[SMM Analysis] Europe and the United States are determined to support local manufacturing this year

In addition to China, Europe and the United States are the other two largest photovoltaic markets in the world. The high growth rate of their photovoltaic installed capacity deployment has not only promoted the increase in the proportion of global clean energy power generation, but also significantly boosted the import demand for Chinese modules. However, Europe and the United States successively introduced different policies in recent years, including subsidy policies to promote the transformation of renewable energy and the development of the photovoltaic industry, and trade barrier policies to support the manufacturing of local photovoltaic products, which are good or bad for Chinese photovoltaic companies.

Currently, the “most threatening” factors for Chinese photovoltaic companies are the strong support and trade barrier policies for local manufacturing in Europe and the United States, and the rapid growth of overseas production capacity, which may restrict the export of Chinese modules overseas.

【Europe】

In order to accelerate the achievement of renewable energy goals, the EU has successively launched the "European Green Deal" (Green Deal Industrial Plan) and the "Net Zero Industry Act" and "Critical Raw Materials Act" under its framework. .

The Net Zero Industry Act is one of the EU's policy measures to promote local photovoltaic manufacturing. In order to cope with the extremely high energy prices across Europe in 2022, in March 2023, the EU announced the "Net Zero Industry Act", setting a target for the EU's domestic clean energy technology manufacturing: 40% of the EU's clean energy technology will be manufactured in the EU in 2030.

On February 6, 2024, the European Council and the European Parliament reached a provisional agreement on NZIA, which aims to promote the industrial deployment of net-zero technologies needed by the EU to achieve climate goals and strengthen the EU's advantages in industrial green technologies. Two EU institutions now decided to formulate new public bidding rules to support market access for local European photovoltaic manufacturers. The interim agreement includes improvements in streamlining construction permitting rules, creating net-zero industrial valleys, and clarifying public procurement and auction criteria.

Under NZIA, when member states design renewable energy technology deployment auctions, they will be able to apply price-independent pre-qualification and award criteria, such as environmental sustainability, contribution to innovation or integration of energy systems. These standards must apply to at least 30% of the annual renewable energy tender volume in each Member State exceeding 6 GW.

NZIA also regulates the procurement of goods related to strategic net-zero technologies, including photovoltaic modules, and EU member states can only purchase 50% from a single country each year to ensure that technology diversification is provided to the EU and flexibility is guaranteed.

In order to promote the layout and construction of the project, NZIA has also optimized the rapid permit granting process. Permits for projects to build or expand large-scale net-zero technology manufacturing capacity exceeding 1GW will be issued for up to 18 months. Projects with less than 1GW of capacity will be issued licenses for a period of 12 months, while strategic projects will a shorter period.

Europe's determination to support local photovoltaic manufacturing in 2024 has been highlighted. However, Europe has temporarily not considered the establishment of trade barriers. Although the European Solar Manufacturing Council (ESMC) has previously continued to call on the European Commission to provide rapid support in order to alleviate the severe situation faced by European manufacturers, hoping to protect European photovoltaic manufacturers from "dumping damage." But the European solar industry emphatically rejects tariffs or trade barriers as appropriate solutions to the current situation, arguing that incentives are a more effective approach than tariff sanctions. The European solar industry warns that imposing tariffs on imported products may interrupt the supply of Chinese photovoltaic module products, which will seriously damage Europe's clean energy deployment capabilities, leading to a "lose-lose" situation.

Regarding the resumption of tariffs, manufacturers in the European photovoltaic industry are more supportive of the government's measures, while installers are worried about module supply and are opposed.

Given that Europe currently relies heavily on imports to meet EU PV deployment targets, affordable PV modules are both key to the EU's energy transition goals, so the use of trade measures must be weighed against the goals set by the EU in terms of energy transition. According to SMM, more than 50% of China's module exports are currently shipped to Europe, and more than 90% of Europe's photovoltaic module demand comes from Chinese imports. Europe is highly dependent on the supply of Chinese modules. In the short to medium term, Europe's dependence on Chinese modules will not change easily amid uncertainty over whether tariffs will be restarted. Especially as the European Union once again raises its renewable energy goals, the demand for photovoltaics in EU countries will also increase again. Therefore, with open policies, Chinese photovoltaic products can continue to go overseas smoothly.

Since 2011, trade barriers such as anti-double tariffs, 201, 301, WRO+UFLPA for polysilicon, and anti-circumvention investigations in Southeast Asia been set up.

The United States began to impose 201 and 301 tariffs on Chinese photovoltaic companies in 2018, prompting Chinese photovoltaic companies to start building production bases in Southeast Asia. In 2021, U.S. photovoltaic companies begun to propose that Chinese companies that produce cells and modules in Southeast Asia also collect taxes based on anti-double and anti-dumping policies. In June 2022, U.S. President Biden proposed to grant tariff exemptions to photovoltaic modules from four Southeast Asian countries (Malaysia, Thailand, Vietnam and Cambodia). The exemption period would be 24 months until June 2024. The U.S.’s tariff policies surrounding the four Southeast Asian countries are actually aimed at China.

Domestic component manufacturers in the United States been opposed to the two-year U.S. tariff exemption order. On the contrary, local U.S. photovoltaic project developers and contractors supported the suspension of tariffs. However, the exemption period for bilateral counter-tariffs is expected to officially end in June 2024, and US President Biden has previously stated that he does not intend to continue to extend the exemption period.

SMM believes that during the current tariff exemption period, Chinese component companies with production bases in Southeast Asia are direct beneficiaries, including Trina, Longi, JA Solar, Jinko and other Chinese companies with a component production capacity of approximately 50GW in Southeast Asia. After the exemption period ends in June 2024, the final rule clearly stipulates that modules imported into the United States must be used and installed within 180 days. The products will only be sold to a specific project party, stored in warehouses, and transported to the project site. deemed used, otherwise the product will not be exempt from taxation. Therefore, due to the influence of the rules, it will be more difficult to stock up in large quantities after the exemption period. It is expected that in the first half of 2024, it will be difficult for U.S. dealers and others to see significant growth in import demand for modules. Southeast Asian manufacturers need to actively adjust their supply chains to ensure that their products can avoid risks after the exemption period expires.