Europe's economic suicide

Commentary from Arnaud Bertrand on Twitter:

This is an extremely good illustration of Europe’s economic suicide.

A mere 3 years ago (in May 2021), Swiss company Meyer Burger opened a state-of-the-art solar factory in Freiberg, Germany in order to “revitalize the solar industry in Europe”. It was the largest plant for the production of solar modules in Europe.

They’ve just announced they’re closing the place and relocating their factories to the U.S.

They blame competition from China for the plant’s failure, as well as a lack of protection by the EU for European industry. High German energy prices, as we’ll see, also undoubtedly played a huge role.

In any case, the end result is that Europe is losing its solar industry to the US’s benefit.

It is true that Chinese solar modules are way cheaper than European ones, but there’s a reason for this, and it ain’t “cheap labor” (Chinese salaries are now on par with many EU countries) or government subsidies (as this Bloomberg article makes clear, “there’s no evidence that such subsidies exist”: bloomberg.com/…/china-s-green-subsidies-are-not-r…) but because China has had a decade-old industrial strategy on solar, with investments that put the rest of the world to shame. For instance in 2022, China installed roughly as much solar capacity as the rest of the world combined, and then DOUBLED additional solar in 2023 (e360.yale.edu/features/china-renewable-energy)!

As a result of these massive investments, often done very strategically, China came to completely dominate key aspects of the solar supply chain. For instance, for wafers and cells respectively (essential components for the production of modules), China’s share of the global market is respectively 96.8% and 85.1% (iea.org/reports/…/executive-summary). Which means that a) China can produce cheaper since it has the entire supply chain at home and b) if Europe wants to compete effectively with China, they need to go through the same process of reproducing the entire supply chain at home. If they don’t, they need to buy some of the components from China which puts them at a disadvantage (which was undoubtedly the case of Meyer Burger’s German factory).

Energy prices also play a huge role in the final cost of solar panels. As the International Energy Agency highlights, “low-cost electricity is key for the competitiveness of the main pillars of the solar PV supply chain” (iea.org/reports/…/executive-summary) and “around 80% of the electricity involved in polysilicon production today is consumed in Chinese provinces at an average electricity price of around USD 75 per megawatt-hour (MWh)”. For comparison, in 2023 energy prices for industrial customers in Germany averaged 251.21 USD per megawatt-hour (MWh) (statista.com/…/electricity-prices-commercial-indu…): that’s an incredible 234.94% more expensive! No thanks to the EU’s suicidal policy wrt to sanctions on Russia…

And on top of that, “continuous innovation led by China has halved the emissions intensity of solar PV manufacturing since 2011” (iea.org/reports/…/executive-summary), which means that not only does China have raw electricity prices which are immensely cheaper than in Germany, but it’s innovated in such a way that it uses way less electricity in the production of its solar panels…

Anyhow we end up arriving at the immensely paradoxical situation where Germany cut itself off from its cheap Russian gas so it needs to compensate this with new energy sources, but in order to develop these new energy sources for itself, it needs cheap Russian gas. Catch 22.

So there you are, Europe in all its splendor. It could have been smart and done exactly what China did starting as early as 2004. China recognized - which everyone was already saying at the time - that green energy was going to be huge and decided to strategically invest in a massive way in order to have the entire supply chain at home for their massive market, and to be able to be competitive in the global market. Europe didn’t do that and now blames “Chinese cheap prices” for the failure of its late half-assed efforts, made in a context where they shot themselves in the foot wrt energy prices.

And worse of all, instead of trying to redress the situation, they give up, sending their solar industry over to America, who are doing their own efforts to develop in that regard (and who are also very, very late to the party). Just failure all around.

Absolutely stunning illustration of the fecklessness of Europe and its lack of strategic thinking. And what enrages me the most is that they prefer to blame others when it’s 100% their fault. Just wake up, start thinking and act, instead of becoming this self-pitying and blameshifting laughingstock of a continent!