Now or never for the EU

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From pv magazine December 2018 issue

As of September 3, the minimum import prices (MIPs) for Chinese crystalline silicon PV cells and modules imported into the EU are history. There are multiple reasons why the MIP has not shielded European manufacturers or ensured their survival over the last five years. In fact, they only went a small way towards achieving their stated purpose: Since 2013, the number of solar cells and modules produced in the EU has become negligible. When looked at in the context of the global market dominated by towering Chinese producers, European production capacity has been left in the shade.

New initiatives are needed more than ever if ‘Made in EU’ manufacturing is to flourish, and a number are here already. This year’s EU PVSEC in Brussels saw Arnaud Chaperon take the stage to announce the launch of a new association. European research institutes, equipment manufacturers, and materials and component suppliers have joined forces to form the European Solar Manufacturing Council. French oil giant Total is a founding member.

“We want to give a voice to the remaining manufacturers in Europe. A growing market isn’t everything, many manufacturers fight for their survival”, says Chaperon. He is Senior Vice President for New Energy at Total’s Gas and Electricity Branch and also serves as Vice President at SolarPower Europe.

Already in May 2016, SolarPower Europe published the document: “Goals of an Industrial Strategy and 2030 Vision.” Therefore, at first glance, the formation of the European Solar Manufacturing Council could seem like yet another schism of the solar industry. Taking a closer look, however, it is clear that in actual fact that is not the case.

“There is a real need for an association representing the interest of European manufacturers. SolarPower Europe does a great job in trying to develop the PV market in Europe, but is now the association of global players active in Europe,” says Gaëtan Masson, director of the Brussels-based Becquerel Institute and Vice President of the European Technology & Innovation Platform PV. Since 2015, the platform has pursued a holistic strategy for the European solar industry. Many of the institutes and manufacturers that are members of the platform are now also in the European Solar Manufacturing Council (ESMC).

SolarPower Europe is held back in its ability to act, in that it has to uphold the interests of all of its members, including numerous large Chinese corporations. Even if the push for European manufacturing does not necessarily make for an assault on Chinese competitors, it still provides somewhat of a counterbalance. Meanwhile, representatives of the R&D community can form a larger part of the representation at ESMC, with nearly a third of the members coming from the research institutes of Europe, explains Masson.

The time to organize behind a solar industrial policy in Brussels appears right. The negotiations for the so-called EU Winter Package are now in their final stages. The new renewable energy directive is highly likely to set a higher target of 32% RE capacity by 2030.

In September 2017, the EU also launched the initiative for a new strategy for industrial policy. On the back of this, an industrial forum for clean energy was initiated, to conceptualize a supply-oriented policy for the European cleantech sector. The program stands on three pillars: batteries, renewable energy, and construction.

SolarPower Europe can be proud of its lobbying in Brussels in recent years, with regard to the current position of clean energy within the EU industrial forum, says CEO James Watson. The first “EU Clean Energy Industrial Competitiveness and Innovation Forum for Renewables” with EU Commissioner for Climate Action & Energy Miguel Arias Cañete took place at the beginning of the year.

The time is not only ripe, but success is of crucial importance. “It’s definitely high time. The changes have to come swiftly and be far reaching,” says Gunter Erfurt, Chief Technology Officer at the Swiss equipment manufacturer Meyer Burger. “Baby steps won’t bring any solutions and the industry will be moving further to Asia.”

Masson shares this apprehension. Manufacturers in Asia and the United States are not only on par with European players in terms of technology, but because of their large domestic markets, like China and Japan, the United States, or India, they have a significant competitive advantage. Economies of scale in production are the key to lower production costs. “The longer we wait, the harder it will be to be competitive with these big players,” says Masson. He adds that while it is still too early to discuss specific measures that should be taken, “EU institutions seem positive on their commitment to make Europe number one in renewables, including the manufacturing industry.”

James Watson and SolarPower Europe are setting their sights on the upcoming European elections next year. Additionally, the mandate of the European Commission expires in October. Until then the commission has to present tangible political guidelines, by which the commission will have to abide.

Downstream versus upstream

The most striking difference in the industrial policy strategy proffered by SolarPower Europe and the ESMC is in the approach they take. The former lays a heavy focus on the market, where the latter looks toward the reconstruction of wafer, cell, and module production.

James Watson says SolarPower Europe pursues a holistic approach. “All segments of the EU solar value chain are covered in an industrial strategy, leaving no segment behind and not favoring one segment over another.” Behind this stands the fear that measures aimed at supporting new European module manufacturers could lead to new trade sanctions placed on foreign manufacturers by the EU – an echo of the MIP.

For SolarPower Europe, a concentration on key enabling technologies would be pivotal to strengthen the competitiveness of the European solar industry in global markets. These include technologies such as digitalization, sector coupling, battery storage, smart homes, or smart grids, which are likely to increase demand for solar in the future. This, in turn, would automatically open more opportunities for European manufacturers, Watson explains.

Gunter Erfurt points at the fact that to him solar energy will be key to “Industry 5.0,” especially with regard to sector coupling of solar PV with the chemical industry or seawater desalination.

Meanwhile, Masson underscores the importance of maintaining what remains of and establishing a new European solar upstream sector. “The message that the PV value chain can survive in Europe without wafer, cell, and module manufacturers is a mistake. Either the value chain develops as a whole, or it will disappear from Europe,” he says. Though the people behind ESMC know that in order to realize their goals, significant and stable demand is crucial for their mission.

Stable market

The German-based production equipment manufacturer Singulus is one of the founding members of the ESMC. At a meeting with EU Commissioner Cañete, Singulus CEO Stefan Rinck demanded an annual European solar market of 20 GW. Only if the market is at this level, then active investments into the expansion of production capacity could be expected. For Masson, a market volume of 20-25 GW would also be necessary to fulfill obligations made under the Paris Climate Agreement. Additionally, the market has to be somewhat diversified to permit the production of a wide product range in Europe.

SolarPower Europe expects demand in Europe to be on track to reach 20 GW in 2020. Watson is convinced that the solar market will stabilize after the Winter Package’s implementation in 2021. Part of the package would also be to prohibit the retroactive application of political measures, such as cuts to feed-in tariffs, which in the past have brought entire markets to a standstill. “To attract investments the market can be of any size, as long as it is stable,” explains Watson. “But obviously the bigger the market, the better and the more likely you are to see investors build factories to feed the market.”

Creating new financing options

A stable market alone is not enough, and financing is similarly essential. It is vital to ensure that private equity and public funds are being deployed in the best way. “The EU should guarantee that the market will exist – this is the first condition and could propose some innovative funding. Covering the additional risk compared to other investments in energy could be done with innovative financial instruments,” says Masson.

Watson urges that facilitating financing and investment for PV can be a vital element of the EU strategy for renewable energy. He proposes that the European Investment Bank provide loan guarantees and low interest loans to the industry, to support its growth. However, he reiterates that this approach must be applied to the entire value chain and not isolated to certain segments.

Another priority should be to establish a business-friendly climate in European markets. “The European Commission should also coordinate national efforts to offer incentives to the industry to site its operations in specific locations and therefore create strategic clusters,” says Watson. One option would be to offer tax breaks or a state aid regime for the period immediately after the construction of a new factory site.

R&D needs industrial partners

Investment in new production facilities is not only significant to manufacturers. Plant engineers and research institutes also suffer from the fallow production landscape in Europe.

“At the moment, there is no large-scale presence of the manufacturing industry, which complicates the development of new technologies. In Europe we need the whole value chain, especially considering that Europe has taken the global lead in technology development by a long shot,” says Erfurt of Meyer Burger. The technology company is already a member of SolarPower Europe and is currently evaluating whether to join the ESMC. Recently, Meyer Burger announced plans to move some of its sales and services division to Asia – closer to its customers.

With just a small production industry in the megawatt-scale range, the research and development sector will also struggle, Masson adds. “We expect it to shrink significantly in the coming years if industry partners cannot survive or develop. We are still rather good, but our competitors are improving significantly. R&D, as well as equipment and materials providers, depend on the ability to find local customers as well.”

CIGS thin film technology is an example of what happens when large-scale industrial production is lacking in Europe. The equipment manufacturers Singulus and Manz, as well as the module manufacturer Avancis, have worked jointly with research institutes to bring the technology to market maturity. Now that this has been achieved, it is being commercialized in China. State-owned enterprises there, such as Shanghai Electric and CNBM, have the capacity to invest millions into the establishment of large-scale CIGS production capacities. These corporations have acquired the German technology partners, wholly or partly, to ensure their continuation.

For James Watson, joint ventures or cooperative partnerships are a viable solution to reanimate Europe’s solar industry. In this vein, he highlights that the Chinese-based battery cell manufacturer CATL has signed an agreement to establish a gigawatt-scale production facility in Germany. To this end, the company sets out to invest €240 million ($270 million) until 2022. Previously, BMW had signed a deal to purchase battery cells from CATL worth €4 billion ($4.6 billion).

European manufacturers should focus on the technology that provides the biggest push on electricity generation costs, according to Swiss equipment supplier Meyer Burger. Currently, it argues, this means heterojunction technology.

Image: Meyer Burger Technology AG

Competitive production in Europe

Director of Fraunhofer ISE Andreas Bett and Peter Fath of RCT Solutions believe that under certain circumstances production in Europe can be competitive. Andreas Bett has examined the feasibility of the production of wafers, cells, and modules in the 10 GW range in Europe. Previously, his predecessor, Eicke Weber in his function as director of Fraunhofer ISE, had time and again advocated for the establishment of a gigawatt-scale factory in Europe. Now, Bett is continuing Weber’s legacy on the project.

Fath, who is also a Board Director of the German Mechanical Engineering Industry Association’s (VDMA’s) photovoltaic production materials division, argues that despite falling costs in global markets, European production could still be lucrative. This is because production costs have fallen as well. Also, higher efficiencies, more modern machinery, and higher throughputs are continuously improving cost structures.

However, not everybody sees it that way. Yali Jiang, an analyst at Bloomberg NEF, has examined the current cost structure right along the value chain. She is more than skeptical of the possibility to conjure a European production industry out of thin air under these conditions.

One question is how large the production capacity should be. Masson and Erfurt agree that a production capacity of at least 2 GW is necessary to establish a competitive landscape for European manufacturers. “But vertical integration could also play a role,” says the Director of the Becquerel Institute. Accordingly, crystalline PV wafers and cells are at the core of value generation.

Watson says that to establish economically viable production in Europe it would take several gigawatts of capacity, especially regarding global competition, and that it would be preferable if all steps along the value chain were represented. At the same time though, the shape and size of manufacturing operations is dependent on the PV products themselves. For building-integrated PV (BIPV) small factories are likely to be sufficient for the production of such tailored modules.

Using the technological advantage

BIPV, despite its many years of promise, accounts for negligible market share in Europe. The market segment is unlikely to grow significantly within the near future, at least sufficiently to kick-start the European solar manufacturing industry.

As to what technology the European gigawatt manufacturers should place their bet on, Gunther Erfurt responds: “Those that have the biggest advantage can deliver the lowest LCOE.” According to the CTO of Meyer Burger, this would mean heterojunction (HJT). Just a few years from now, he expects the technology in conjunction with tandem technology to achieve efficiencies of more than 30%. This would also lower LCOE to below the €0.02/kWh ($0.02) mark.

For Masson, on the other hand, all technologies should be considered in the planning. “It’s obvious that emerging technologies that have a cost advantage should be prioritized. However, fully automated industry processes can also help reduce manufacturing costs, which could allow some innovative manufacturers with products competing directly with Asian competitors to be competitive at some point,” he says. For him, the past has shown that technology is not the only key to success, but also the way in which it is marketed, and how quickly the technology manages to compete.

Next year will be a decisive moment for the European solar industry and its future, if there is one. The EU Commission sends the right signals and explains that in an expanding market it sees the potential for further development of high-tech products such as PV cells and modules, as well as inverters and integrated battery technology. One of the most critical aspects of the competitiveness of Europe is the leading role in research and development. European institutes are in the position to offer efficient and sustainable technology solutions to global markets.

An annual capacity addition of about
250 GW is currently the medium-term goal for the industry, says Masson, adding that an annual terawatt market is not too far away. By virtue of its economics, PV will become an entirely mainstream source of energy, he believes. As such, Europe should not relinquish complete control over such a market – not just economically, but also with regard to sustainability. Moreover, PV can deliver new jobs and potentially offset those that are being lost in the old industrial sectors. Therein, the solar value chain as a whole has the potential to align with key European transition goals: energy, ecology, and industry. China, certainly, will not be waiting for the EU to move.