At the annual gathering of Europe’s solar power lobby in Brussels this month, industry executives celebrated the rapid rollout of panels across the region after the retreat from Russian gas.

Standing behind a DJ deck, Walburga Hemetsberger, SolarPower Europe’s chief executive, said that the night should be “the best party ever”, adding that the European industry had broken records on solar installations last year. But EU officials speaking at the same event had their minds on an even bigger challenge.

“Switching from fossil fuels to renewables should not mean replacing one dependency with another,” announced energy commissioner Kadri Simson, who has spent the past year marshalling the bloc’s efforts to wean itself off Russian gas.

The EU wants to make solar power its single biggest source of energy by 2030. That would mean almost tripling its solar power generation capacity over the next seven years. Yet, as Simson reminded delegates, more than three-quarters of the EU’s solar panel imports in 2021 “were from one single country”.

That country, China, is a critical supplier for Europe’s green transition. Yet in the wake of a Russian fuel crisis and pandemic supply-chain disruptions, European officials and companies are increasingly wary of relying on one country to meet its generation equipment needs — especially given that production is concentrated in an a region where there have been widespread allegations of human rights abuses.

With the Biden administration pouring hundreds of billions of dollars of subsidies into clean energy under the auspices of the US Inflation Reduction Act, and amid growing Sino-scepticism in Europe, some EU officials are making the case for an industrial resurgence at home.

“It’s a Hamiltonian moment,” says Raphaël Glucksmann, a European parliament member who serves on the international trade committee, referring to the creation of a strong American federal state. “Thirty years of deregulation and free-trade policy in Europe has ironically led to the triumphs of the Chinese Communist party.

“Europe has to produce things again. We cannot be a continent of consumers. We’ve learnt from the pandemic and the war, when there’s a market disruption, then we are lost and naked.”

The commission’s response has been to introduce a Net Zero Industry Act designed to boost the manufacture of “strategic” technologies, including solar and other renewable energy infrastructure, on home turf. The law, proposed last week, states that the EU should have enough clean energy manufacturing capacity to meet at least 40 per cent of its generation needs.

But the continent produces less than half of that at present, and there are already warnings that the proposals are unrealistic. “We can’t scale quickly enough to meet European demand,” says Steven Xuereb, director of solar quality assurance company PI Photovoltaik-Institut Berlin. “Everyone’s excited about the new [Enel] plant in Sicily, which will produce 3GW. The Chinese giants are announcing new 20GW factories.”

European solar companies say that more funding needs to be available to bring the industry up to that level. They also say that measures in the proposed act, to prioritise local production in public procurement contracts and for consumer subsidies, could increase costs to a degree that affects take-up.

“If badly designed, the NZIA risks sending the sector back 20 years,” says Kareen Boutonnat, ​​chief executive for Europe and Asia Pacific at Lightsource bp, one of the region’s largest solar developers. “No one is interested in costly renewables.”

The solar factory of the world

The EU’s conundrum has some historical irony to it. Europe was once the world’s largest solar power manufacturer, producing 30 per cent of all photovoltaic panels in 2007. But a big industrial policy push caused Chinese production to increase and prices to decline, just as Europe was suffering the after-effects of the 2008 financial crash.

In 2012, the European Commission launched an anti-dumping investigation into Chinese solar panel imports; the following year, it imposed an almost 50 per cent duty on those imports.

That decision pitched the EU into its biggest trade dispute with China yet. Beijing threatened retaliatory tariffs on wine and luxury cars. The European Commission climbed down from its initial proposals, instead agreeing a price floor on solar panels with Beijing, to the dissatisfaction of the European solar manufacturer lobby. The price floor was later dropped in 2018.

The 2012-13 trade tussle revealed elements of Europe-China tension that remain today. Member states were divided over the commission’s proposal, not wishing to risk their own trading relationship with China, while also benefiting from cheap solar panels that took the pressure off their own green-energy subsidies.

Policymakers “were up against the level of planned industrial strategy from the Chinese . . . and were not necessarily giving European production enough to block the Chinese out,” says Dries Acke, policy director at SolarPower Europe.

The result was the emergence of China as the undisputed world leader in solar-power technology. Since 2011, the country has invested over $50bn in new solar panel manufacturing capacity, 10 times more than Europe, according to the International Energy Agency.

This capacity growth has led to the cheap prices that enabled Europe’s record-breaking solar installations. According to the IEA, although Europe imported an unprecedented 26GW of photovoltaic modules in 2021, the bill was just a third the cost of 2010, when it imported only 15GW.

Dependence on Xinjiang

Businesses and governments in Europe are already concerned about the risks of over-reliance not only on a single country, but on a small number of very large producers within it. A series of explosions in 2020 at a major polysilicon plant in China run by GCL-Poly Energy removed about 10 per cent of global supply and pushed prices up by 50 per cent.

There are also serious ethical questions surrounding China’s production of polysilicon, the main raw material for solar panels. About two-fifths of global production is concentrated in Xinjiang, the northwestern region where the government has orchestrated a vast crackdown on Uyghur and other Muslim residents. Journalists and researchers using satellite imagery and interviews with released detainees have documented the co-location of various factories inside detention centres, where prisoners are forced to work.

While Beijing says its policies in Xinjiang are to counter terrorism and promote development, the high levels of coercion in its policies to “assimilate” Uyghur Muslims mean that it is difficult to disentangle forced labour programmes from voluntary ones. Research from Laura Murphy at the University of Sheffield has also found that at least two major solar companies, Xinjiang Hoshine and JinkoSolar, have plants in industrial parks that also house prisons or internment camps. Neither company responded to an emailed request for comment.

In 2022 the US started blocking imports containing content made in Xinjiang, despite criticism from solar-panel installation companies. Two policies are working their way through the European parliament that could lead to obstacles for solar panel imports from China: the corporate sustainability due diligence directive and the forced labour regulation. Both will require agreement between the parliament and the EU’s 27 member states.

Glucksmann, who is responsible for drafting one of the European parliament’s positions on the forced labour regulation, proposes an approach similar to the one favoured by Maria Manuel Leitão Marques, a Portuguese lawmaker leading the negotiations on the file. It involves companies operating in high-risk industries and areas having to prove that their products are not made using poor working conditions — a mirroring of the US “presumption of denial” model for Xinjiang imports.

Activist groups under the umbrella of the Coalition to End Forced Labour in the Uyghur Region are also bringing lawsuits in countries such as the UK and Ireland to block imports from Xinjiang.

Many Chinese solar panel companies have already been moving their polysilicon supply from Xinjiang to Inner Mongolia, in anticipation of last year’s US import blocks. Astronergy, a solar-panel maker, opened a factory in Thailand specifically for US customers, using polysilicon made by Wacker Chemie in Germany.

Gunter Erfurt, chief executive of Swiss solar technology manufacturer Meyer Burger, says smaller companies in the solar supply chain fear that the forthcoming EU rules “might block supply and not do enough to ensure alternative resources are being provided”.

China’s own government is also starting to limit the export of some technologies used in the production of the wafers that form the basis of solar cells, echoing the use of trade blacklists used by the US to cut China off from developing a domestic semiconductor industry.

Rebecca Arcesati, an analyst on China-Europe innovation at think-tank Merics, says Beijing’s proposals to restrict technology transfer were a “counter” to the US and EU’s attempts to build alternative clean-tech supply chains.

“Like the US, China wants to be able to defend and weaponise the tech chokepoints it controls,” she says.

Europe’s chokepoints

But even as potential restrictions on supplies from China loom, formidable obstacles stand before Europe’s plans for greater self-sufficiency in solar technology.

One of Europe’s main bottlenecks in the supply chain is the production of the silicon ingots and wafers that are used in the manufacture of solar cells, says Johannes Bernreuter, founder of polysilicon market research firm Bernreuter Research. Two such production plants remain in Norway, run by Norsun and Norwegian Crystal.

Erfurt, of Meyer Burger, describes the Norwegian producers as the “two last men standing”, while Bernreuter adds that so long as their output remains at about 1GW or less each year there is little incentive for their upstream polysilicon suppliers such as Germany’s Wacker Chemie to expand their output. Wacker, the only European polysilicon producer of any scale, is already concentrating more on producing silicon for the semiconductor industry.

Not only do Chinese companies dominate world polysilicon production, the country has also become a world leader in the technology that turns the raw material into ingots and wafers. “The European equipment manufacturers retreated from the solar market because the Chinese ones were more cost-effective,” says Bernreuter. “If they have to come back on the scene, it would be a major hurdle to provide competitive equipment.”

The question is how quickly the EU can create the new supply chains needed to achieve its renewable energy goals. Bringing Chinese companies onboard would speed the transition, industry players say.

Mario Kohle, chief executive of solar panel installer Enpal, says that the “Chinese manufacturing capacities are absolutely excellent and way ahead of western manufacturing capacities when it comes to solar and batteries”.

Another industry executive comments that “if we really want to be successful in re-establishing the value chain in Europe, we need China . . . Chinese companies should be welcome to invest in Europe.”

But they warn that energy costs will need to fall before that can happen. Polysilicon production and ingot fabrication are both energy-intensive and China’s industrial electricity prices are in the range of $60-80 per MWh excluding subsidies, according to the IEA. Even before Russia’s invasion of Ukraine sent European energy prices sharply higher, the average EU power price was $130 per MWh.

“We’re not going to invest billions [in Europe] if we don’t know we’re going to get competitive, predictable energy costs,” says a senior executive from a large European company in the solar supply chain.

The Breakthrough Institute, a California-based think-tank, says the carbon intensity of manufacturing in China, where electricity is mostly produced by burning coal, is a powerful argument for moving supply chains into more renewable-reliant regions in Europe.

But Seaver Wang, co-director of the institute’s Climate and Energy Program, says the continent will also need foreign partners. “Based on industrial experience and low energy costs, Scandinavia, the US, Canada, Korea and Malaysia could be promising regions for new polysilicon production.”

If there is demand for a European onshore supply chain, then there will be companies onshoring. The question is if people are willing to pay for it

Assembling solar cells and modules — a broader aim of the EU net zero legislation — is less energy-intensive and can be viable at smaller scales of investment. “With relatively modest public incentives you could probably place cell and module assembly anywhere,” says Wang.

Solving such sectoral co-ordination problems is the traditional role of industrial policy, which could also help drive the kind of vertical integration that has made the Chinese giants so competitive. But the EU would have to bridge large price gaps; European-assembled modules are about a third more expensive than Chinese ones.

“If there is demand for a European onshore supply chain, then there will be companies onshoring. The question is if people are willing to pay for it,” says a Europe-based executive of a Chinese solar company.

To meet its target of manufacturing 40 per cent of clean energy generation equipment within Europe, the commission has proposed measures to incentivise investment in clean tech industrial plants and allowed member states to disregard environmental protections when permitting certain facilities.

“We do not want a repetition of solar panels, where we invented them and then all the production went to China,” the EU’s Green Deal commissioner Frans Timmermans told journalists in Strasbourg last month.

But Xuereb, of the Photovoltaik-Institut, says the challenges and timescales of building supply infrastructure closer to home mean that the next 420GW of capacity, which the EU aims to install by 2030, “will primarily come from China”.

Jan Krueger, partner and managing director at Pelion, a Munich-based start-up financing green investments, complains that Europe is “lacking implementation speed” and that the approval process for renewable energy subsidies is very slow.

“There’s more than enough capital, there’s commitment from industry and investors,” he says. Now it’s up to the EU to incentivise this re-industrialisation.”

Data visualisation by Keith Fray