False dawn: EU intervention threatens UK solar’s stability

Over the last few months the UK solar market has been remarkably optimistic. A combination of unprecedented domestic policy stability, a large-scale solar renaissance, the inclusion in the Renewables Roadmap, the announcement of the National Solar Centre and the imminent Solar Strategy have fostered an unfamiliar feeling for the industry – one of stability.

Many in the industry have denounced this period of stability as a false dawn, pointing to the potential of module price rises in 2013 to derail the government’s solar plans.

However, the UK solar market’s stability faces a much greater risk than global module price rises: the European Commission.

At the moment the Commission is involved in two investigations that could have a monumental impact on the UK solar industry.

The first relates to the UK’s universal application of a reduced VAT rate of 5% for all ‘energy-saving methods’. Solar PV and solar thermal currently benefit from the reduced rate.

The EU Commission has been involved in a long-running feud with the government over the reduced VAT rate which has culminated in the commission taking the UK to the EU Court of Justice. The EU Commission maintains that the use of a 5% VAT rate breaks EU law.

HMRC told Solar Power Portal that it still believes that the reduced rate for energy-saving methods is within the scope of what is allowed under the VAT directive. HMRC’s statement appears to indicate that the government is set to fight the Commission.

If HMRC loses the case then the cost of installing solar in the UK would universally rise by 15% overnight.

The other challenge facing the UK solar market is the current EU Commission investigation into the dumping of Chinese-manufactured solar modules and the use of illegal subsidies by its government.

The complaint was levelled last September by industry action group EU ProSun, a joint initiative of EU solar businesses. The group claims its members cannot compete with the "state capitalism of the People’s Republic of China" and that anti-subsidy and anti-dumping measures against China would create a level playing field for EU manufacturers. ProSun has asked the commission to impose tariffs of up to 120% stating this would allow EU producers to operate profitably.

As the UK has little domestic solar manufacturing capability and imports the vast majority of its modules from China, any tariff imposition on Chinese-manufactured panels could have a profound effect on solar’s pricing in the UK.

However, Milan Nitzschke, President of EU Prosun argues that anti-dumping measures will benefit the European market, he told Solar Power Portal: “Chinese dumping harms the entire solar industry, and has already caused thousands of Europeans to lose their jobs, many factory closures and over 30 major bankruptcies.

“The US case already disproves the claims made by AFASE and Prognos. None of the negative effects predicted by China took place. In the middle of 2012 the US government introduced anti-dumping tariffs on Chinese solar products ranging from 30 to 250%, the number of solar installations has increased substantially, and consumer prices have remained stable or even decreased even though Chinese imports have drastically declined. It is a win-win situation. Today in the USA there are no more unfair trade practices, the domestic industry has survived, consumers do not have to pay more, and the solar market is growing.”

One thing is for sure, if the EU Commission does impose any tariffs on Chinese-manufactured solar equipment in the EU, the UK solar market will undergo another dramatic period of destabilisation.

It has been shown time and time again that the UK solar market is extremely price sensitive. In addition, all DECC’s modelling for the future of solar policy remains intrinsically linked to the continued cost reduction of solar. If any significant rise in module cost is passed on to the market the policy framework has no capacity to respond in order to stimulate demand – this could be a huge problem for the industry.

Either of the two cases currently being investigated by the EU Commission have the potential to drastically change the dynamics of solar in the UK. A combination of both might have a tragic effect.

What are your thoughts on the EU Commission’s potential interventions? Do you agree that VAT on energy-saving methods should reflect the rest of the EU? Does Chinese dumping harm the entire solar industry?

Let me know in the comments below.