Boom or bust: European solar manufacturers struggle to survive

The byzantine politics of the European Union seldom result in urgent action. However this month, the bloc’s policymakers made a priority of throwing Europe’s solar manufacturers a lifeline.

On April 15, representatives from EU member states, the European Commission, and solar companies signed the European Solar Charter to support local manufacturing. Of the EU’s 27 member countries, 23 pledged their support. The document observes that “urgent action is needed” to cope with the “crisis” currently facing European solar manufacturing.

While stopping short of trade barriers like tariffs, the charter broadens what actions national governments and pan-European institutions like the European Investment Bank can take to support local solar production. It also acknowledges that more needs to be done to foster PV manufacturing capacity in Europe. 

The charter’s signing heeds months of increasingly strident demands for support from solar manufacturers from many parts of Europe. With a glut of largely Chinese modules descending upon the marketplace, prices have crashed to historic lows — often below the cost of production in Europe. 

This has resulted in an industry split of sorts. Ebullient young companies doing brisk business in solar retail and home electrification are prospering on the back of affordable system prices, while also declaring a willingness to support the local manufacturers that are struggling. The tension between the manufacturing and retail segments is palpable, particularly in Germany, a former cradle of solar manufacturing, where policymakers have struggled to strike a balance between enabling solar deployment and fostering domestic production. 

The industry split

By many metrics, the European solar marketplace is in robust health.

Three consecutive years of 40% growth resulted in 56 gigawatts of installations in 2023, according to industry body SolarPower Europe. This consistent market expansion is to some degree due to the lack of tariffs or duties on Chinese solar module imports, which have kept prices low. However, it’s this same lack of trade barriers that has left local producers exposed to relentless price declines, of between 40-50% over the past 12-18 months. And while the European charter looks to unlock support for its PV manufacturers, the damage may already have been done. 

“We’re currently working on our new quarterly update and utilization rates in Europe are super low, apart from Turkey,” says Edurne Zoco who heads the S&P Global clean energy technology team. “How can you invest in manufacturing in Europe when buyers don’t have any incentive to buy locally produced modules and when product is being cleared at 11-13 cents per watt?”

As a result of the pressure, European solar manufacturers along the module supply chain are closing their doors. In 2023, continental Europe’s only solar wafer producers, Norsun and Norwegian Crystals, wound up their operations there. 

And as recently as this week, German module maker Solarwatt announced it will be closing its 300-megawatt module facility in August. The company had celebrated 30 years of solar manufacturing in 2023 and had pioneered dual-glass modules, now an industry mainstay. 

Solar manufacturing has always been highly cyclical in nature. Strong demand and higher prices in 2021 and 2022 led companies to make investments in new factories — which in China means something like 10 GW of nominal annual production capacity with each expansion. 

And today, an ongoing technological switch has meant that those factories are clearing out older modules at rock-bottom prices. The switch from p-type crystalline silicon solar cells to n-type has occurred at breakneck speed, evaporating any technological advantage some European manufacturers may have had over their Chinese rivals, and leaving others with obsolete product offerings. 

Zoco says that the switch to n-type cells is well advanced and accelerating in China, primarily in the form of Tunnel Oxide Passivated Contact (TOPCon) and to a lesser extent heterojunction, or HJT, solar cells. As a result, not only are production costs roughly one-third higher in Europe, but the PV modules from China also have a power output advantage. 

“It is a bit like trying to compete in the market against a high-performance electric car when you are selling a more expensive diesel car,” says Zoco.

Even so, the going is tough also for European n-type producers. German online solar trading platform pvXchange reports that module prices for high efficiency modules, which deploy TOPCon or HJT technology, were only slightly above 21.5 cents per watt in March.

The n-type producer Meyer Burger is the highest-profile German PV manufacturer, and has been unequivocal in its assessment of the plight facing European producers. In January, the company announced that it will close its module plant in Freiberg, Germany — leading to more than 400 employees losing jobs. The factory didn’t see its third birthday. 

Instead of pursuing module production in Germany, Meyer Burger is moving production to the United States. It is currently equipping a 2-GW module factory in Goodyear, Arizona. The facility will be matched by a 2-GW HJT cell facility in Colorado Springs, Colorado, a site selected in July 2023. 

Making matters worse for the Europeans is the fact that Meyer Burger’s order of PV cell equipment intended for a 2-GW expansion of its production in Thalheim, Germany, will be re-routed to Colorado. A spokesperson for the company said that module equipment won’t be shipped from Freiberg to Goodyear — the machine orders for the U.S. factory had already been placed — but they may well be in the future. 

There are two central reasons that the U.S. is more attractive to Meyer Burger. On the one hand, the Inflation Reduction Act is subsidizing demand for locally produced modules, while a seemingly ever-shifting landscape of trade barriers artificially inflates module prices. (Despite the fact that a recent surge of imports has caused prices to drop in the U.S. as well, they remain much higher than in Europe: at roughly 27 cents per watt in the U.S. versus 12-13 cents per watt in Europe.) 

And on the other, importing modules to the U.S. is being complicated by the seizure of some shipments at the border in light of those trade barriers, which makes domestic production more attractive from a security-of-supply perspective.

Much-needed funds

Meyer Burger’s dramatic decision to relocate production to the U.S. is particularly noteworthy because it is no ordinary solar manufacturer.

The Switzerland-headquartered company has a long history in supplying solar production equipment to manufacturers globally and began investing in the machines and processes it currently deploys on its HJT lines in 2011. But its cell and module production efforts, centered in Germany, have yielded little success in what the company has described as “unfair market conditions in Europe.” 

In a growing market, Meyer Burger’s sales in 2023 slumped to $148 million, down from $161 million in 2022.

In recent months, Meyer Burger has been unable to sell many of the modules it produced in 2023, with more than half of its total production for the year, or 365 MW, sitting unsold. The value of this inventory was written down at year’s end; combined with the costs of shuttering the Freiberg module factory, the company recorded a loss of $320.2 million in 2023.

Contested politics

It was the Greens party, the second-largest party in Germany’s coalition government, that proposed the resilience bonus. But the policy was conspicuously absent from the long-awaited Solar Packet 1 legislation, which passed the German parliament in late-April. The policy provides a boost for commercial and industrial installations and provided for balcony systems for apartment dwellers, among other measures — but brings no relief for manufacturers. 

A leaked policy document, purportedly from the pro-business governing coalition member the Free Democratic Party, laid bare the extent of its resistance to the resilience bonus.

“We ensure that innovative, up-and-coming companies have the best possible framework conditions,” the document reads. “Competition will not be distorted by subsidies for European manufacturers in the form of a resilience bonus, thus enabling innovation, competitive prices and efficiency increases.”

This divide between the coalition parties regarding PV manufacturing extends deep into the solar industry itself. In a move that sent German solar industry rumor mills churning, in July 2023 Enpal hired a former FDP staffer who had worked in the office of influential finance minister Christian Lindner to its public affairs team.

That said, there are some glimmers of hope. 

The European Solar Charter demonstrates the bloc’s intention to clear the way for a range of non-tariff interventions to support local production. Whether those measures can entice new manufacturers and pull existing ones back from the brink, though, will depend on the actions of European Union institutions and national governments, along with the solar industry itself.

“When you have high interest rates you need your hardware to be lower cost. But solar hardware is already way too cheap. Do solar modules need to be down to 10 cents per watt? I don’t think so,” said S&P Global’s Zoco. “The things that slow down solar have nothing to do with cost: they are grid integration, permitting, the lack of long-term storage, and high interest rates in regions where you don’t have investors or enough capital but need more renewables.”

There are clear signs that European policymakers are awake to the need for more domestic PV production. But how effective the charter will be remains to be seen — solar manufacturing is certainly not for the faint-hearted.

Fatih Birol, head of the International Energy Agency, said in Berlin last month that in previous years he had warned German lawmakers against relying too heavily on Russian gas to power its economy, and counseled that the country should not repeat the “historic strategic mistake” with solar. Birol said the production of solar modules, wind turbines, and batteries represents the “next chapter of industrial technology.” 

“Otherwise, it is not good news for competition and also for employment of the people, because the future definitely belongs to clean energy technology manufacturing,” he added.