Will European Solar PV still maintain attractiveness to the capital market? Based on the situation of shrunken capacity and ambitious decarbonization goal

In the past few years, the European energy crisis has undoubtedly dealt a heavy blow to European industry. Natural gas has always been the main source of energy for European industry, however, the surge in energy prices by 6-10 times has led major industries to collectively consider "escaping." Generally speaking, once capacity shrinks, it is very difficult to restore it. For Europe, which has already suffered from unemployment and inflation, this is undoubtedly an old wound that has not healed, and has added new wounds. Revitalizing the solar manufacturing industry and building a safe, reliable, and affordable energy supply system has become one of the effective ways to revive European industry. However, high energy prices and financing costs have become key factors limiting the development of the EU's solar industry chain. The high production costs of European photovoltaic products, sales difficulties, inventory backlog, and shrinking capacity will all be survival issues that the domestic photovoltaic manufacturing industry must face before reaching a certain scale and making its products competitive in price.

From a fundamental perspective, the resistance to Europe's green transformation is actually increasing. A recent research report from the Bruegel, a European and global economic laboratory based in Brussels, Belgium, pointed out that as the 2024 European Parliament elections approach, more and more voices are hoping to slow down the green process. In addition to direct climate targets and energy policies, Europe needs to demonstrate the promotion of emission reduction on the development of innovation, industry, digitalization, and other areas.

The "Net Zero Industrial Act" is one of the laws most closely related to the transformation to green energy and photovoltaic power generation. However, in terms of subsidy details for supporting the development of domestic photovoltaic manufacturing, such as fund allocation and fund utilization, it is not as efficient as the US IRA policy. This has led to some photovoltaic manufacturing companies leaving Europe and instead expanding their operations in the United States. Although the capital market's preference for photovoltaic startups is still higher than other forms of renewable energy generation in the short term, whether photovoltaic manufacturing companies can continue to attract attention from the capital market in the long run remains to be seen.

European Energy Production and Consumption Structure

Transformation of European electricity structure: It is expected to fundamentally reduce costs and ensure a reliable and affordable energy supply by adjusting the power structure.

The EU's electricity structure is mainly based on traditional energy sources. In response to the global call for low-carbon and green transformation, the European Parliament has raised the target contribution of renewable energy installed capacity for EU countries in 2030 from 32% to 42.5%.

At present, wind power generation in Europe is twice that of solar power, with wind power accounting for 15.9% of the entire energy structure, while solar power accounts for only 8.6%. Europe has good solar photovoltaic resources, but generally poor conditions for concentrated development. The EU has set a target of reaching 750GW of installed capacity for photovoltaic power generation by 2030. However, as of the end of 2023, the cumulative installed capacity of photovoltaics in Europe has only reached 263GW, leaving nearly 500GW of installation targets to be completed. Based on this, SMM predicts that from 2024 to 2030, European countries need to ensure an annual addition of installed capacity of 100GW, with an annual growth rate exceeding 16%, in order to successfully achieve their installation targets.

Limiting factors for the development of the European photovoltaic manufacturing industry: high and persistent energy prices and high financing costs.

The energy crisis has sparked a boom in photovoltaic installations, with solar energy startups attracting favor from the capital market.

The consumer market is the core driver of the expansion of the photovoltaic market. In 2022, Europe experienced a severe energy crisis, with energy inflation rates reaching 40% at one point, leading to a significant increase in electricity prices. The average electricity price in countries such as Denmark, Germany, Belgium, and Spain exceeded 0.4 euros/kWh in 2022. European countries had to take measures to allocate special subsidies to households and businesses to reduce the social energy cost pressure. The rise in electricity prices prompted European consumers to consider solar energy, reducing household energy costs by installing photovoltaic systems. The capital market sensed an opportunity, triggering a small boom in investment in photovoltaic startups. The number of European solar energy startups is nearly six times that of startups focused on wind energy. According to authoritative statistics, from January to May 2023, total investment in European solar energy startups increased by 398% year-on-year, raising a total of $6 billion, reaching 83% of the total financing amount in 2022.

The accelerated grid connection of clean energy has led to temporary oversupply in electricity supply, resulting in negative electricity prices in several European power trading markets, dampening the enthusiasm of solar power generation companies.

On one hand, the persistently high energy prices have forced large-scale production shutdowns in European industries, including photovoltaic manufacturing companies. On the other hand, the high energy costs have led to a significant decrease in electricity demand. It is predicted that Europe's electricity demand in 2023 will decrease to the level of 2002, with a decrease of 3%. The surge in new energy generation has led to temporary oversupply in electricity supply, resulting in negative electricity prices in multiple European countries such as Germany, the Netherlands, and Denmark. Photovoltaic generation companies are unable to benefit from the price difference contract subsidies during periods of negative electricity prices, leading many photovoltaic power stations to choose to suspend power generation in order to reduce losses. In the future, continued significant fluctuations in electricity prices will become the norm. If photovoltaic companies are unable to address the issue of significant revenue fluctuations, it will undoubtedly affect their financing.

Driving factors for the development of the European photovoltaic manufacturing industry: Ambitious renewable energy development goals

Subsidies for the European photovoltaic manufacturing industry are aimed at reducing external dependencies in key areas and promoting the development of renewable energy. However, the short-term effectiveness of these subsidies still remains to be evaluated.

Since 2019, the European Union has been implementing a series of industrial policies in the photovoltaic manufacturing sector aimed at accelerating decarbonization. The "Net Zero Industry Act," "Critical Raw Materials Act," and "Electricity Market Design Reform" are the three key legislations of the EU's Green Deal industrial plan. The "Net Zero Industry Act" proposes to ensure that by 2030, 40% of the EU's required net-zero technology products will be manufactured domestically. This act is considered a strong response to the scale of the green subsidy program under the U.S. "Inflation Reduction Act." In November 2023, the content of the "Net Zero Industry Act" was further expanded, clarifying the domestic manufacturing targets.

However, the EU's excessive emphasis on administrative support, aiming to streamline the bureaucratic approval process for green industries, has led to controversy over insufficient stimulation within the EU. In comparison to the cash injections from the United States and China, the EU's financial support is far behind, and the source and utilization of funds will also determine the effectiveness of policies. The industrial policies of the United States mainly rely on additional financial support, and as long as they meet the relevant requirements, enterprises investing or operating in the United States can benefit from efficient tax relief. The U.S. "Inflation Reduction Act" has increased pressure on EU countries, and only by adopting more favorable financial support can they attract businesses to participate in the development of the domestic photovoltaic industry chain.

European Photovoltaic Tracking Installation Projects: The announced installation capacity reaches 40 gigawatts.

European Photovoltaic Tracker Market Space: Spain has the highest number of tracking projects under construction or already announced.

Combining the operational chart of photovoltaic trackers with the following figure, we can observe the following: Currently, 14% of the trackers are in operational status, with a capacity of approximately 37 gigawatts. 67% of the tracker projects are in the construction phase, totaling over 170 gigawatts. The announced future installation projects have a combined capacity exceeding 40 gigawatts.

The 27 EU countries collectively occupy 86% of the solar tracker market share, while the top ten countries with larger tracker market sizes account for 90% of the market share. Considering resource characteristics and development conditions, countries such as Spain, Greece, Portugal, and Italy have regions with concentrated land development conditions, providing ample space for the development of large-scale photovoltaic power station projects. Spain has the earliest start in the solar tracker market, with the highest number of tracking projects under construction or already announced.

Prospects for the European Solar Tracking Market Space

Forecast for the European Solar Tracker Market Size: Market space is expected to reach nearly 200 gigawatts from 2024 to 2030.

According to SMM's estimation based on existing projects and installation plans, the installed capacity of solar tracker in Europe is expected to maintain a compound annual growth rate of 10% from 2024 to 2030, with a market space approaching 200 gigawatts.

Competition Landscape in the European Solar Tracker Market: Increasing Activity of Overseas Enterprises

Spain is the primary market for solar trackers in Europe, accounting for over 73% of installed tracker capacity, with Spanish manufacturers deeply rooted in this field. As of 2023, the combined market share of PV Hardware and Soltec, two Spanish manufacturers, reached 41%.

However, with increasing investments and mergers and acquisitions by Chinese and American tracker companies in Europe, the market share of overseas tracker companies continues to rise, showing a trend of competing with local manufacturers. For example, by acquiring Spanish companies STI Norland and Nclave, Array Technologies and Trina Tracker have successfully entered the European PV tracker market.

Key Competition Factors In EU Solar Tracker Market

Business Layout: Photovoltaic tracking support solutions are typically customized products, so support companies need to customize them highly according to the specific environment of each project. In this regard, companies with mature local service and after-sales teams will be favored by customers. With the massive global installation scale, particularly in the US market, where there is overlap with the photovoltaic customer base in Europe, American support companies have a certain first-mover advantage.

Product Technology: The stability of tracking support products in adverse weather conditions and their reliability throughout the system's lifecycle are key indicators. European and American tracking support companies, due to their early start and high technical barriers, excel in stability, wind load testing, and ease of installation.

Supply Chain Management: Supply chain management involves various aspects such as raw material procurement, quality control of outsourced vendors, and business cooperation, directly affecting the efficiency and quality of product delivery. With the trend of localization development, strengthening local supply chain construction and optimizing global supply chains have become key tasks for business operations.

Summary

Market Outlook Uncertainty: European governments have formulated a series of policies and goals for climate change and renewable energy development, driving the growth of the photovoltaic industry, especially in the areas of large-scale photovoltaic power stations and distributed photovoltaic projects. However, the actual effects of European subsidy policies and uncertainties in new energy grid connection and end-user electricity demand pose risks, which will be important considerations for the expansion of domestic manufacturing capacity in the European photovoltaic industry.

High Installation Costs Resulting from Localization of the Photovoltaic Manufacturing Industry: Although there are currently no clear restrictions on the local production of solar tracker in EU countries, European manufacturers frequently implement anti-dumping measures against Chinese photovoltaic products, directly restricting the export of Chinese photovoltaic components to the EU. This has led to higher installation costs in the European market compared to the industry average, inevitably squeezing the profits of photovoltaic auxiliary materials, including solar tracker.

Intense Market Competition: The European solar tracker market faces intense competition, with many domestic and foreign manufacturers continuously engaging in price competition, product quality and performance, and service support. At the same time, due to higher requirements for sustainable development and environmental protection in the European market, factors such as the implementation of EU carbon tariffs and certification of the carbon footprint of support products will also pose market entry barriers for domestic and foreign support manufacturers.