How a trade war is boosting solar energy in Europe

When the US government announced its first round of tariffs on Chinese products in January 2018, solar cells and panels from China were hit with a 30% tariff. The January tariff was the first exchange in the trade war between China and the USA.  

While this is without doubt very bad news for the industries affected by tariffs in both countries, related sectors outside the USA and China are looking to benefit from the trade war, explains Obton’s Chief Project Officer, Bent Hansen.

- The tariffs have affected US demand for solar cells and panels, and many plans for large solar installation projects have undoubtedly been shelved. When a market the size of the USA slows down, it leaves a great deal of excess manufacturing capacity in Chinese and other Asian factories, says Bent Hansen. Furthermore, the Chinese government has cut back on government subsidies for domestic solar PV production, which has put a further brake on Chinese domestic demand for solar PV panels.

- The excess manufacturing capacity has resulted in falling module prices. Compared to December 2017, prices have fallen by as much as 30%, says Bent Hansen. He adds that the EU Commission recently decided to scrap its tariffs on Chinese solar panels – reducing the cost of solar PV projects in Europe even further.   

Unprecendentedly good conditions for solar

 - Prices for solar modules account for about 50% of a solar PV project’s total costs, so obviously these price drops are significant. Put simply, conditions for developing solar energy have rarely been better in Europe, says Bent Hansen. He adds that whereas solar PV panel prices are falling, the efficiency of the solar panels is continuing to improve. This means that countries are getting more solar energy for their money.

As far as European countries are concerned, this development must be particularly welcome. 

- President Macron recently announced a 45 GW solar target for France by 2030. To reach that target, France needs to install 4 GW of new solar capacity each year. The Netherlands is stepping up its efforts in similar fashion and aims to install 6-8 GW each year, says Bent Hansen. Poland, Hungary, Ireland, Spain and a number of other countries have also announced ambitious targets.

Clouds on the horizon

Obviously, prices for solar PV panels cannot be expected to drop indefinitely. With the low prices, demand will start to increase – resulting in prices becoming more stable. However, Bent Hansen sees another risk around continued solar energy development in Europe. 

- The current level of investment in solar energy is dependent on low interest rates. We have yet to see rising interest rates, but observers are predicting that rates may rise soon. Rising interest rates will obviously put a damper on the possibility of acquiring project financing, explains Bent Hansen. Solar PV projects are usually financed via so-called non-recourse finance, which is a loan where the lender only receives repayment from the project’s profits – and not from the assets of the borrower. 

But despite the risk of rising interest rates, Bent Hansen remains generally optimistic about the present conditions for solar energy in Europe:

- The International Energy Agency recently predicted that solar energy will overtake all energy forms but gas by 2040. And now is a great time for European governments to invest in solar energy as prices have never been lower, he says.