How Germany Lost Its Solar Industry to China

the European Union will do whatever it takes to rebuild its solar industry a little more than a decade earlier in 2011 Germany was the world's largest producer and installer of solar panels companies like Q cells were driving Innovation and producing solar panels that Germans were buying up in droves but in 2023 almost every step of the solar industry supply chain is dominated by China's own solar giants like jinko Trina and yingli and the country has replaced Germany as the largest installer of solar panels and while this has been nothing short of an economic miracle for spreading solar technology and dealing with climate change it is nothing less than an economic failure by German industry and policy making it's a story of competition between two manufacturing Giants and how Germany single-handedly created and then lost control of an industry worth more than 200 billion euros annually so why did Germany lose its solar industry to China and can it enter back into the race this video was sponsored by skillshare and made possible thanks to into Europe's patreon supporters so Germany didn't create the solar industry that honor belonging to the United States nor was it the only country interested in it in the early phases of its developments but it managed to pull ahead thanks to two things a vision for its energy future and Industrial policy while Germany's potential Rivals and solar technology were distracted by the discovery of oil in the North Sea or nuclear energy Germany didn't share in the oil witches and with a growing anti-nuclear sentiment there was the political will to explore Alternative Energy options Germany deployed an industrial policy in the late 1970s pumping hundreds of millions of Deutsche Mark into solar research institutes and in the 1980s and 90s was giving cash handouts to households covering up to 70 percent of the cost of installation but this was only the beginning and in 2000 Germany would pull out the big guns feed in tariffs which enabled German solar panel owners to sell their electricity back to the Grid at what was then twice the market rates making buying solar panels a very lucrative investment the following year the German Solar Market would quadruple and by 2008 Germany had half a million homes with solar panels but this didn't come cheap the feet and Terrace meant that German electric rate payers invested over 200 billion US dollars through more expensive electricity to subsidize the solar Market into existence through policy the German government single-handedly created a market for solar panels companies were able to expand rapidly cutting costs through economies of scale and learning by doing Germany solar darling Q cells expanded production capacity 10-fold between 2002 and 2005. in talheim Saxony which would come to be known as solar Valley Germany developed an ecosystem of Machinery manufacturers and ambitious startups which would come to dominate the entirety of the Solar Supply Chain but even Q sells explosive growth and German firms like it couldn't meet the explosive demand of the German Market which was growing by 50 per year and so they increasingly turned to China to supply first solar cells and later on fully completed solar modules and just like Germany looked to China for solar panels into Europe has looked to this video's sponsor skillshare to make better videos as someone from an engineering background without any experience in video editing I've had to slowly build up my skill set to make these videos possible something that I always found challenging was having high quality audio whether it be from using different microphones Studio locations or being on the road the software and jargon were intimidating and I usually did the bare minimum for it but no more by following this course made by Scotland made available on skillshare I was able to learn about the wonders of noise reduction and audio compression in one Fell Swoop my audio went from sounding something like this to this I enjoy the fact that this was part of a single course with a fleshed out workflow that I could just copy paste onto my own As I Grew into Europe and look to increase the quality of my videos skillshare gives me access to their library of thousands of courses on things like how to animate all in one place and better still the first thousand people to use the link in the description will get a one month free trial of skillshare so join skillshare today to build up your skills to make your next big project a reality now back to the video Chinese panels were a cheap option for German industry and would allow them to install more to make more money but what they didn't realize at the time is that they would create their biggest future competitor you see unlike Germany's green push China's initial interest in solar was purely economical in the 1990s and early 2000s it was developing along an export driven model starting new Industries to bring cash in and grow its economy and the booming German Solar Market was just another way to reach that goal and it helped that China had several things going for it which would enable it to join the solar race first it could count on Western taught scientists the expertise of Australian educated doctors XI zingrong gave birth to China's solar Pioneer Suntec that expertise also gave much needed credibility to Chinese manufacturers facing heavy skepticism from Western buyers but this technical know-how would have been useless without the cash needed to scale luckily for its solar Pioneers the Chinese economy was opening up to International Investment in the 2000s Suntec was able to raise hundreds of millions of dollars in Western Stock markets with which to finance the purchase of Western Machinery between 2008 and 2012 it's estimated that roughly 30 billion dollars of Machinery float from U.S and European equipment suppliers to China machines that would later be reverse engineered and improved by China and the thing is Chinese firms actually got access to better machines from the start German Solar Pioneers which entered the solar business earlier had invested to buy expensive prototype Machinery where as the Chinese could buy the perfected tools at a reduced price and as soon as firms like Suntec had proven themselves by running profits the Chinese government jumped on board giving funding and state support to the industry in 2006 it passed a renewable energy law which spurred new companies to join Suntec in an increasingly crowded field these plentiful Chinese firms notorious for their copycatting then replicated and improved each other's successes in other words the Chinese market was super competitive spurring Innovation and in many ways the Chinese firms were able to do it better than German firms thanks to their expertise in manufacturing particularly in the semiconductors industry which shares similar processes to manufacturing of solar cells flexible Supply chains and labor markets meant that firms could hire easily with low labor costs in the early phases making it easier to scale faster before Automation and the growth of this industry was funded almost entirely by the generous German subsidy system which was focused on installing solar panels rather than producing them Germany's subsidy system which had created a solar market and Industry in Germany also created its own competition but the combination of all of these factors meant that Chinese firms were able to increase production and cut costs much faster than their German competitors thanks to the very same economies of scale and learning by doing that had initially made Germany so successful and this newly found Edge would prove essential in 2008 when the global solar industry was confronted with a quadruple storm that would result in the collapse of German Solar industry and the dominance of China up until 2008 the solar industry had been limited by the supply of silicon for which the price had reached eye watering levels Q cells and much of the German industry expected silicon to remain a scarce resource and sought to explore alternative Technologies as Q cells put it in their 2006 coordinator reports our policy is to only expand our production capacity when we have access to the corresponding raw materials and so Q sales made two mistakes that would prove to be fatal it moved to secure expensive long-term contracts to guarantee its future Supply and pour this cash into r d for alternative cellular technology like thin film that use less silicon unlike German firms which were spreading their r d budgets on several types of solar technology Chinese firms chose to focus on a single strand of Technology monosilicon when the price of silicon plunged when suppliers were able to scale much faster than anticipated Chinese firms which had specialized in this technology were able to slash price cases and I would compete their German counterparts as silicon production soared its price crashed and solar production was able to Boom overnight so at this point the German firms were in trouble bogged down by expensive long-term contracts which prevented them from benefiting from the collapse and silicon prices they had scaled cautiously and their significantly smaller production lines were unable to compete with the scale of Chinese production to catch up these firms scrambled to expand abroad to places with cheaper Energy prices and lower labor costs with Q sales expanding to Malaysia but it would prove too little too late the massive expansion of global and Chinese production meant that there was now a huge oversupply utility companies in Europe and Germany which still made up 60 of solar installations were unable to install solar panels fast enough oversupply led to a crash in prices which further undermined the less competitive German industry and would start to push them out of business meanwhile subsidized Chinese solar panels from more competitive manufacturers would flood the European market and this is when Q sales began to suffer reporting its first annual loss of 1.9 billion dollars in 2009 and they would take another blow in the form of the financial crisis the following prices of solar the bad financial state of German firms which were losing money and their slow expansion meant that Banks which were under pressure from the financial crisis were reluctant to lend the money this meant that German companies couldn't fund the expansion that could have allowed them to keep up with China on the other hand Chinese State Banks ramped up support for their solar industry which allowed them to weather the storm and then came the final blow in 2011 as governments dealt with the Fallout of the financial crisis to Germany the feed and terrorists which subsidized the solar industry started to be seen as a tax on poor households who bought more expensive electricity to the benefits of the rich who could actually afford solar panels and so looking to give purchasing power back to Consumers the German government cut the feed in tariffs by a third overnight collapsing the Home Market of Germany's solar companies Germany was reluctant to bail out the new industry thinking it was time for a slimming down of a subsidy fed industry thinking it could keep high value jobs and activities higher up in the value chain in module manufacturing and the installation of solar panels and despite an anti-dumping action in 2013 By both the US and the EU to put tariffs on the subsidized Chinese panels the metaphorical solar train had left the station Q cells which went bankrupt was sold to a Korean company and many of Germany's other solar Darlings went out of business but the Chinese solar industry could just as well have been crippled by this crisis Suntec the Chinese solar Pioneer went bankrupt in 2013. yet while Germany was cutting back on its support the Chinese Communist party was doubling down it made solar a strategic industry in the 12th 10-year plan State Banks kept giving loans to scale and even forgave loans allowing its players to keep operating the Chinese solar Market driven by an insatiable need for energy was slowly picking up steam filling up the Gap left by the now depressed German market and the rest is history when the dust settled the Chinese industry which was already overtaking the German one thanks to improvements in manufacturing and scaling was the last man standing as one Chinese executive put it today looks sunny but tomorrow might be dark skies and even the day after tomorrow might also be dark skies but we know after that it will be sunny and we are going to be ready for that today China dominates the solar industry it's the largest installer doubling its installations every year and thanks to its large-scale plans it's now incredibly hard to displace such that the Dutch trade Minister declared that Europe's green transition would be impossible without China at its height in 2008 Germany was home to 60 percent of the total installed capacity and it single-handedly created the modern solar industry but as a result of cutthroat business and a failure to scale by German industry but also the lack of German policy to support manufacturing Germany implicitly made the choice of cheaper and faster deployed solar panels in other words made in China but it's also a failure to anticipate that subsidies and state support could give companies a lead that would almost be impossible to overtake with the Chinese solar industry now entranced and Europe facing High Energy prices for the foreseeable future Europe and Germany if it chooses to try will face an uphill battle to win back a place for itself in the Solar industry it shows the power of industrial policy in achieving technological leadership and the importance of manufacturing in keeping control of innovation but now with you scrambling to put together an industrial policy on the Tells of the US and China the solar race offers valuable lessons about complacency and the role of the state in fostering Innovation which will be crucial for other Technologies like batteries or hydrogen this was in syrup thanks for watching if you like this video and would like to find out how China overtook another industry then go watch this video by money and macro on how China is dominating the EV industry and if you'd like to help me make more videos like this one feel free to join in syrup's awesome patreon supporters who help make this possible

Channel: Into Europe

Views: 96,189

Keywords: Europe, European News, EU, EU News, European Union

Id: KaFuGoOvycM

Length: 14min 30sec (870 seconds)

Published: Sat Jun 24 2023