Smart measures, not tariffs or blunt subsidies, should be deployed to strengthen Europe’s standing in solar power
The halving of solar panel prices over the past two years facilitated the installation in the European Union of a record 56 gigawatts of solar capacity in 2023 – a 40% year-on-year increase and more than total electricity consumption in Denmark. This surge is a critical step towards meeting the EU’s solar deployment goals and has reduced reliance on imported fossil fuels. Great news, one would think.
Except almost all the panels installed in the EU in 2023 were imported from China and European solar manufacturers are struggling. Europe’s solar-panel assemblers are finding they cannot compete with Chinese competitors who produce quality panels far more efficiently and cheaply. Panels are so cheap that they are being imported more quickly than they can be installed. The result is a growing stockpile equivalent to more than one year’s deployment.
Europe’s solar-panel makers now want a financial lifeline from European taxpayers. Measures suggested have included import tariffs, subsidies to domestic production and buying excess inventories.
But tariffs or any measures to block trade would be a mistake, as the EU should know. In 2013, it imposed tariffs on Chinese solar panels following similar industry complaints of unfair competition. The tariffs only lasted five years and did more harm than good, failing to spur significant growth in European manufacturing capacity and slowing solar deployment. The protectionist measures offered only temporary relief for manufacturers at the expense of climate goals.
Domestic production subsidies for ‘made in Europe’ solar panels would also be a mistake. The idea is driven by negotiations ongoing in Brussels on a possible target for 40% of Europe’s demand for a range of clean technologies to be met by domestic production by 2030. This blanket approach is misguided because it ignores the very different value chains, current competences and global market dynamics for different technologies.
The global solar market, for example, is extraordinarily oversupplied and there is no climate benefit from subsidising extra production today; the focus should instead be on deployment. There is also little economic gain to be had for Europe. Full manufacturing processes involve energy and capital-intensive investment where Europe has no advantage. Solar jobs are overwhelmingly in installation and not the manufacture of panels.
Another justification given for subsidising European manufacture is ‘resilience’, or the idea that Europe should not be excessively dependent on a single foreign supplier for its energy transition. This is a valid concern, especially after Europe’s reliance on Russian natural gas was dramatically exposed.
But tariffs on Chinese solar panels imports or indiscriminate subsidies to European manufacturers are not the answers to this either. For resilience, the EU should explore smarter options. It should establish a strategic stockpile of solar panels. The current stockpile – which grew from market forces alone – would allow deployment to continue as normal for a whole year if imports stopped tomorrow. European governments could require large European deployers to maintain the equivalent of a certain share of their market (say 30%) as a stockpile, to ensure that a margin of flexibility exists in case of an abrupt stop to supply from China.
Over time, stockpiling requirements could be relaxed if deployers are able to import from more than one country. Import diversification is a more powerful and efficient tool than import substitution. The EU should also do more on recycling solar panels, which is important both for environmental reasons and to provide a future source of the raw materials needed to manufacture panels.
Beyond solar, ensuring resilience requires a whole-economy approach, focused on areas where Europe can realistically develop its own economic advantages and firms that are not overly dependent on subsidies. Chasing China’s mass-produced dominance in an over-supplied market is unlikely to work. A focus on innovation and not domestic content would steer European support more wisely.
Even within the fast-moving solar sector, there is substantial space for innovative new products, using new conductive materials, for example. It may yet be the case that European firms develop a market share in the next generation of solar panels, but policymakers should support this only on the grounds of new innovative ideas and products.
The EU should continue to prioritise the deployment of solar panels above all else. Not doing so would be far more damaging to Europe’s economic and environmental resilience than an overreliance on imported Chinese solar panels. Taxpayer support should be granted to clean technologies, solar included, only when a clear climate and competitiveness benefit can be demonstrated.