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It’s nearly two years since the United States Congress passed the historic Inflation Reduction Act (IRA), with the country’s solar sector expected to be one of its biggest beneficiaries.
According to the U.S. Solar Energy Industries Association (SEIA), the IRA will drive an additional 160 gigawatts (GW) of solar capacity over the next 10 years and lead to over $565 billion in new investments.
But the IRA is beginning to have some unintended consequences: attracting struggling European solar firms to the U.S.
Back in February, Swiss solar module maker Meyer Burger announced plans to wind up panel production in Germany and set up shop in the United States thanks to stiff competition from Chinese-made panels as well as helpful policies and money incentives in the U.S.
Talks between the company and the German federal government to try to secure a future for the factory ended without success, forcing the company to close its plant in Freiberg in eastern Germany in mid-March, with an attendant loss of 500 jobs as well as a 10% reduction in European solar panel production.
The tough choice by Meyer Burger comes amid a tough market in Europe, thanks to the market being flooded with cheap, mainly Chinese, solar panels. The company has pointed out that, unlike manufacturers in the U.S. and China, European manufacturers are struggling with no strong government policies to support them.
“We made a bold move in the absence of any industry policy support in Europe and shifted a solar cell expansion project from Germany to the U.S.,” Erfurt told Reuters in an interview.
Meyer Burger CEO Gunter Erfurt has talked up the U.S. market, propped up by sweeteners such as the 45X is a production tax credit (PTC) under the IRA and maybe a loan from the U.S. Department of Energy. Further, the company expects additional support from the German government’s export agency.
The Swiss firm is also asking its shareholders for the green light to go ahead with a new share offering that could bring in as much as CHF 250 million ($284 million). If successful, the company will use the cash infusion to finish building its plants in Colorado and Arizona, each expected to pump out 2 GW of product every year.
Europe’s Dilemma
Meyer Burger is hardly an isolated case: at least 10 European solar companies have reported facing financial difficulties. Manufacturers in the continent have been pushing the European Union to take urgent action to protect the industry from the growing danger of going under.
Similarly, battery company Freyr which operates mostly in Norway, has stopped work at a half-finished plant near the Arctic Circle and plans to relocate to the U.S. and establish a plant in the state of Georgia. Back in February, Freyr announced it had changed its registration to the U.S. from Luxembourg.
“We did spend quite a bit of time trying to really make sure that we weren’t committing a mistake. We got to the point where we concluded that that form of policy level response was not forthcoming,” Birger Steen, chief executive of Freyr, has disclosed, adding that the company first hunted for support from the Norwegian government.
The unfolding situation poses a dilemma for European governments amid the continent’s booming clean energy sector: Either offer more support to local companies to ensure they remain competitive or allow cheaper imports to keep flowing in.
It’s a decision the continent’s energy chiefs will have to make in a hurry, with China’s rapidly expanding solar sector now accounting for 80% of the world’s solar manufacturing capacity. According to global energy research firm Wood Mackenzie, China solar panel manufacturers are able to produce panels at a cost of just 12 cents per watt of energy generated, compared with 30 cents in Europe. U.S. subsidies announced under the IRA allow some renewable energy manufacturers and project developers to claim tax credits. According to the U.S. Department of Energy, starting in 2023, awardees are eligible for an Investment Tax Credit (ITC) of 30% of qualifying investment if they satisfy the labor requirements issued by the Treasury Department for any labor associated with re-equipping, expansion, or establishment of the manufacturing facility.
That said, Europe has not always been that nonchalant with its struggling clean energy companies. In January, the EU approved almost $1 billion of German state aid for Northvolt, to help it set up a production plant in Germany after the Swedish battery producer threatened to relocate to the United States. That marked the first time the bloc made use of an exceptional measure allowing member countries to step in with such aid to prevent a domestic company taking its business elsewhere.
