industrial policy and securing clean energy supply chains. In addition to laying the groundwork for long-term energy and cleantech supply security, Europe is also following the trajectory of other major democracies, including India and the US in addressing the unhealthy over-concentration of solar and other clean energy supply chains in China.1
Consider this: Europe is almost exclusively dependent on China for solar panels. In a peak not seen since 2012, the EU imported €9.8 billion of solar panels in 2021,2 the bulk of which came from China, which dominates global crystalline silicon solar supply chains.1 Preliminary reports indicate that Chinese manufacturers exported as much as 60 GW of solar panels to Europe in the first eight months of 2022.3 That this number wildly outstrips the projected 39.1 GW4 of expected instal-lations in Europe for 2022 points to stockpiling for a variety of reasons, including anticipating a new European law on forced labour that could impact Chinese solar supply chains.5
This scenario is not limited to solar. China also dominates the global lithium-ion battery supply chain, and is home to 75% of global battery cell manufacturing capacity and 90% of anode and electrolyte production in 2022. Chinese imports and anti-competitive behaviour are eroding Europe’s longstanding leadership in wind turbine technology.6 Furthermore, the country appears set to replicate its dominance of other clean energy industries as it invests in capacity to manufacture electrolyser technology,7 and is even challenging European battery electric vehicles manufacturers in their home market.8
Given this context, it is clear where the challenge to Europe truly stems from. And it is crucial that the EU does not compromise on taking a comprehensive, multi-pronged approach if it intends to succeed in ensuring its ‘net-zero age’ is powered by domestic technology and innovation. Quite simply, the comprehensiveness of the Green Deal Industrial Plan will define whether it delivers the right return on Europe-an taxpayers’ investments in clean energy supply chains, while creating a politically and economically-sustainable solution.
What would comprehensive legislation look like?
Firstly, as we have seen in the US and India, smart incentives can serve as a catalyst for domestic manufacturing. For Europe to ensure it does not become a low-value assembly hub, while the real manufacturing value is created elsewhere, it must maximise incentives for vertical integration with the goal of attracting the full value chain. In this model, a company assembling solar panels using imported components will gain the least, while fully vertically integrated manufacturers will benefit the most.
Additionally, Europe should consider replicating IRA by structuring tax credit-based incentives as a tool for reducing manufacturers’ operating costs instead of offering a capital expenditure incentive. Not only would this approach deliver greater transparency and a sustained return on Europe’s investment, we are seeing in the US that it frees up resources for manufacturers to expand manufacturing and research and development efforts.
Secondly, demand-side drivers must accompany supply-side incentives. As the EU deliberates its options for the Green Deal Industrial Plan, it must remember that China will not stand by idly as Europe works to build self-sufficiency at the cost of China’s dominance. While the bloc has previously tried and failed to use trade policy to level the playing field, other mechanisms exist. For instance, Europe must use its regulatory powers to ensure that the clean energy technology that powers its transition to a net-zero age is responsibly produced, featuring lower carbon footprints, recyclability, and zero exposure to human rights issues, such as forced labour.
Thirdly, speed is essential. It was heartening to hear acknowledgments that Europe’s permitting processes are a significant barrier to its ambitions. While multi-gigawatt, fully vertically integrated manufacturing facilities in the US and India are being commissioned 18 – 24 months after being announced, the permitting process alone in many European states can take 12 months or more. And while regulation and accountability are vital, Europe needs to demonstrate the same sense of urgency and agility that allowed it to set up the infrastructure needed to pivot away from its dependency on Russian gas supplies.
Finally, lawmakers must not lose sight of Europe’s longstanding role as a hub for clean energy innovation and take a long-term strategic view. They must consider that the most sustainable use of taxpayer money will be to include incentives for the next generation of clean energy technologies with an eye on long-term leadership.
As Europe finds itself at this pivotal moment, its decision-making must be deliberate and forward thinking, and underpinned by agility. Legislative initiatives such as the EU Net Zero Act and the Temporary Crisis and Transition Framework are certainly starting points, which will need to be built upon. Opportunities like this are infrequent and the direction that European lawmakers take today will have an impact for generations to come.
Written by Anja Lange, SVP Head of Europe, First Solar.
For more news and technical articles from the global renewable industry, read the latest issue of Energy Global magazine.
The Spring 2023 issue of Energy Global hosts an array of technical articles focusing on offshore wind, solar technology, energy storage, green hydrogen, waste-to-energy, and more. This issue also features a regional report on commodity challenges facing Asia’s energy transition.
Read the article online at: https://www.energyglobal.com/special-reports/05062023/europe-must-take-a-comprehensive-approach-to-safeguard-its-sustainable-energy-future/
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