Europe can trade one energy dependency for another

The European Union runs the risk of moving from one energy dependency to another. The bloc wants to drastically reduce imports of fossil fuels from Russia. Increasing the use of renewable sources, as the European Commission suggested in its REPowerEU plan in March, would help. However, with China dominating the global supply chain for solar panels, Europe will have to beef up domestic manufacturing to achieve its energy freedom.

The boost to solar power would reduce Europe’s need for Russian oil and gas, while helping to meet its clean energy ambitions. Harnessing the sun’s energy is getting cheaper. Between 2009 and 2018 the installation costs of a photovoltaic plant were reduced by 75%, according to the Commission.

The EU wants to triple its production of solar and wind energy. That would be enough to replace 170 billion cubic meters of annual gas consumption by 2030, more than the EU currently imports from Russia. Almost half of that amount would be obtained by installing 420 gigawatts of solar capacity.

However, there is a catch. A solar panel requires cells that transform the sun’s rays into electricity. They are usually made from purified silicon, called polysilicon, which is cut into thin discs called wafers that are then assembled to make cells. Most of this activity is currently taking place in China. The People’s Republic controls 77% of polysilicon production, 98% of wafers, 83% of solar cells and 75% of the assembly process, according to data from BloombergNEF.

Delivering on Europe’s PV ambitions will therefore benefit listed Chinese manufacturers such as Hoymiles Power Electronics and GoodWe Technologies. Solar batteries sold to the EU increased fourfold in the first quarter, according to data from Chinese customs. The danger is that, by reducing its dependence on Russia, the EU’s energy policy ends up at the mercy of Beijing.

To reduce the risk, Europe would have to make solar panels at home. The EU has signed a grant to co-finance Enel Green Power’s gigafactory, which will produce 3 gigawatts of high-efficiency panels a year by 2024. Bolstering European manufacturing to produce, say, 40 gigawatts a year would require an investment of between €30,000 and 40,000 million euros, according to industry estimates. Also, panels made in the EU would be more expensive. Still, the bloc’s Russian energy bill is currently €1bn a day. Energy independence is worth paying for.