Germany’s Solar Renaissance: Reviving the Sunshine Revolution

Leonard Kieseler | 10 Jul 2023 | General

The global economy is under enormous pressure. Current issues such as inflation, climate change, and Russia’s war on Ukraine together with the aftermath of the COVID-19 pandemic have turned into what experts refer to as a “poly-crisis”.

In previous OCO Blogs, we have already reflected on the current issues facing the global economy, including inflation, climate change, the Ukraine war and changing patterns in Foreign Direct Investment. Since the Inflation Reduction Act (IRA) was passed, the pressure on the EU Commission to provide more financial support for domestic players has increased enormously. Otherwise, many companies threaten to make their investment decisions to expand production in the USA.

Against this background, the German government has now opened an expression of interest for the promotion of large photovoltaic (PV) productions in Germany. The objective is to (re-) build a value chain that is as closed as possible, including the necessary production facilities. Above all, projects in structurally weak regions, most of them in former Eastern Germany, shall be supported. The funding in the photovoltaic sector is intended to focus on a few flagship projects. Funding shall be granted up to the amount that an equivalent investment project in a third country would demonstrably receive.

This is intended to prevent distortions of competition to the detriment of Germany as an economic location and to maintain the country’s attractiveness as a location for photovoltaic producers. Until August 15, 2023, companies in the solar industry can apply for subsidies by submitting initial project outlines to the German Ministry of Economy. The quality of applications received can then be used as a measure of Europe’s current investment attractiveness and give an indication of a European Union flanked by the Green Deal Industrial Plan.

One thing is certain: Europe has committed to ambitious net-zero targets and achieving them requires a “green market” with vital, future-oriented industrial companies.

Just over 15 years ago, Germany held a leading position in solar industry, but then the company’s shifted production and knowledge to Asia. Now, with the vulnerability of the energy sector in mind, affordable renewable energies are crucial for the long-term competitiveness of Europe’s industry. Germany’s ambitions to rebuild its solar industry are commendable on several fronts, yet they also warrant examination. On the one hand, Germany’s commitment to renewable energy and its recognition of the potential of solar power to combat climate change are praiseworthy. By investing in the revitalization of its solar industry, Germany aims to reduce its reliance on fossil fuels and establish itself as a global leader in clean energy.

However, there are challenges to be addressed. The country faces fierce competition from other nations that have rapidly developed their solar sectors, such as China. Therefore, while Germany’s ambitions to rebuild its solar industry are laudable, they require comprehensive planning, effective policies, and international collaboration to ensure long-term success while mitigating potential drawbacks. Whether the race for subsidies is the foundation of industrial transformation or just ends in a vicious spiral is debatable. Ultimately, the cost of the green transition is just going to increase.

If your company has expansion aspirations in Europe and beyond, please don’t hesitate to reach out. OCO Global works collaboratively with leading multinationals and mid-sized companies to design market expansion and location strategies that are customer-tailored and highly practical, achieving long-term value in key growth markets. This includes the initiation of strategic partnerships, as well as global footprint & supply chain advisory.