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The German government is unlikely to support import tariffs for solar panels made in China despite domestic opposition to their policies. Veterans of the German renewable energy community, such as Hans-Josef Fell, have suggested that the German government’s decision to significantly reduce Feed-in-Tariffs for solar photovoltaic energy would be destroying the German solar industry. While it is true that the entire sector has come under increasing pressure, this is hardly a phenomenon that is limited to Germany. China, in fact, currently seems to suffer just as much as any other country, as the recent bankruptcy of Suntech suggests. And despite the recent stock price surge for First Solar, this doesn’t seem to be much different in the U.S., despite the trade war the country started with China.
It is important to keep in mind, that behind the push for protectionism in the U.S. is a German company, SolarWorld, which has a significant manufacturing footprint in the United States. In a paper published last year by Germany’s Heinrich Böll Foundation as second installment of a series on the German Energy Transition, Craig Morris explains why. The quick answer is, as a leading exporter Germany cannot afford a trade war with China. Morris quotes Fell acknowledging that.
More importantly, however, is the business case behind it. And Morris lays out how Germany benefits economically even if the panels installed are made in China. There are two main reasons for this. Firstly, the German solar industry is strong all along the value chain which leads to the fact that products made in China will likely lead to some value creation in Germany. Germany is particularly competitive in the equipment sector which exports production lines to China which is a more sophisticated technology than producing solar panels. Secondly, the value of services and components that are needed to install and connect the panels is actually higher than the value of the panel, and the services can only be sourced locally. Morris estimates that more than 50% of the total value creation is local.
So far, so good. Morris states that a large solar market helps Germany to secure these advantages. And here is where I would start questioning his very positive assessment of the economic benefits on Germany. The fact is that the solar boom in Germany is paid by all consumers of electricity, with energy-intensive industries paying a much-reduced fee. The size of the German market is driven by the level of Feed-in-Tariffs that the German renewable energy law guarantees. So to answer the question whether Germany really profits from local installations of solar panels made in China, we would need to consider the question whether (a) the subsidies are necessary and (b) efficiently allocated.
It seems to me that while German electricity consumers are doing the world a favor by driving down the cost of solar with the demand created by the Feed-in-Tariffs, they may not profit that much themselves as the total cost is still quite high. Morris is right to call for the U.S. to jump into solar now, because with the more beneficial weather conditions the cheap panels make even more economic sense. The U.S. would only need to brush aside bureaucratic hurdles, and a solar boom may be coming.
As to the question of why Germany is against a solar trade war, I think Morris is right: The question of Feed-in-Tarrifs aside, free trade is Germany’s best option.