Chinese wind turbine and solar manufacturers are increasingly dominant in the world markets, something that the EU did not fully anticipate when drawing up its policies. Indeed, in 2008, in modeling the impact of the Renewables Directive of 2009 its consultants dismissed as unlikely the “pessimistic export” scenario for Europe’s wind and solar industries. This was questionable at the time, and now appears to be a serious mistake.
In 2009 the European Union published a major study conducted by a consortium of engineering and other consultancies of the macroeconomic effects of the EU’s renewable energy policies: EmployRES: The Impact of Renewable Energy Policy on Economic Growth and Employment in the European Union. The overall message was spun heavily in the summary, itself twenty-seven pages long, and one suspects that the main document was very little read. However, it contained a wealth of information revealing that the policies were only weakly net positive for the EU overall, with some member states, the UK being amongst them, suffering significant net negative impacts in many and not the least probable scenarios.
Furthermore, the study’s positive results relied heavily on the European Union’s members retaining over 40% of the international markets in renewable energy technologies, and, remarkably, while a number of policy scenarios were analysed, the authors chose or were directed only to consider these in relation to “Moderate Exports” and “Optimistic Export” scenarios. The effects of activist, and thus costly renewables policies in the context of the “Pessimistic Export” variable was designated unlikely and simply not considered.
I wrote about EmployRES in a chapter of a book for Civitas, The Green Mirage (2011), and at the launch event focused on the lacunae in the consideration of exports. A well-informed speaker from the floor observed that I had understated the error, and that in his view the pessimistic scenarios were far and away the most probable, and he predicted that it would not be very long before the seemingly invulnerable European renewables industries were driven to the wall by Chinese companies, and indeed those in a re-industrialising United States. This seemed quite radical at the time, and another attendee intervened to observe that European wind turbine manufacturers such as Vestas, Siemens, and Enercon enjoyed a considerable, perhaps unassailable technological lead. “Perhaps”, the original speaker responded, “but Q-Cells, the high-tech German solar PV giant, has just posted a major loss, and before long the wind industry will surely be in trouble too.” “In a subsidized market”, he explained, “technology is not quite the advantage you imagine it to be.”
Quite so, and such a reflection highlights just how mistaken it was for the EmployRES authors to rule out falling export share. Vigorous market distortions in Europe might actually contribute to the decline of high cost indigenous renewable technology companies as the subsidies gave an advantage to less technologically advanced but cheaper companies in other parts of the world.
The underlying reason for this effect is that in a sector where the capital investment risk is diminished by subsidy (i.e. where it is taken on by other parties, taxpayers for example), the technological risk becomes less significant, and the capital equipment itself becomes little more than a consumable. Indeed, the fundamental asset in such a situation will not be the wind turbines or solar panels, but the possession of a site lease agreement, governmental land-use consent, and grid access. Together with the subsidy entitlement this constitutes a license to print money, with the capital equipment merely the toner cartridge. Consequently, companies offering cheaper though perhaps less technologically advanced consumables, wind turbines and solar panels, will do well at the expense of companies offering irrelevant quality.
By 2012 Q-Cells was bankrupt (full story here), but the wind industry in Europe did not follow quickly, though it has certainly been under pressure, and the most recent, 2014, update to EmployRES grants that, in the pessimistic scenario the EU share of the world export market in wind power will have fallen from about 55% in 2015 to about 30% in 2030, and solar from about 20% to about 10% (See EmployRES 2014, p. 42). Even this is beginning to look optimistic. Last week the Financial Times reported that the Chinese wind turbine company, Goldwind had become the world’s largest manufacturer, ahead of Vestas and GE (23.02.16). Admittedly, it appears that Goldwind may not hold this title for long, as Siemens is rumoured to be acquiring the Spanish manufacturer, Gamesa, a purchase that would form a very large company. But, as is notorious, mergers and acquisitions are a spurious kind of growth, perhaps concealing underlying problems. In the light of Goldwind’s success, all the more remarkable for a company founded only in 1998, the European Union should obviously revisit its macro-economic modeling and consider whether there is any justification for continuing to subsidise renewable generation in Europe. But we don’t have wait for this outcome before drawing the fundamental lesson: When two planned economies come into conflict, it is the more conceited bureaucracy that is likely to fail.