The Rise of China’s Solar Industry in Europe

When it comes to renewable energy, the development of solar photovoltaics (PV) for residential and commercial use has tripled between 2018-2023. Between 2024 and 2030, solar power is expected to account for 80% of the global renewable capacity development, making it the largest renewable source in the world, outpacing wind and hydropower. One country that will likely lead this charge is China.

According to Global Energy Monitor (GEM), “Between March 2023 and March 2024, China installed more solar than it had in the previous three years combined, and more than the rest of the world combined for 2023.” Meanwhile, globally, China accounts for over 80% of the world’s solar PV manufacturing. This has significant ramifications for countries and regions across the globe, none more so than Europe, where around 90% of the solar panels installed in the EU originated from China, representing a substantial geopolitical and supply chain risk.

China’s supply chain and mineral dominance

Today, China not only dominates solar PV production but, crucially, the supply chains, including the mining, refining, and processing of the critical minerals essential for clean energy manufacturing. According to a report by the International Energy Agency (IEA), “the world will almost completely rely on China for the supply of key building blocks for solar panel production through 2025”, with its share of polysilicon, ingot and wafer production expected to reach as high as 95%.

China’s dominance of green technology supply chains is due, in part, to government strategic planning, such as the Made in China 2025 industrial strategy, which made clean energy a national priority and labelled solar PV as a “strategic emerging industry” in 2010. The Chinese government supported this goal through subsidies, low-interest loans from state banks, and cheap land purchased by the local government at a reduced price, while private companies financed research and development. This enables China to be the most cost-competitive location to manufacture all components of the solar PV supply chain. Moreover, the extraordinary scale of China’s renewables sector output has driven down prices worldwide, with costs in China 35% lower than in Europe. Overall, from 2022 to 2023, the cost of procuring solar panels in China was reduced by 42%.

The dramatic reduction in global solar panel prices, along with the mass influx of Chinese solar panels into the European market, has suppressed panel prices, forcing European solar panel companies such as Meyer Burger to cut its workforce by 20%, “blaming severe price undercutting in the European solar market”. This succeeds the ingot manufacturer Norwegian Crystals filing for bankruptcy in August 2023. Meanwhile, Dutch solar panel producer Exasun and Austrian module manufacturer Energetic filed for insolvency last year. In response, the European Solar Manufacturing Council (ESMC) wrote a letter to European Commission President Ursula von der Leyen, requesting help for its rapidly declining industry. Specifically, the letter called for changes to state aid rules and requested emergency measures that would see a scheme purchase EU solar modules to alleviate the oversupply.

The EU pushes back

The EU has announced a series of “de-risking” strategies to counter China’s dominance in the clean energy sector. This includes the Net Zero Industry Act (NZIA) as part of the Green Industrial Plan, which aims to encourage the purchase and growth of domestic European green technologies, such as solar panels, wind turbines, and heat pumps. This builds upon the 2022 United States Inflation Reduction Act (IRA) to ramp up new industries and create more jobs through state subsidies and tax incentives.

Resuscitating the European solar industry will be particularly pertinent to the NZIA, as EU manufacturers supply fewer than 3% of EU panel installations. In 2022, the EU announced the Solar Energy Strategy, which aims to scale up the bloc’s solar capacity from 263 gigawatts (GW) to 600 GW by 2030. Imperative to this initiative is to end the EU’s dependency on Russian fossil fuels, with “Solar energy the kingpin of this effort”.

In parallel, the EU passed the Critical Raw Materials Act (CRM), which aims to diversify its supply chains for key minerals and, by 2030, to have European mining and refining cover 10% of the EU's critical raw materials. Today, 100% of EU rare earths are refined in China. Moreover, if a company’s foreign country controls 65% of the CRM market, such companies will be unable to win a public contract. Furthermore, it aims to expedite the decision-making process for obtaining a permit for a mining project, currently with a wait time of 15 years. Under the CRM Act, a decision will be made within two years.

This follows the EU-approved ban on forced labour, which targets EU imports and exports that have links to forced labour worldwide. However, China is a deliberate target in this regulation, with around 35% of global polysilicon production capacity located in the Chinese region of Xinjiang, where there are notable human rights abuses targeting Uyghur Muslims.

The European Commission announced anti-subsidy probes into two Chinese solar panel companies, LONGI Solar Technologie and Shanghai Electric Group, as part of the Foreign Subsidies Regulation Act. This regulation applies to companies that are granted at least €4 million in subsidies from non-EU governments. As a consequence, both companies withdrew from a public tender for the construction of a solar park in Romania.

The De-risking challenge

However, according to a study by Wood Mackenzie, an effort to remove Chinese-manufactured clean tech products from global markets would result in an additional 20% increase in costs from 2023 to 2050. This is evident in the United States, where solar panels cost twice as much as they do in Europe because of import restrictions on Chinese-manufactured solar panels.

Moreover, it would be naïve to think that cutting off China through import-export restrictions would damage China’s clean energy dominance. If the EU adopted a similar approach to the US, China would likely double down on exports to the Global South, where last year, nearly half of all China’s clean energy products, such as Solar, Wind, and EVs, went to countries in the Global South with growing demand. In 2021, Chinese President Xi Jinping told the United Nations General Assembly that China would “step up support for other developing countries in developing green and low-carbon energy”.

The EU faces a fundamental contradiction in its clean energy sector between meeting its climate targets and what is good for European manufacturers. China’s low-cost batteries, solar panels, and wind turbines help drive down the costs of clean energy import products, but reduced profit margins for European producers make it impossible for companies to stay competitive. Moreover, in the context of Russia’s war in Ukraine, the EU is anxious to reduce its dependency on any one country as it was with Russian fossil fuels, which had been cut amid the invasion.

The recently announced Clean Industrial Act aims to address this trilemma by creating a conducive commercial environment that prioritises decarbonisation while maintaining industrial competitiveness in the clean energy sector. This includes €100 billion in short-term funding for climate-friendly manufacturing. This includes initiatives such as the Industrial Decarbonisation Bank, access to financing through the Innovation Fund and InvestEU, as well as new policies to boost demand for EU-made clean products.