EU renewables manufacturing – Terminal decline or simple shake-out?

Reading the frequent headlines of solar manufacturing bankruptcies and factory closures, it is easy to see why many have come to the conclusion that austerity driven cuts to solar support schemes have pushed the sector to the brink of collapse. 

Thankfully, the hype does not tell the whole story.  There are reasons for optimism, despite the bad news.

Firstly, we have to separate out manufacturing from the rest of the solar value chain.  Even with no manufacturing at all, there would still be a strong renewable energy economy in Europe.  Only about a fifth of all ‘solar’ jobs are in manufacturing.  The other 80% of workers benefiting from the growing solar sector include those who are planning the projects and/or distributing, selling, installing, and maintaining the panels (1).  Those in non-manufacturing solar jobs, whilst still dependent on the overall health of the sector, are not as vulnerable as their factory-based colleagues, who have produced PV units at such a rate in recent years that there is chronic oversupply – massively depressing prices and jeopardizing even some of the biggest solar panel making companies (2).   Even then, there are some early signs that the oversupply problem is starting to work its way out of the system (3) – giving those strong enough to survive the chance to thrive in a growing market (4),(5).

Secondly, closures of European PV manufacturing facilities cannot be said to be simply ‘because of the Chinese’.  Instead, these are just as likely to be part of the natural shakeout that happens in any nascent industry.  Plenty of ‘dot-coms’ went bust, many quite spectacularly (6), in the early 2000’s, but no one suggested that the sector as a whole was in terminal decline.  Indeed, with the fat well and truly trimmed, internet based business has been booming.

While the context is different, the truth remains that the closure of some solar manufacturing facilities does not spell doom for all.  Many of the failures are in the ‘home’ of PV panel production in eastern Germany.  For example, the now bankrupt Q-Cells’ production facilities were located in the city of Bitterfeld-Wolfen, in a former lignite mining area in the eastern German state of Saxony-Anhalt (7).  Such facilities enjoyed generous subsidies to locate in former East Germany, as part of Germany’s, and the EU’s, continuing work to develop the those parts of the region that had so much catching up to do since 1989.  Coming on top of feed-in-tariff subsidies, it can be argued that this public support made German manufacturers complacent. Over-insulated from harsh market realities, they failed to either innovate or deliver products that responded closely enough to customers’ needs.

Thirdly, in response to this weakness, and seemingly never ones to miss an economic opportunity, Chinese manufacturers set about developing technologies more suited to European conditions, and offered them at a lower price than German competitors.  While it is true that the product quality is often considered inferior, and Chinese companies have certainly enjoyed support at home, this development has not simply followed the model of the low-wage, export-driven Chinese economic phenomenon.  Indeed, Chinese solar businesses are set to beat the competition in its own back year by setting up manufacturing bases in high-wage Germany in order to benefit from skilled workers to improve its products and to avoid the transaction costs of import/export.  No wonder the German manufacturers are hurting – just ask the Bayern Munich football about the agony of losing the big prize when you’re playing at home.

Fourthly, as with all business, it is impossible to take the politics out of it completely.  The principle of reducing public support as manufacturing costs fall is one long supported by all sides of the debate, including environmental NGOs like WWF.  Indeed, this practice was written into the German feed-in-tariff system whose regular and predictable price decline in line with the falling costs of a growing market were considered a model to be replicated by others.  However, rapid PV cost falls of about 50% in 2011 (8) created pressure for a quicker response and the German government accelerated cuts (9).  No doubt these tariff reductions were a blunt tool, the wielding of which was somewhat indiscriminate, clearly hurt some undeserving victims and certainly killing off a number of those least able to resist.  It should be remembered, however, that the German move was a far cry from the devastating retroactive (Spain) or rushed and over-corrective (UK) cuts seen in other countries.  While companies elsewhere have greater cause for complaint, it has been argued that some of the firms threatening bankruptcy in Germany were uncompetitive enterprises trying to hold their government to ransom for protection from the effects of an over-supplied marketplace.  If it was a bluff, it was well and truly called.  History will be the judge of the outcome.

While one would rarely want to see any company go to the wall, market economics is a tough world, and only the fittest will survive.  It should, therefore, be well noted that some German solar companies clearly had significant management problems – losing huge amounts of share value even before the recent cuts to support regimes.  The fact that Chinese companies can flourish, including by opening factories in Germany, while benefiting from the same level of support that German companies considered to be too low, suggests that the Chinese were simply doing it better.

Fifth, it appears that for much of the reporters of these developments, not all solar jobs are equal.  Job losses in German solar PV manufacturing businesses are estimated to be up to 5,000 last year and 10,000 this year.  While bad, especially for those made redundant through no fault of their own, this is far from being the full picture.  For instance, these figures do not account for jobs being created in non-German PV manufacturing companies in Germany – perhaps those Chinese factories are not looking so threatening now!  Also, from the European perspective, Spain and Italy have added almost 50,000 new jobs in PV manufacturing and installation.

Sixth, challenges for european solar panel makers should not cast a pall over the European renewables sector as a whole.  While the Chinese and other Asian companies may be winning in one sector (which, it should be noted, is closely linked to their comparative advantage in high-tech and electronics) European companies continue to rule the roost in precision engineering related wind-turbine manufacturing.  So much so, that Chinese wind companies have seen profits plummet even before the Chinese government opens up its domestic market to foreign competition (10).

Seventh, some EU solar manufacturing closures have very specific drivers.  For example, the US company First Solar is the world leader in thin film technology, so naturally, they wanted to set up in the EU and take advantage of a rapidly growing market.  However, thin film solar power is particularly suited to large, ground-based arrays, which have not been popular in space constrained Europe, which prefers its panels on its roofs.  So First Solar took the pragmatic choice of closing manufacturing in Europe and opening it in regions where it can sell its products because they suit the market better, namely Asia, Africa, and the Americas.  Indeed, almost everywhere except Europe… so why would they stay?

The fact is, that despite the doom mongering, we are still early in the Solar boom.  There is plenty of room for growth, including in European-based manufacturing.  As any market matures, so it becomes more refined and its consumers more discerning.  Surely the home of viticulture can appreciate that.  To succeed, any maker of solar panels, or other renewable technologies, will need laser-like focus on providing quality products tailored to the market demand while also staying ahead of the competition by innovating into the myriad possible new applications and technologies.

Renewables are nascent technologies, and as they seek to compete with the entrenched advantage of fossil fuels (that continue to receive many times the subsidies directed to renewables (11)) they will need support.  As the economic context for renewables becomes more complex and varied, support schemes will have to continue to adjust. The strong progress towards the 2020 renewable energy targets are testament to what can be achieved when support is matched with ambition.  To build on what has been won so far, it is vital that the 2020 targets are met in 8 years time, that a high and binding renewables target is set for 2030, and that support schemes continue to be fine-tuned and complemented by increased cross-border co-operation.

The race for renewables to become Europe’s energy supply option of choice is on the right track – which competitors win in each sector will simply depend on which are fittest.


  2. Re-considering the Economics of Photovoltaic Power, May 2012 (Bloomberg New Energy Finance – Morgan Bazilian, IjeomaOnyeji, Michael Liebreich, Ian MacGill, Jennifer Chase, Jigar Shah, Dolf Gielen, Doug Arent, Doug Landfear, and Shi Zhengrong)
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