What does the future hold for solar power in Europe?

europe 2020 , renewable energies , solar panel , grid parityThe future of the photovoltaic industry in the EU appears uncertain. On April 3rd, 2012, the German company Q-cells, formerly the world leading solar cell manufacturer, fell into bankruptcy – in 2008 its revenues amounted to 8 billion euros. Whereas in 2010 the EU set for itself an ambitious energy agenda called “Europe 2020”, the European solar power sector seems to have a hard time confronting Chinese competitors. What are the main issues of this industry?

A promising installed solar energy capacity…

Photovoltaic capacity has considerably increased in 2011, with 21.9 gigawatts (GW) worth of solar power connected to European grids, compared with 13.4 GW in 2010. Despite the 2008 financial crisis, the European photovoltaic market has been steadily growing. It is only at an early stage of development, as solar energy only represents 2% of the 27 member states’ energy generation.

Although this share is limited, 80% of worldwide installed solar energy capacity is located in Europe. The reason for this very high figure is government assistance until 2008. Besides, thanks to technical innovation, solar panels have become much cheaper in the last few years, allowing households to make profitable investments. Moreover, the “Europe 2020” agenda strongly relies on the photovoltaic sector to create jobs and reach “grid parity” (that is when the cost of production of 1 kWh of photovoltaic electricity equals the price of 1kWh of conventional electricity); besides, price and production costs of solar electricity are expected to come closer and closer until they are equal, by 2017 or 2020.

…currently suffering from Chinese competition

However, the solar energy market has been confronted with difficulties since 2011, with for instance four major European companies going bankrupt. “The short-term future of the photovoltaic industry is uncertain”, as explains Winfried Hoffmann, head of the European Photovoltaic Industry Association (EPIA); “but in the mid- and longer term, steady growth is expected”, he adds in the 2012 EPIA report.

There are two main reasons for such difficulties. First of all, the financial and economic downturn led to cuts in or even the end of government assistance in support of households willing to purchase solar panels, which stifled the sector’s growth. In 2010, France suspended public aid for solar energy adopted in the 2007 Grenelle plan.

The second reason for this slowdown in production is Chinese dumping on the market, which European companies have often blamed and denounced as unfair competition. In July 2012, twenty-five European companies of the solar power sector filed an unfair competition complaint to the European Commission, which initiated an investigation on September 6th. The US had already filed a similar complaint in the spring of 2012, accusing Chinese manufacturers of benefitting from an illegal 30 billion-dollar subsidy from state-run Chinese banks. Therefore, Washington imposed 250% custom duties on Chinese solar industry.

For the problem indeed is government aid. Beijing was completely absent from this sector in 2006 but has chosen to fund the creation of its industry in order to export it into western countries subsidizing the sector. Making money available from state banks, Beijing has been investing over 10 billion euros every year. China therefore became the largest producer of solar modules as early as late 2007. Five of the ten largest solar panel manufacturers in 2012 are Chinese (Suntech, Yingli, Trina Solar…). Moreover, even if European import restrictions were enforced, China could still focus on its domestic market. The CEO of Suntech assumes that the Chinese market will be “the largest worldwide in 2013”.

The European photovoltaic industry therefore is facing a paradoxical situation. Sales are doing quite well and the sector is steadily growing. At the same time, over twenty European manufacturers have gone bankrupt since 2010 because of the economic doldrums and highly competitive Chinese companies relying on cheap workforce. Pending a final judgement from the European Commission by late 2013, European companies can nevertheless bet on a fast-growing global market, especially in Latin America and the Middle East.

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