The NZIA: Tripling down on renewables without choking global solar supplies

You will have heard this before, but it bears repeating: The need for urgent climate action has never been more obvious. Equally clear is the need to quickly roll out massive amounts of renewables. This is especially true for solar. Its technology is proven, available and cheap. It can be delivered fast and at scale. Thanks to globally established supply chains, solar is now cheaper than coal. In 2022, existing supply chains allowed solar to be deployed globally at a scale of 20GW per month. Moreover, last year decisionmakers recognised that renewables are not only key to decarbonisation but also for our energy security. Solar has been expanding rapidly, but now it must soar. Global solar capacity is set to triple over the next five years. We must maintain this momentum as people rightly urge its expansion.

 Europe needs to be smart about solar

Europe has a vital role to play in all this. The region managed to stay on track despite a war, an ensuing energy crisis, and associated cost-of-living challenges.

In addressing this new energy reality, REPowerEU commits to doubling down on renewables and accelerating their deployment.

With the Green Deal Industrial Plan and the Net Zero Industry Act (NZIA), the EU considers revisiting its industrial strategy and reshoring manufacturing of clean technologies.

Nevertheless, some provisions in the proposed NZIA are counterproductive towards the EU Green Deal and climate neutrality objectives. We must not choke well-performing solar global supply chains with a misplaced effort to artificially prop up a domestic manufacturing value chain. Especially when that value chain would take years to build.

A diversified supply chain that is market-oriented and based on sustainable economics has value for market operators. It must not be based on measures that push developers of solar projects into making irrational choices such as buying more expensive products or that limit access to innovative and premium products available globally.

Requiring developers to use local content ”Made in Europe” to participate in public procurement and renewable auctions will slow down the rollout of solar instead of supercharging it. That is time we simply do not have, and money poorly spent. Local content requirements are a distraction to what we really need – delivering the energy transition on time and on budget.

A European solar manufacturing value chain is only viable with massive long term public subsidies, with taxpayers’ money financing CAPEX and ongoing OPEX, moving us back 20 years to when renewables were much more expensive.

With such an approach, there is a real danger that Europe ends up with more expensive solar modules and insufficient volumes to achieve its targets. Ultimately, less solar power means higher energy prices for European consumers.

Recently, SolarPower Europe announced that the EU achieved annual solar record installation in-excess of 40GW. Delivering such volumes at cheap prices for consumers requires procuring freely the required solar panels as well as construction and maintenance operations from local and international markets, at the best available commercial terms.

Europe needs affordable and quick solar solutions

Affordable solar modules have been a critical driver of Europe’s green transition. It needs to remain that way. Applying non-price criteria will increase prices. Designing artificial local content rules, under the name of resilience to push supply chains away from China, will put the ongoing growth pace at risk. A “Made in Europe” strategy will decouple the EU market from cost competitiveness and innovative, quality products. Last but certainly not least, it will increase energy costs to the European economy at a time when they are already sky-high.

BloombergNEF showed that manufacturing solar domestically comes at substantial extra costs : Each 1GW manufactured in Europe will cost EUR375mn/year more than from current supply chains. Applying this to the NZIA’s 40% manufacturing target of 30GW results in an extra cost of EUR11bn/year, or cumulative EUR55bn from 2025 to 2030. And let’s not forget: the cost premium won’t just suddenly disappear on 1 January 2031…

Solar must remain the kingpin of the energy transition

Today, solar is the cheapest form of electricity generation. We must keep it this way. If global solar supply chains are unduly restricted, it will negatively impact the pace of new installations in Europe and consequently our energy security.

Europe has worked very hard to be where it is today. It would be detrimental to our own objectives if local content rules roll back the gains of recent years.

REPowerEU rightly identified solar as the ‘kingpin’ of EU energy independence and as an accelerator of the green transition.

We must not lose sight of our goal – living up to our Paris commitments and making sure everybody can benefit from affordable, clean energy.

We have now the opportunity to reflect upon and correct the NZIA proposals where necessary. In their current form, local content and non-price requirements are an unforced error. The European solar sector requires a smart diversification strategy. One that builds on existing supply chains, expands them, and reduces risks. One that focuses on growth, additionality, and complementarity. Ensuring competition among manufacturers and safeguarding the freedom of choice of solar developers is a prerequisite to continue driving investment towards Europe. And it is how we will REPowerEU.

At Lightsource bp, we have been ready to go beyond business as usual. In September 2021 we announced our solar industry-leading target of 25GW by 2025. To date, we have already developed 8.4GW. A lot remains to be done, let’s get to it.