Does Europe Need To Subsidise PV Manufacturing?

The European Commission (EC) has been on an overdrive post Covid, launching multiple partnerships and funding for fostering manufacturing and innovation within the continent. Like the Biden administration in the US, the ostensible reason has been a desire to cut dependence on China in the renewable space, especially in the solar and now, battery space. But as we saw recently with the spectacular collapse of NorthVolt, widely built up as a  future European energy storage champion, a lot of the funding might be misplaced.  Quite simply, the funding/s seem aimed at keeping incumbents alive in the face of a withering onslaught from China, with very little chance of actually creating true European stalwarts. Worse, there might be a case building up for more money being spent to protect the first phase of investments, by way of protectionist measures, including but not limited to the Carbon Border Adjustment Mechanism (CBAM). On a MW ti MW comparison, the EC subsidies put India’s efforts to incentivise solar manufacturing in the shade actually.

The latest news comes from the Horizon Europe umbrella, a funding programme focused on research and innovation with a total budget of €93.5 billion.. Under this programme, focused on mitigating climate change, the PV component called the ‘European Partnership for Innovation in Photovoltaics’, is focused on building up strong PV supply chains in the continent with private sector support. A total of €480 million, divided equally between the EU and its private sector partners from the continent, is up for grabs to support the build up by 2030.

The EU interest in solar PV is understandable, considering the still strong research base in the continent, and a past history of dominance in solar till before 2010. That the continent’s firms (besides US firms) willingly gave it all away to China or sold it cheap to the Chinese is the abiding story of global solar manufacturing. It is instructive to note why they did that. Because the Chinese were willing to pay more (for the tech) at the time (which was still much less than what had been invested)  and invest more into manufacturing, when no one else was. Today, China’s lead, at least in existing solar technologies is insurmountable, both in its ability to produce at the lowest cost possible, and its stranglehold on the next generation of technologies as well.

In fact, at least on manufacturing, if the Chinese are able to produce at 125% less cost than the Europeans, even Indian firms can produce at a cost that is 30-50% lower than European firms. Thus, the EU seems to be investing now with no clear strategy on weaning the local manufacturers of subsidies in the future, and we are talking right upto 2035 or beyond. We have clearly seen how multiple European manufacturers have stressed that they cannot make money at 23-even 25 cents/wp. When China is supplying at 10-12 cents. Or some Indian manufacturers at 18-20 cents.

Recently, the EC had also launched its Clean Industrial Deal with a plan to invest €100 billion for clean energy manufacturing in Europe. Yet another move that seems to guarantee higher prices for European consumers by forcing local procurement at higher prices.

Solar PV is frankly not a technology with the possibility of creating a flood of jobs or margins that can work in Europe. The only bit of solar that makes sense and is actually delivering is solar installation or EPC work, which is doing a much better job of creating local jobs for instance. And where ironically, serious shortages still plague the EU.

The PV manufacturing focus seems to be a case of institutional capture by a few local firms, who would probably be better off building on the legacy of strong research in the continent and manufacturing in much more friendly countries like India or even the middle east, if they really want to avoid China.