Europe’s renewable industry seeks protection
A few days ago, the European Solar Charter was signed, a non-binding document supporting the European solar industry. Also recently, the famous Net Zero Industry Act has been approved by the European Parliament and the European Commission has launched several investigations against Chinese manufacturers in both wind and solar. It seems that Europe is finally moving to protect its renewable industry, but will these measures be enough? And more importantly, will they be effective and on time?
Europe is moving…at its speed
In March 2023 the Net Zero Industry Act (NZIA) was published and exactly one year ago we published in this blog an article about this law and others that were launched in the same months. 13 months later, the NZIA has been approved in the European Parliament but the approval process is not over yet, as it will now have to be ratified by the ministers of the Council and wait for the implementation guide, so it is estimated that it could be applied in the member states in 2025.
The fact that the cornerstone of legislation to support the renewable industry in Europe will take almost two years to become operational is a clear example of the speed at which things move in the European Union. In the USA, by contrast, the Inflation Reduction Act (IRA) was operational within months of being passed.
Europe is one…but with many conflicting interests.
In last month’s article on WindEurope 2024 we talked about the different sensitivities within the Union when it comes to understanding what it means to protect the industry.
In the solar industry for example, there are those who advocate tough protectionist measures (basically the European manufacturers) but this would paralyse the deployment of solar, which neither developers nor politicians can afford. In fact, Commissioner Kadri Simpson has already made it clear that tough measures are completely ruled out.
There are also different approaches to wind energy. While it seems that governments and large associations are focusing on saving European OEMs, the components industry is urgently asking for help and demanding more support, as Manuel Turiel (CEO of Industrial Barranquesa) explains in this linkedin post.
But are we on time?
This is one of the big questions and the answer is not simple. The difference in reaction times between Europe, the USA and above all China means that we may be late with some of these measures.
Let’s look at the European PV module industry as an example. To put it very simply, the announcement of the NZIA and other support packages a year ago created optimism in the industry and several industrial projects were launched with the illusion that the European solar industry was being reborn. But China reacted immediately and, coincidentally or not, Chinese module prices plummeted to prices never seen before (and according to some industry experts, below cost).
It is easy to imagine the impact that this flood of cheap modules has had on Europe’s fledgling industry. As S&P (formerly IHS) explains in their article, it is having a devastating effect on industry and also on innovation. The map they publish showing the agonising situation of European industry is very revealing:
Solawatt has recently joined the list of factories announcing their closure, in this case of their facilities in Germany.
Another of those affected by module prices is the solar trackers sector. It is no coincidence that we are seeing more and more installations of modules in vertical or sub-optimal positions. This news item in the Financial Times about fences made of solar modules had a lot of repercussion and is a clear example of the fact that modules are so cheap that it may turn out to be better to install more panels, even if they are badly oriented, than the extra cost of a tracker.
Obviously, this brutal price cut also has consequences for Chinese manufacturers that sell at a loss, such as the giant Longi, which has announced significant losses in its latest results and is going to reduce its workforce, but I suspect that they could hold on for quite some time with losses if the Chinese government deems it appropriate.
It seems that there are sectors that are going to be almost impossible to be reanimated so perhaps we should focus on those that still have a strong position and try to protect that position.
In the face of regulatory sluggishness, investigative swiftness
As we have seen, European regulatory cycles do not adapt well to the speed of the renewable energy business. Faced with this situation, the European Union is launching investigations against Chinese companies which, although they are one-off actions, send a clear message and buy some time.
As we mentioned in this post, the investigation announced against Chinese wind turbine manufacturers for projects in Spain, Greece, France, Romania and Bulgaria is an isolated action. Greece, France, Romania and Bulgaria is an isolated action, but it is a torpedo to the commercial efforts of Chinese companies, which see a shadow of doubt cast over them, as until the investigation is closed, it will make it very difficult to close deals.
Also in the solar sector, an investigation has been launched against two Chinese giants, Longi and Shanghai Electric, although in this case I doubt the effectiveness of the measure, as the alternatives to these giants are other Chinese giants.
What can we expect in the coming months?
Let’s start with what will not happen: tariffs or other tough protectionist measures. Europe does not want and cannot start a global trade war in which it has everything to lose.
The key as usual in Europe is implementation in each member state. While NZIA does not need to be transposed into national legislation as it is directly applicable, how, when and where it is implemented is the responsibility of each government. Probably the most immediate measure we will see from the NZIA will be non-price criteria in auctions. There are high hopes that this measure will at least serve to create a “reserved” market niche for European manufacturing. Hopefully we will see it already implemented in future auctions in 2025. Until then, we will have to learn from the experts and read the resistance manual.
