Are cheap Chinese solar panels destroying the European market?

China and the EU are on the verge of a trade war after the European Commission promised to investigate claims that loss-making Chinese solar panels are destroying domestic competition in Europe.

Worth around €21 billion, or £16 billion, the solar photovoltaic panels  exported by China to Europe each year are thought to be causing considerable damage to European manufacturers and, to a lesser extent, other international exporters.

China has positioned itself as the world’s largest producer of solar panels. 80 per cent of the country’s exports head to Europe, but concern has grown over the competitiveness of the market. Whilst cheap solar panels are of great benefit to installers, manufacturers in Europe are suffering. Unable to compete with the low cost of Chinese solar panels, European firms face a struggle to survive.

Far from accepting the success of Chinese manufacturers, the European solar industry has lodged a formal complaint with the European Commission, which has a duty to investigate anti-competitive activities in the market.

In a statement released last week, the Commission said: “EU Pro Sun, an industry association, claimed in its complaint lodged on 25 July 2012 that solar panels and their key components imported from China enter the European market at prices below market value.

“The Commission is legally obliged to open an anti-dumping investigation if it receives a valid complaint from a Union industry which provides evidence that exporting producers from one or more countries are dumping a particular product into the EU and causing injury to the Union industry”.

Beijing’s response was characteristically blunt. A statement published on the website of its commerce ministry read: “Restricting China’s solar panel products will not only hurt the interests of both Chinese and European industry, it will also wreck the healthy development of the global solar and clean energy sector”.

A consequence of cheap solar panels in Europe has been that the British Government was able to justify its decision to reduce subsidies for solar producers. The current feed-in tariff of 16p per kWh is down from 21p per kWh before August. At the beginning of the year, the rate was fixed at 43.3p per kWh. Decreasing the rate paid to solar producers was deemed necessary as a result of falling manufacturing costs.