Can the solar industry keep the lights on?

Founded in Dresden in the early 1990s, Germany’s Solarwatt quickly became an emblem of Europe’s renewable energy ambitions and bold plan to build a solar power industry.

Its opening of a new solar panel plant in Dresden in late 2021 was hailed as a small victory in the battle to wrestle market share from the Chinese groups that have historically supplied the bulk of panels used in Europe.

Now, Solarwatt is preparing to halt production at the plant and shift that work to China.

“It is a big pity for our employees, but from an economic point of view we could not do otherwise,” said Peter Bachmann, the company’s chief product officer.

Solarwatt is not alone. A global supply glut has pummelled solar panel prices over the past two years, leaving swaths of Europe’s manufacturers unprofitable, threatening US President Joe Biden’s ambition to turn America into a renewable energy force and even ricocheting back on the Chinese companies that dominate the global market.

“We are in a crisis,” said Johan Lindahl, secretary-general of the European Solar Manufacturing Council, the European industry’s trade body.

Yet as companies in Europe, the US, and China cut jobs, delay projects, and mothball facilities, an abundance of cheap solar panels has delivered one significant upside—consumers and businesses are installing them in ever greater numbers.

Electricity generated from solar power is expected to surpass that of wind and nuclear by 2028, according to the International Energy Agency.

The picture underlines the quandary confronting governments that have pledged to decarbonise their economies, but will find doing so harder unless the historic shift from fossil fuels is both affordable for the public and creates new jobs.

Governments face a “delicate and difficult balancing act,” said Michael Parr, director of trade group Ultra Low Carbon Solar Alliance. They must “maximize renewables deployment and carbon reductions, bolster domestic manufacturing sectors, keep energy prices low, and ensure energy security.”

The industry, which spans wafer, cell, and panel manufacturers, as well as companies that install panels, employed more than 800,000 people in Europe at the end of last year, according to SolarPower Europe. In the US almost 265,000 work in the sector, figures from the Interstate Renewable Energy Council show.

“There is overcapacity in every segment, starting with polysilicon and finishing with the module,” said Yana Hryshko, head of global solar supply chain research at the consultancy Wood Mackenzie.

According to BloombergNEF, panel prices have plunged more than 60 percent since July 2022. The scale of the damage inflicted has sparked calls for Brussels to protect European companies from what the industry says are state-subsidized Chinese products.

Europe’s solar panel manufacturing capacity has collapsed by about half to 3 gigawatts since November as companies have failed, mothballed facilities, or shifted production abroad, the European Solar Manufacturing Council estimates. In rough terms, a gigawatt can potentially supply electricity for 1mn homes.

The hollowing out comes as the EU is banking on solar power playing a major role in the bloc meeting its target of generating 45 percent of its energy from renewable sources by 2030. In the US, the Biden administration has set a target of achieving a 100 percent carbon pollution-free electricity grid by 2035.

Climate change is a global challenge, but executives said the solar industry’s predicament exposed how attempts to address it can quickly fracture along national and regional lines.

“There’s trade policy and then there’s climate policy, and they aren’t in sync,” said Andres Gluski, chief executive of AES, one of the world’s biggest developers of clean energy. “That’s a problem.”

Brussels has so far resisted demands to impose tariffs. It first levied them in 2012 but reversed that in 2018, partly in what proved a successful attempt to quicken the uptake of solar. Chinese imports now account for the lion’s share of Europe’s solar panels.

In May, the European Commission introduced the Net Zero Industry Act, legislation aimed at bolstering the bloc’s clean energy industries by cutting red tape and promoting a regional supply chain.

But Gunter Erfurt, chief executive of Switzerland-based Meyer Burger, the country’s largest solar panel maker, is skeptical it will be enough.

“You need to create a level playing field,” he said. Meyer Burger would benefit if the EU imposed tariffs because it has operations in Germany.

Having begun in watchmaking, Meyer Burger shifted into the solar industry in 1983. Faced with widening losses, the group earlier this year announced it would shut a panel factory in the German city of Freiberg.

Instead, it set its sights on expanding production in the US, where the Inflation Reduction Act has offered subsidies and incentives as the Biden administration has sought to accelerate the growth of a clean energy industry.

The IRA has spurred almost $13 billion of investment in solar manufacturing, more than six times the amount committed in the five years before the legislation, according to the Clean Economy Tracker and an FT analysis.

“I think smart decisions have been made in the US in regards to having understood this is the new oil,” said Erfurt. “Solar will by far dominate the new energy system.”

But Meyer Burger’s ambition has become a casualty of the collapse in prices, with the company delaying plans for a 2GW solar cell facility in Colorado Springs.

“We simply cannot expand even further into the United States with market conditions like this,” Ardes Johnson, head of Meyer Burger America, told a US International Trade Commission hearing in May.

Others are also retreating. Heliene, a Canadian manufacturer, this year pushed back plans to add new production for both cells and panels. A Bill Gates-backed Cubic PV scrapped a proposal to build a 10GW solar factory in February in the US, citing a “dramatic collapse” in prices.

As some companies freeze plans, the Biden administration has responded.

In May, it removed a tariff exemption for double-sided panels and lifted levies on Chinese imports of solar cells from 25 percent to 50 percent. Chinese companies now also face penalties if they are found to have dodged tariffs.

US imports of Chinese polysilicon for solar panels had already been hit by a 2021 ban on products made or sourced from China’s Xinjiang because of concerns over the use of forced labor.

Nevertheless, America’s solar power companies warn that the steps taken by the Biden administration this year will fail to provide enough protection.

In April, a coalition of manufacturers including First Solar, QCells and Meyer Burger filed a petition to the US International Trade Commission calling for new tariffs on imports of solar cells. They accuse Chinese solar companies of dumping cells in southeast Asia, the source of the bulk of US imports.

A solar panel manufactured in America, including IRA subsidies, using US-made cells costs 18.5 cents a watt, compared with 15.6 cents for a panel sourced in southeast Asia and just over 10 cents for one produced in China, according to estimates from BloombergNEF.

The possibility of victory for Donald Trump in the US presidential election has also cast a shadow over the fledgling industry. At a recent rally, Trump vowed to impose an “immediate moratorium” on “Joe Biden mammoth Socialist bills like the so-called Inflation Reduction Act.”

With the European and US industries under pressure, a key uncertainty is whether China’s companies will stomach the current level of prices or scale back production to shore up their own finances. In March, China’s Longi, the world’s biggest solar company, cut 5 percent of its 80,000-strong workforce.

“Chinese manufacturers are also struggling in the current low pricing environment,” said Marius Bakke, senior analyst at consultancy Rystad Energy.

Hryshko at Wood Mackenzie reckons that about 70 Chinese manufacturers have already reined in expansion plans, but cautions that others are pressing ahead.

Some “manufacturers are convinced they can make it,” she said, suggesting those in China may “know something we don’t” about plans for state support.

As Solarwatt prepares to outsource operations to China it has kept some machinery in Dresden, refusing to abandon hope that production may one day restart at the plant.

According to Bachmann, its fate ultimately lies with politicians.

“They need to decide if we want to be completely dependent on Asia or if we want to be resilient at least for a certain percentage,” he said. “This decision needs to be taken.”

Additional reporting by Alice Hancock in Brussels and Wenjie Ding in Beijing.