Solar manufacturing challenge

The generous subsidies being offered by many countries for local manufacturing along the solar value chain may not quite lead to the expected outcome. In the US, for instance, incentives only partly offset higher production costs.
 

“Best-in-class modules from Southeast Asia will soon be irresistibly cheap for US developers. Only a handful of suppliers may end up making modules in the US as more factory plans are scrapped,” said Pol Lezcano, BloombergNEF’s lead US solar analyst.

Local manufacturing is being pushed through a combination of incentives for manufacturing and disincentives for imports. If the import price is low enough even after tariffs, neither lever works. The price equilibrium of a protected market also settles at a level higher than it would without protection — as is the case in the US.
 

For a nascent industry, a high initial cost can translate into a strategic competitive advantage in the long term as manufacturing volume picks up, as long as the product is not easily replicated. “That is unlikely to happen in the solar industry where the product is completely commoditised,” said Lezcano.

Europe has also been nudging local panel manufacturing. Swiss solar panel maker Meyer Burger cited deteriorating business climate in Europe as a reason to shift its focus to setting up manufacturing plants in the US, after announcing the closure of a manufacturing unit in Germany. “The module production at our Freiberg (Saxony) site in Germany was discontinued in mid-March 2024, which shall lead to significant cost savings from April. The solar cell production in Thalheim, Germany, will continue to support production ramp-up of US solar module manufacturing in Goodyear, Arizona, for the time being,” it wrote in a statement last month.

India’s decision to re-impose curbs on solar panel imports — after a series of policy turns in an attempt to promote made-in-India panels while also keeping solar power generation ultra-competitive — is positive for manufacturers but would mean higher prices for developers at a time when the global supply glut is pointing toward ever-lower prices.

The world’s largest manufacturers are vertically integrated and have gargantuan capacities. China’s JinkoSolar, for instance, shipped over 78 gigawatts in 2023. It expects this to increase to 100-110 gigawatts this year. That is more than the combined new-build forecast for the four largest markets after China — the US, India, Brazil and Germany. China could install more than 300 gigawatts this year.

The European Commission started a probe into a solar contract in Romania this week under its Foreign Subsidies Regulation — aimed at investigating the potentially market distortive role of foreign subsidies given to a bidder in a public procurement procedure.

“Solar panels have become strategically important for Europe: For our clean energy production, jobs in Europe, and security of supply,” Thierry Breton, the EU’s internal market commissioner, was quoted as saying by Bloomberg News. The investigations “aim to preserve Europe’s economic security and competitiveness,” he added.

Methane control
 

A few recent developments are set to ensure methane emissions are better monitored and controlled.

The energy sector — oil, natural gas and coal — is one of the main sources of global methane emissions attributable to human activity, the other being agriculture, according to the International Energy Agency. Two-thirds of the 120 million tonnes of estimated methane emissions from fossil fuels in 2023 came from 10 countries — the US, Russia, Iran, Turkmenistan, Venezuela, China, Algeria, Saudi Arabia, Canada and Iraq — the IEA said.
 

The emitters seem to be keen to act on limiting the emissions of this gas, which could trap as much as 80 times the heat of carbon dioxide over 20 years. More than 50 oil and gas companies pledged to limit their methane emissions by the end of the decade at COP28 in Dubai by signing the Oil and Gas Decarbonization Charter.
 

It has become easier to locate and measure methane emissions, such as through the MethaneSAT satellite. The International Methane Emissions Observatory, which is part of the United Nations universe, has had many wins since its launch at the G20 meeting in 2021. The World Bank’s Global Flaring and Methane Reduction Partnership is focused on developing countries. As many as 155 countries are now party to the Global Methane Pledge to reduce emissions, and this is being reflected in national policies. Companies like SLB, formerly Schlumberger, are seeing a lot more interest in their methane emission management solutions as a result.
 

There is need to be cautious, however. “The United Nations, its related bodies and satellites have supercharged the recent scrutiny from policymakers and investors. Whether this early interest will actually translate into lower methane emissions is far from certain,” said Ilhan Savut, BNEF’s head of upstream oil analysis.

The writer is a New York-based senior editor, global policy, for BloombergNEF; vgombar@bloomberg.net