Can Europe catch up in the PV capacity expansion game?

Share on facebook
Facebook
Share on twitter
Twitter
Share on linkedin
LinkedIn
Share on reddit
Reddit
Share on email
Email

Lesson learned from the third quarter earnings season: Big Chinese manufacturers are back in expansion mode, some are even investigating off-shoring options but Europe is overlooked. This is surprising as end-market installations in Europe should reach a trough in 2015 and start growing again, though at much more moderate rates than before. Here, Southeast European (SEE) markets are leading the pack in terms of growth and could also surprise in terms of volumes, should decade-old fossil fuel burners be replaced by renewable energy generation capacities.

Promising local and regional end markets are a precondition for investors to start due diligence on a local manufacturing plant or offshore location. In addition, tapping into markets where access is limited due to trade constraints is an additional sweetener for the investment case. As most SEE markets are part of the European Union and trade between member states is basically frictionless, these locations could easily be used as a hub to circumvent trade barriers and to gain a competitive edge against most Asian sites. In that respect SEE scores fairly well. So what’s holding investors back?

Capital is shy, especially when it comes to the predictability – or better, the unpredictability – of discretionary changes in the institutional surroundings under which investment decisions take place. Drastic, volatile and erratic modifications to the regulatory regime for renewable energy power plants have been a hallmark of many SEE countries. This is reflected by the peaking of the relative share of PV installations in SEE markets during 2012/13. In such a climate foolhardiness or a specific strategic consideration is needed to make investment commitments with multi-year payback periods.

Labour costs not a deal breaker

The extent to which shifts in an individual market’s regulatory environment erodes the propensity to invest is therefore a question of the operator model. Incumbents that strive to develop international markets from an offshore production hub are certainly less affected than the entrepreneur, who naturally wants to proceed on the learning curve with the backing of a steady-state domestic demand.

Labour cost differentials between Southeast Asia and Europe, or more specific SEE countries, certainly play a role in the location search, but not to the extent that often springs to mind when reading alarming bits and pieces of news on the apparent deterioration of the industrial basis in Europe.

A simple comparison of labour costs in countries that either produce or will manufacture PV modules in the near future with exemplary locations in SEE reveals that the absolute differential in hourly wages excluding nuances in labour productivity cannot be a game-changer, at least not on a stand-alone basis. Strikingly, the absolute difference between South Korea and Hungary is greater than the difference between Hungary and China. So, did Hanwha SolarOne’s decision makers fall victim to a home bias when they decided to ramp a new module fab in South-Korea? Certainly not!

The false mental preoccupation with labour as a determining cost driver becomes evident when looking at a high-level cost breakdown (Figures 4 & 5). The relative breakdown for all-in unit costs is based on a large-scale, integrated, high-efficiency PV multi-module downstream cluster. It’s basically an all-else equal analysis that shows the difference between high- and low-labour cost locations.

This back-of-envelope comparison reveals that no matter how you turn it, materials and capital investments are the biggest levers that ultimately determine the competitiveness. Sure, proponents of the low-labour cost argument will hold against this that the labour factor, no matter how small it is, has the potential to tip the scale in an industry that is operating on razor-slim margins. In reality, however, there are many more levers that can, should be and are utilised in order to counterbalance slight ‘disadvantages’ in labour costs – of which the most important are technology and location-specific incentive packages. 

SEE advantages

So, why is it that SEE nations do not play a more active role in one of the key growth industries of the 21st century? It seems evident that more collaboration between public decision bodies, industry associations, research institutes and the private sector is needed in order to develop a broad industrial development roadmap. The state that first initiates a dedicated master         -plan is likely to make a significant leap forward and benefit from ‘first-mover advantages’. Such a yardstick can really make a difference, independent of the favoured operator model, to the creation of a nucleus from which a prospering PV industry is built.

One of the biggest advantages that many SEE nations enjoy is preferred access to the European Regional Development Fund that has allotted €182 billion (US$225 billion) for people and industry development measures, in priority areas such as “Research & Innovation”, “Competitiveness of SMEs” and “Low-carbon economy” for lesser developed regional economies within the EU. These funds could be used for industry-specific infrastructure investments and therefore turn out to be a significant building block in a broader incentive package for the creation of a local PV industry.

So, Europe’s bad reputation as a location for PV production is certainly not in balance with what it actually has on the bargaining table. It has a market which is partially shielded against tough Chinese competition, a promising overall end-market size, cluster benefits from leading equipment manufacturers, renowned PV research institutes and tier-one feedstock suppliers, as well as a good labour skill-set with varying degrees of compensations levels.

Last but not least, the European cohesion fund offers local governments capital that could be deployed in a broader PV-related incentive package. It only takes one to buy into this pitch to get the ball rolling.

Europe PV manufacturing. The bulk of the solar manufacturing expansions so far announced have been in Asia and the US, but Europe also offer many opportunities for equipment suppliers. Image: aleo solar.
Europe PV installation forecast with SEE share. Source: Viridis.iQ.
Southeast European countries. Source: Viridis.iQ
Hourly compensation costs in manufacturing (US$) in 2012; China based on 2010. Source: US Bureau of Labour Statistics, Viridis.iQ GmbH.
High labour-cost location. source: Viridis.iQ estimates.
Low labour-cost location. Source: Viridis.iQ estimates.
26 January 2022
Join this free webinar for our analysis of the growth of N-Type technology including; new capacity expansions and production output. We'll also be looking at the global manufacturing footprint with forecasts on how much product will be made outside of China this year and which companies are driving technology change across the crystalline silicon value chain.
23 February 2022
Held annually since 2016, the Energy Storage Summit Europe is the place to be for senior stakeholders in the European storage industry. Designed to accelerate deployment of storage, we examine evolving chemistries, business models, project design, revenue stacks and use cases for storage. The 2022 edition will include exclusive content around longer duration solutions, energy strategies for wide-scale deployment of EVs and "EnTech", the event which sits at the intersection of digitisation, decentralisation and decarbonation of the power system. Come to meet TSOs, DSOs, Utilities, Developers, Investors and Lenders and leave with new contacts, partners and a wealth of information.
7 March 2022
Take your chance to join the most powerful platform in the MENA region. Middle East Energy (MEE), Intersolar, and ees, the leading energy exhibitions are joining hands to co-deliver an outstanding renewables and energy storage event at Middle East Energy 2021. Renewables and energy storage at MEE is the largest gathering of solar and renewable energy industry professionals in the Middle East & Africa, offering the most effective trade focused platform to international manufacturers and distributors looking to meet regional buyers.
8 March 2022
As Solar Finance & Investment enters its ninth year, we sit on the cusp of a new power market with solar at its heart. The 2022 edition of the event will build on our years of expertise and relationships to bring investors and lenders together with top developers. Connect with leaders in the field and use exclusive insights to drive investment and development decisions for the future. Meet new and existing project partners at the largest gathering of European solar investors and lenders.
23 March 2022
When it comes to storage, the US market exceeded a gigawatt of advanced energy storage installations (weighted towards lithium ion) at 1.46 GW, more than the previous six years in total! An exponential growth rate could see the market hit 7.5 GW p.a. by 2025. The summit will provide a wealth of content around this vital piece in the US power puzzle, with sessions dedicated to explore how companies are making money from batteries, the latest chemistries and their applications as they apply to different use-cases. We ask how investors can match ESG criteria to batteries and we will bring case studies of successful deployment and project execution onto the stage to examine how you can ensure your own projects are successful.
29 March 2022
Now in its 10th sell-out year, Large Scale Solar returns to Lisbon in 2022. We are excited to gather together face-to-face with the European solar industry as we provide unique and exclusive access to a powerful selection of the market's key stakeholders. Join this elite summit to find out how the market is maturing, which new markets are becoming more exciting, how technology is evolving and who's driving the market forward into the 2020s. Always senior, packed with developers, EPCs, utilities and investors this is the event for companies serious about European solar PV.

Read Next

January 25, 2022
Regulators in Nevada have paved the way for two solar-storage hybrid projects to replace a legacy coal power plant in the US state, approving their sale to utility NV Energy.
January 25, 2022
The Czech Republic’s largest utility, ČEZ Group, should scale up its domestic solar PV portfolio over the next decade instead of pursuing new nuclear power plants, the Institute for Energy Economics and Financial Analysis (IEEFA) has said.
January 25, 2022
SK Ecoplant, part of the South Korean conglomerate SK Group, has signed a US$200 million joint venture (JV) agreement with Vietnamese rooftop specialists Nami Solar for the development of 250MW of rooftop solar in Vietnam over the next four years.
PV Tech Premium
January 25, 2022
European solar power purchase agreement (PPA) prices can be expected to level off this year following a turbulent end to 2021 as the market undergoes a shift in the balance of power to the seller side.
January 25, 2022
Indian PV encapsulant and backsheet manufacturer RenewSys has brought its encapsulant production capacity up to 3GW with the commissioning of a new line in Bengaluru, India, with the company eventually targeting 11GW of capacity through a “phased manner”.
January 25, 2022
A consortium including Saudi solar developer ACWA Power has inaugurated the 500MW Ibri 2 solar project in Oman, which becomes the country’s largest utility-scale solar project to date.  

Subscribe to Newsletter

Upcoming Events

Upcoming Webinars
January 26, 2022
Free Webinar
Solar Media Events
February 23, 2022
London, UK
Solar Media Events
March 8, 2022
London, UK
Solar Media Events
March 23, 2022
Austin, Texas, USA
Solar Media Events
March 29, 2022
Lisbon, Portugal