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EU solar development expected to rise after lifting barriers on Chinese panels

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EU solar development expected to rise after lifting barriers on Chinese panels

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A road leads past a solar park on the Aegean island of Tilos, Greece.
Source: Associated Press

Solar companies and industry observers in Europe expect the removal of import restrictions on Chinese solar panels at the end of August will reverse a years-long decline in exports to the EU, although there is disagreement over whether lower hardware costs will be enough to significantly increase project development across the bloc.

Since the European Commission imposed a minimum import price and other restrictions in 2013, solar panel exports from China to the EU based on monetary value have fallen by 73%, to $959 million in 2017, according to data from Panjiva, a product of S&P Global Market Intelligence.

Some of that decline likely reflects a drop in solar panel prices, which fell by an average of 41% during the same period, according to filings from four manufacturers to the U.S. Securities and Exchange Commission. In addition to the higher cost of imports from China, the EU solar market has been whipsawed by policy changes within member countries. Between 2013 and 2017, annual solar installations in the bloc dropped by 38%, according to information provider IHS Markit.

Solar installers, however, remain optimistic that the lifting of the tariffs will boost solar deployment across Europe.

"We expect to see a significant increase in solar jobs and deployment," Christian Westermeier, the president of industry group SolarPower Europe, said in response to the phase-out of the import restrictions, which he said had represented "the single biggest barrier to solar growth in Europe."

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The lifting of EU trade restrictions will also come as a relief to manufacturers with a Chinese manufacturing footprint that have been grappling with new U.S. import duties and policy changes from Beijing that have caused a contraction in China's solar market, the world's largest, resulting in an equipment glut that is driving down prices globally.

Hanwha Q CELLS Co. Ltd., a South Korean solar panel manufacturer with factories in China, has made Europe its top priority in order to minimize the impact of U.S. solar tariffs, Joo Yoon, the company's head of sales planning, product management and marketing, said on an Aug. 13 earnings call.

SolarPower Europe, which for years has lobbied against the EU trade barriers, is revising up its outlook for EU solar growth over the next five years in response to the tariff phase-out. It had already expected a 45% increase in EU solar installations in 2018, to 8,600 MW, followed by 13,500 MW of installations in 2019. The group represents companies including manufacturer First Solar Inc., polysilicon producer Wacker Chemie AG and renewable developers and utilities including subsidiaries of BayWa AG and Enel SpA.

"Even before the MIP [minimum import price] expiration, European solar markets [have] been hot, especially in Spain, Portugal and Italy," Sebastian Liu, director of investor relations at Chinese solar panel manufacturer JinkoSolar Holding Co. Ltd., said in an email. "With MIP withdrawal, we see faster progress of grid parity in Europe" and additional demand of at least 2,000 MW — the equivalent of 31% of total EU solar installations in 2017 — over the next three years, he said.

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Sun Investment Group, a U.K.-based solar project developer, said in a news release that eliminating the EU's minimum import price could lower solar panel prices in Europe by up to 30%.

"With the cost of CO2 emission rights on the rise and the reduction of the cost of solar modules, solar will most likely become the most competitive form of energy in the bigger part of EU by 2020," CEO Deividas Varabauskas said. Rising trade tensions between the U.S. and China are "strengthening Europe's position as a more attractive market for Chinese solar than the U.S," he added.

The European Commission in 2017 found that lifting anti-dumping measures on Chinese solar equipment would initially reduce capital costs by 15% and increase installed solar capacity in most countries by between 20% and 30% until 2030, assuming all EU solar installations use tariff-free Chinese panels.

However, some say lifting the trade restrictions will simply result in manufacturers relocating production to China that they had moved abroad in recent years in an effort to circumvent tariffs in the EU and U.S.

"The main effect will be that imports from Vietnam, Malaysia, Indonesia and other Asian countries will be replaced again by imports from China," said Milan Nitzschke, president of lobby group EU ProSun and a former executive at German PV producer SolarWorld AG.

However, Edurne Zoco, director of solar and energy storage research at IHS Markit, said Chinese manufacturers are likely to maintain factories abroad in order to continue serving the U.S. and, potentially, Indian markets. "We do not anticipate they will move capacity back to China, especially under the current international trade environment," she said.

JinkoSolar, which operates factories in China, Malaysia and Portugal, has no plans to shift manufacturing capacity back to China, said Liu, adding that tariffs were only one factor in its decision to expand production abroad. The company is in the process of adding production capacity in Malaysia, and it is building a new factory in Florida.

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EU ProSun campaigned for an extension of the import controls, arguing that they were needed to protect EU manufacturers from lower-priced Chinese panels. China accounted for 57% of solar cell and module shipments globally in 2017, according to Paula Mints, chief analyst at SPV Market Research.

"Local European manufacturers that have higher processing costs than their Chinese counterparts will now face stronger price competition," Zoco said. "However, the good news for European module makers is that they will now be able to source cheaper Chinese cells in the market and could increase utilization rates and therefore lower production costs." The EU currently has around 3,500 MW of solar module manufacturing capacity, she said.

"I honestly do not expect that the EU will be flooded with Chinese solar panels now that the measures are gone," said Konstantinos Adamantopoulos, a lawyer who specializes in EU law and trade defense and represented a Chinese exporter in the early years of the trade case. "But I do think there will be a rise in exports, within limits, that reflect the market conditions in the EU."

Noting that annual solar installations in the EU declined even as panel prices fell, Nitzschke of EU ProSun said scrapping the trade restrictions without creating new incentives for project development sends the wrong signal to national governments.

"This indicates to politicians, 'You don't need to do anything further now,'" Nitzschke said. "That massively damages the industry [in the long run]."