From Wind to Wheels: Europe’s Challenge in the Clean Tech Arena

About 15 years ago, I asked the founder of a Chinese solar company why they were moving so aggressively into solar production. "We have no choice but to dominate solar production going forward," was the reply. Today, China does dominate everything solar, with more than 75% of the 400 GW of global solar demand produced by Chinese companies and over 40% of global installations this year (180 GW) in China.

Meanwhile, in Europe and the United States, there's a growing awareness that solar, along with other key clean energy technologies like wind, batteries, heat-pumps, and power electronics, are not only vital for decarbonization but also for national security and economic prosperity. This situation prompts the question:

What should Europe do?

Currently, China leads in everything solar – from silicon to wafers, cells to modules. Global giants like Trina Solar, Longi, Tongwei, and JA Solar are all Chinese entities. Notably, there isn't a European producer in the top 10 solar module producers, with only the US company, First Solar, making the list. Furthermore, China houses the world's top battery producer (CATL), wind turbine manufacturer (Goldwind), and EV producer (BYD), holding strong positions across all clean energy value chains.

Inside China’s dominance

Why did this dominance emerge? Simply put, China saw a need to master these technologies. Recognizing their strategic vulnerability due to a reliance on coal and growing oil imports China seized the opportunity. Seeing the transformative shifts in global energy underway, China moved in a way similar to the US during the oil revolution in the early 20th century and Britain during the coal revolution a century before that. 

By collaborating with companies from Japan, Europe, and the US, China learned fast, then rapidly scaled and outpaced the competition. “The West,” mistakenly assuming its continuous innovation advantage, is now grappling with the reality that many Chinese companies are now global technology leaders.

The Chinese battery producer CATL, for instance, currently has 40% market share for global EV battery production and is first choice for Western automobile manufacturers such as BMW, Daimler, and Tesla. The company spends over $2 billion each year on R&D. In PV the story is similar. Jinko Solar, spent $105 million on R&D last year, has over 1,400 patents, and is leading the commercialisation of high efficiency n-type TOPCon solar cells. 

The response

 So, what's the next move? The US, amidst its escalating trade war with China, has implemented tariffs and trade barriers on Chinese solar products. Regulations such as the Inflation Reduction Act now incentivize domestic production of items ranging from solar panels to electric vehicles.

Consequently, international companies, including Chinese and European companies, are establishing production bases in the US. Meanwhile Europe is talking a lot about the need to support local industry and there are growing calls for tariffs on Chinese imports from solar panels to wind turbines to EVs. However, protectionist measures will not improve the global competitiveness of European players and it is also likely to inadvertently hamper international trade and exports, which form the backbone of European economies such as Germany and Italy.

A good case in point is the global wind industry which was for the last decade led by two European players Vestas and Siemens-Gamesa. The top player in the world is now China’s Goldwind with a whole host of other Chinese players in the top ten. This should not a be surprise as China is the biggest wind market in the world. The European wind market on the other hand is in a difficult situation, particularly onshore wind where planning and grid constraints are hampering new installations. Add to that poor management decisions around steel price hedging, delays around restructuring and product quality issues and you can understand why the large European turbine manufacturers have all generated losses in recent years. Imposing import tariffs on the Chinese turbine manufacturers may deter Chinese competition in Europe, but it won't ensure the competitiveness of European wind manufacturers globally.

The question that needs to be asked is how should we help European and American companies to better compete both domestically and internationally? And to that we need to compete against what China does well and that is scaling.

The bottom line is that in the Western world we are too slow to scale up production and are too risk adverse. The good news is that there are examples of Western companies that can do this. The one that comes to mind is Tesla. The company built an EV factory outside of Berlin in less than two years and are now ramping it up to make it the biggest car production plant in Europe. They were able to achieve this through their creativity in and around how to ignore and beat German bureaucracy.

The other important point is that China is the biggest market globally for everything from EVs to solar panels to mobile phones. That makes it much easier for the Chinese government to push incentives to enable the scaling up of Chinese production. This, for instance, is why Chinese EV producers dominate global production. This year there will be 14 million EVs sold across the world, of which 8 million will be sold in China. The US market in stark contrast will not be 2m. 

The Path Forward

The way to beat the Chinese approach is the Samsung way and that is More and Before. That means scaling quicker and bigger and to be ahead of the competition. This is what Samsung has done in TVs and monitors and is the way forward.

It also requires political leadership to set direction and to put in place the necessary environment for scaling to take place. That may mean putting incentives for deployment as well as providing financial support around necessary investments. It also needs Europe to bring together environmental, industrial, and geopolitical goals and for there to be much clearer co-ordination between European countries – all of whom are too small to compete if they go it alone. It also requires risk taking by governments, particularly where to invest and where not to, otherwise massive amounts of taxpayer capital will be wasted. 

Where to invest and where not to

 Wind is the first place to start as Europe has a strong wind industry which needs to be supported particularly on the market development side. The automobile industry also needs to be supported in the transition from internal combustion engine to electrification which is going to be very difficult for Europe, noting that the automobile industry is one of the biggest employers and exporters in Europe. The reality is that China leads electrification of vehicles and Europe needs to catchup. The way to do this is to have a co-ordinated approach across the whole industry and for companies and countries to co-pete with each other rather than just competing. It may make sense to put in place ‘local content rules’ to somewhat protect these industries and to drive investment, but the reality for both wind and automobiles the key is innovation.

Supporting the European solar industry, on the other hand, will be no easy matter. There is currently no solar manufacturer of any scale in Europe with a very weak supply chain and I don’t see a genuine pathway to competing with the Chinese. If it is considered strategically necessary, the way forward would be to go the route of Airbus with a cross-border coordinated strategy to ramping up production. Additionally, it would have to be around a new technology such as Oxford PV’s perovskite technology that is highly differentiated from what China is currently producing. Everything else will be futile and the risks of financial loss on any investments made enormous.

 There are other technologies such as heat pumps, transformers, power electronics and energy storage where there is a huge European growth opportunity and these areas need be nourished and supported and again when appropriate scale. If Europe does not take this approach, then all efforts around energy transition technologies will end in tears. What is more, we will delay the energy transition and make it more expensive for everyone while increasing the catastrophic risks of climate change.

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