Record-breaking energy prices in Europe are threatening the global solar and battery
industry, with manufacturing capacity facing a serious risk. The energy-intensive nature of
these manufacturing processes is leading some operators to temporarily close or abandon
production facilities as the cost of doing business escalates. Unless prices turn around soon,
Europe’s plans to cut dependence on imported fossil fuels by boosting installed renewable
generation capacity and electric vehicle (EV) usage could be derailed.
According to the latest estimates, 35 gigawatts (GW) of solar PV manufacturing and more than
2,000 gigawatt-hours (GWh) of battery cell manufacturing capacity could be mothballed
unless power prices quickly return to normal levels. And there appear to be little prospects for
price correcting in the immediate future.
European electricity prices have risen to unprecedented levels in recent weeks due to
unplanned nuclear and hydropower plant outages, soaring demand for cooling during an
oppressive summer heatwave, and reduced gas deliveries from Russia. According to energy
specialists Rystad Energy, daily average spot power prices in Germany – Europe’s leader in
solar and battery cell manufacturing capacity – have surpassed €600 per megawatt-hour
(MWh), while rates in France have topped €700 per MWh. During peak hours, European
power prices have spiked to €1,500 per MWh, unsustainable levels for consumers, including
the industrial sector. Although prices have retreated significantly since these record highs in
August, rates remain in the €300 to €400 range, many multiples above pre-energy crisis
norms.
In recent years, Europeans have benefited from reliable and affordable electricity. Low-
carbon manufacturers have also predicated their build-up of production capacity on stable
power prices of around €50 per MWh. With manufacturers in other regions, such as Asia,
enjoying lower electricity input tariffs, European producers are becoming increasingly
uncompetitive by comparison.
Although Europe’s solar manufacturing capacity is relatively modest on a global scale –
making up only 2 percent of total capacity – any shutdowns or abandoning of projects would
have significant long-term negative consequences. The European Union (EU) has targeted
20 GW of production capacity by 2025, and although 35 GW of projects is currently planned,
many have not secured funding, increasing the risk that these projects will fall through if high
power prices continue. With Europe expected to be short on gas for several years and high
electricity prices to continue as a result, attracting financing and investment for solar
manufacturing plants could prove challenging.
Battery cell manufacturing – crucial in the EV and battery storage supply chain – is even
more energy intensive than solar manufacturing, and Europe is a major global player. The
EU currently boasts about 550 GWh of capacity, representing 27 percent of global
operational capacity. Announced projects under development are set to boost that total
significantly, increasing capacity to 2.7 terawatt-hours, and positioning the EU as a global leader.
However, those are now at risk, and the car manufacturing and battery storage sectors could
struggle to source European-made batteries as a result.
Supply chain issues are dogging even the Indian solar and battery industries. Much of the
raw materials for the industry come from China, but due to supply chain constraints in the
wake of the pandemic, Chinese supplies have become more costly, along with the high cost
of transportation, with the result that the industry is struggling to meet the demand, which
mostly comes from abroad.
Manufacturers are mostly focused on export markets for the sale of solar PV cells and
modules at higher prices. Most new players have tie-ups with European and American
companies to prioritize exports. This leads to reduced supplies for the local market, which is
growing at a fast pace.
Funding has been a major constraint to the growth of the domestic industry. But new
investments into technology as well as manufacturing infrastructure are expected to usher in
a change in the next five to ten years. Major players such as Ambani, Adani, and Tata have
planned for $100 billion investments in the next ten years to build integrated solar
manufacturing plants, which should take the current capacity of 2GW for cells and 12 GW for
modules to 50 GW in the next five years. (IPA Service)