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Studies have shown that despite strong market demand, lack of clear policy support, dependence on raw materials and high production costs hinder the localization of European PV module manufacturing.
China has dominated the global PV module supply chain for the past 15 years, but the global PV module manufacturing industry is changing as multiple emerging factors threaten this dominance. These include increasing scrutiny of the sustainability and traceability of PV product supply chains, increasing competition for subsidies globally, and announced plans by the United States, India and the European Union to provide financial support to local manufacturers.
PV markets around the world have recently used a range of policy levers to directly or indirectly support the growth of domestic PV manufacturing, including the Inflation Reduction Act in the United States and India’s basic tariff and production-related incentive programs.
At the level of providing incentives for photovoltaic manufacturing, Europe lags behind. The REpowerEU program sets ambitious 2030 targets for the renewable energy sector, but offers no more incentives to support PV manufacturing. The EU’s recently released Net Zero Industry Bill (NZIA) proposal aims to stimulate local manufacturing. While this is a step forward, it could take up to two years for the European Commission to approve the policy. In other words, while the EU has set very ambitious targets for installing more renewable energy generation facilities in Europe by 2030, these targets will not automatically increase the demand for locally produced PV products.
Gaps in incentives in the US and EU
The U.S. is leading the way in terms of market timing and financial support, so the incentives offered by the U.S. have the potential to be a major risk to the expansion of manufacturing in Europe, as the U.S. already receives significant investment from major market players. The longer the EU’s policies and incentives need to be approved, the greater the risk.
Although the EU currently has little production capacity for silicon rods or wafers, the EU has set a goal of achieving more than 45% self-sufficiency at all manufacturing nodes. To achieve these targets, the EU needs to add more than 40GW of silicon rods, wafers and PV cells per year, as well as another 30GW of PV module capacity. To achieve this ambitious target, the EU will need to introduce a combination of higher manufacturing incentives and entry barriers for low-cost imports (such as its proposed carbon border adjustment mechanism to penalize products with a higher carbon footprint), and possibly set quotas for local content in public tenders.
Cost gap
The huge production cost gap between countries and regions is the biggest challenge that motivates local PV module supply chain manufacturing. A report released by S&P recently showed that the production cost of photovoltaic modules in Europe may be 50% higher than in China, mainly due to higher electricity prices and labor costs in EU countries.
The recent low prices of PV modules could be another unexpected obstacle to the return of the PV module supply chain in Europe. Over the past two years, the high price of polysilicon has kept PV module production costs high, narrowing the gap between the cost of PV modules manufactured in China, Southeast Asia and other regions, including Europe and the United States. If lower prices for PV modules come again, this will make PV supply chain manufacturing in Europe increasingly challenging.
However, Chinese PV module manufacturers may also be competitive in other areas. PV modules produced in Europe cost more than other regions, but may have some advantages due to the reduced carbon intensity of the final product. This sustainability aspect will be particularly relevant given the current trend towards taxing imported materials and components with a higher carbon footprint. European governments could also set quotas for locally made low-carbon content in public tenders – the current NZIA proposal includes a clause on the carbon footprint and source of equipment for public tenders, as well as a 15 to 20 percent sustainability and resilience weight scoring system.
Another aspect where EU manufacturers are competitive is the development of new technologies. EU manufacturers have the opportunity to lead the development of new technologies, such as perovskite photovoltaic cells or new wafer technologies, with lower production costs and higher efficiency. Several European markets have entered into partnerships aimed at commercializing next-generation photovoltaic cells and PV modules based on silicon-perovskite tandem technology. These partnerships can promote Europe’s technological leadership in emerging PV cell and wafer technologies, resulting in lower energy costs and lower supply chain risks.
Another aspect where EU manufacturers are competitive is the development of new technologies. EU manufacturers have the opportunity to lead the development of new technologies, such as perovskite photovoltaic cells or new wafer technologies, with lower production costs and higher efficiency. Several European markets have entered into partnerships aimed at commercializing next-generation photovoltaic cells and PV modules based on silicon-perovskite tandem technology. These partnerships can promote Europe’s technological leadership in emerging PV cell and wafer technologies, resulting in lower energy costs and lower supply chain risks.
Recently at Intersola A panel discussion at the Europe trade fair confirmed this view. Among the major industry stakeholders (developers, utilities, investors, supply chain companies), few expect a large-scale reshoring of the EU’s PV module supply chain in the coming years. Industry insiders generally believe that the EU will prioritize achieving ambitious renewable energy deployment targets by 2030 rather than moving photovoltaic manufacturing to China, which will make the EU’s energy transition more costly.