Read more to uncover the answers and discover our #MakeSolarEU campaign
Why does European solar manufacturing matter?
Europe is installing more solar than ever. In 2022, the EU installed over 40 GW of solar – twice as much as was installed in 2020.
From a total solar fleet of around 200 GW today, the EU is aiming to have 750 GW of solar capacity by 2030.
Solar is critical for Europe’s energy security and climate goals. The UN Intergovernmental Panel on Climate Change identifies solar as one of the most feasible and cost-effective methods to decarbonise the economy.
The European Commission calls solar the ‘kingpin’ of REPowerEU – the continent’s effort to get off Russian gas. Solar panels are even featured prominently on a REPowerEU banner at the European Commission headquarters.
Given the critical role of solar in geopolitical resilience, advanced economies around the world are acting on the strategic importance of solar supply chains:
Their industrial policy in the last decade has made China the world's leading manufacturer of solar components. China has invested more than US$50 billion in new PV capacity since 2011 - ten times more than Europe.
As of 2022, China supplies 80% of the world's solar PV material.
Since 2018, India has promoted local manufacturing of PV modules through its production-linked incentive (PLI) scheme - equalling around US$3.2 billion.
In 2023, Indian cell and module manufacturing reached 6.6 GW and 38 GW capacity respectively. Analysts predict annual manufacturing capacity will grow to 110 GW by 2026.
Turkey the world's fourth biggest solar manufacturer, with around 8 GW of capacity in 2022. The Turkish government is aiming to join the top three manufacturers and deliver over 9 GW of solar manufacturing in 2023.
In August 2022, President Joe Biden announced the Inflation Reduction Act. From the SEIA, the IRA establishes two credits for solar manufacturers;
- A 30% investment tax credit (Section 48C) for eligible investment costs in facilities and equipment and
- A manufacturing production credit for certain components based on the volume of product manufactured.
USD 10 billion dollars are allocated for the Section 48C tax credits, and up to USD 6 billion dollars can support projects on land which is phasing out coal activity.
Why aren't there more solar manufacturers in Europe?
There are two key reasons - energy costs and complex financing rules.
European solar manufacturers face energy costs two times higher than their competitors in China, and three times higher than those in the US.
Energy costs in US
US$ per kW
Energy costs in China
US$ per kW
Energy costs in EU
US$ per kW
While other geographies offer tax credits or direct state support, the landscape in Europe has always been trickier.
To protect fair competition between EU member states, ‘State Aid’ rules made it difficult for member states to subsidise their industries.
Industries then rely on EU-level funding - like the Innovation Fund. The Fund is being updated, but has proved lengthy and complex in the past. In the second large-scale call for funding, only 16 out of 139 projects recieved funding, and the timeline from submission deadline to receipt of grant is more than 12 months.
Enel Green Power were the only solar manufacturing beneficiary under the Innovation Fund's 2nd large scale call.
Their TANGO (iTaliAN pv Giga factOry) project, in Catania, Sicily, is set to become Europe’s largest factory producing high-performance bifacial photovoltaic modules. The total investment in the creation of the 3 GW production facility is around € 600 million, with EU funding in the amount of nearly € 118 million.
How do we bring solar manufacturing back to Europe?
We fully support the draft EU Net Zero Industry Act's (NZIA) proposed target of 30 GW of solar manufacturing capacity in the EU by 2030.
We're working together with our partners at the European Solar PV Industry Alliance (ESIA) to deliver that goal.
That 30 GW goal should be achieved at each stage of the value chain, from raw material processing like polysilicon to enabling technology like inverters. It's important that the NZIA takes a full value chain approach.
Setting an EU inverter manufacturing target. Ensuring harmonised technical standards. Pairing inverters and non-firm grid connections to support the grid.Discover the brain of the solar system
The NZIA also proposes a change to the way national governments procure their renewable energy projects.
Usually a government will put to tender for a certain amount of renewable energy generation. Typically, these type of auctions are designed for the government to select the cheapest bidding project.
The NZIA would require governments to take into account other factors, not related to cost - i.e. ‘non-price criteria.’ One type of non-price criteria is sustainability, another is the geographic origin of the energy equipment.
The current proposal would makes it tougher for technologies - like most solar equipment - that are highly dependent on one supplying country to win these public tenders. We say this acts like a ‘stick’ - it discourages dependency.
However, the NZIA, and associated financing, doesn't encourage the rebuilding of European solar manufacturing. It lacks a carrot.
We propose a number of solutions to balance out the stick in the NZIA:
EU State Aid rules were updated in March 2023 to make it easier for EU countries to support the building of solar factories, so called capital expenditure, or capex.
The rules should be further updated to support the running of solar factories - that's operational expenditure, or opex. This is particularly to help the energy intensive parts of the value chain.
Research shows that European solar manufacturing will be competitive once it reaches gigawatt-scale capacity. Updated State Aid rules would help EU solar manufacturers reach that scale.
Recovery & Resilience Facility
The RRF is an existing EU financial instrument of €723 billion which EU countries can use to support domestic manufacturing.
Part of the EU's official Guidance on how Member States can spend RRF Funds - as part of REPowerEU efforts - includes a recommendation that governments:
"need to consider providing support towards developing and expanding their industrial value chains to manufacture and recycle the low-carbon technological components and equipment needed to deliver on their energy and climate objectives. Support to industry in this respect may cover the manufacturing capacity of clean-tech equipment, notably solar, wind, heat pumps, electrolysers, and other low-carbon technologies.”
Some EU countries have already taken up this opportunity, like France, Germany, Italy, the Netherlands, Romania, and Spain.
For more case studies, check out our letter from May 2023 to national governments advising how they can use RRF funds to support their solar PV industry.
To support a level playing field within the single market, all EU countries should have access to a dedicated EU financing tool for solar manufacturing.
We propose a ‘Solar Bank’ modelled on the Hydrogen Bank. A Solar Bank would allow manufacturing projects to benefit from contracts for difference and double-sided auctioning. It would match the cheapest European solar production projects with the highest willingness to pay from solar developers, backed up with a contract for difference from the state.
The Solar Bank, like the Hydrogen Bank, can be underpinned by the Innovation Fund. The European Commission’s Strategic Technologies Europe Platform proposal adds €5 billion to the Innovation Fund.
The ‘non-price criteria’ in the NZIA must be clear, comprehensive, harmonised, and applied only in technology specific auctions.
Right now, the NZIA proposes that technologies with a 65% dependency on one source are negatively rewarded in public auctions. However, it's not clear how we could calculate the 65%. For example, we could consider the market share relating to the final product, or an average of input materials and components going into a final product.
We're asking EU lawmakers to further detail and clarify these technical specifications within a dedicated Delegated Act.
It's also not clear how much weight that non-price criteria could have.
We recommend that sustainability and resilience criteria should count for no more than 30% of the points that can be awarded in a tender.