Under strong NATO and EU pressure, Germany is decreasing its dependence on gas imported from Russia. This controversial relationship, which gave the Kremlin a financial boost, may be coming to an end, but there is another threat on the horizon: dependence on China. Berlin reiterates that severing economic ties with Moscow must mean accelerating investments in renewables. The problem is that our neighbors are swapping a trade partnership with one authoritarian regime for another – writes Michał Perzyński, editor at BiznesAlert.pl.
Germany’s growing dependence on Chinese renewables
Even before Russia went to war with Ukraine, the new German government had wanted to speed up the energy transition. However, it is worth emphasizing that it was the war that prompted the Ministry of Economy and Climate to accelerate its plan to submit a number of amendments to existing regulations and financing programs, mainly aimed at improving the country’s ability to increase the share of renewable energy sources, especially onshore wind, but also speed up the planning of grid development, offshore power, and improve the energy efficiency of buildings. In early July, a law was adopted that defined specific goals for the development of individual energy sources. Onshore wind power is expected to reach 115 GW of installed capacity in 2030, twice as much as today. This means that from 2025, the annual capacity increase for this source will have to be 10 GW. As for photovoltaics, by 2030, Germany wants to have 215 GW, while last year it was “only” 60 GW. According to estimates, to achieve this goal, Germany will have to install about 22 GW from 2026. Plans for offshore development are a bit more distant in time, but they are also ambitious – by 2030 the total capacity is expected to reach 30 GW, 40 GW by 2035, and 70 GW in 2045-when the country intends to achieve climate neutrality.
Even a strong industry like Germany will not be able to achieve such ambitious goals without imports. The natural partner at the moment seems to be China, which is Germany’s largest trading partner. The sale of a part of the port of Hamburg to Chinese contractors demonstrates even greater rapprochement between the two countries. We have described this detail on BiznesAlert.pl. China is also becoming a global leader in solar energy – the International Energy Agency warned in July that the country’s hegemony could be dangerous for the future of the energy transition. According to the report, China’s share in the production stages of photovoltaic panels, from the production of polysilicon to the panels themselves, exceeds 80 percent, and by 2025 at some stages can reach as much as 95 percent. The report also states that China’s Xinjiang province, where human rights are notoriously violated, is responsible for 40 percent of global polysilicon production.
The increasing reliance on equipment from China is of concern to the German PV industry, as about 95 percent of the solar cells installed in Germany come from Chinese manufacturers. However, supply chain problems associated with China’s strict Zero Covid policy (also described in more detail on BiznesAlert.pl) and wider geopolitical risks may mean that Germany’s renewable energy development plans are at risk. Relying on low-cost Chinese manufacturers has been a serious problem for German producers for years, which means that many of them have been forced to drop out of the market, which resulted in there being virtually no solar panel manufacturers in the country. China not only offered equipment at lower prices, but also had access to the strategic resources needed for production.
The irony in all of this is the fact that at the beginning of the 21st century Germany boasted of being the leader in the solar industry, and only around 2010 began to give way to the Chinese, who effectively competed in the market by lowering production costs. While lower prices from Asian producers have helped spur the development of photovoltaics, such a deal poses the danger that continued reliance on imports from China will deprive Europe of influence on this forward-looking, key industry and result in the production of less efficient equipment made at higher environmental costs. Industry representatives therefore called for the reorganisation of the EU solar industry as part of an Important Projects of Common European Interest scheme, which has already happened to projects on hydrogen generation and batteries.
The problem of Germany’s dependence on Chinese producers of renewable energy technologies is so pressing that Foreign Minister Annalena Baerbock commented on the issue. She is a member of the Green Party which, after all, put the development of RES at the center of their political agenda. The German Foreign Ministry warned that China already had a “strong or dominant” position in many technologies, adding that Berlin should “reduce unilateral dependence by diversifying supply sources and boosting domestic production.” Baerbock also referred to lithium batteries and rare earths, some of which are needed for wind turbines and electrolysers needed to produce hydrogen. As we read in the piece by the head of German diplomacy, in order to get rid of such dependencies, commodity partnerships should be unified around the world and incentives should be created for relevant German foreign investment. In addition, companies are to be encouraged to strategically stockpile critical raw materials – in some cases, even through government requirements for the minimum amount available to companies.
Diversification uber alles
What could Germany do in such a situation? Traditionally, it seems that the best response to the problem of too much dependence on one supplier is to implement a diversification strategy, in this case especially with regard to new markets in other emerging countries. This requires attractive location and investment conditions. The European Union could do a lot in this area, and it should therefore cooperate with the governments of these countries and international companies. Europe should also do more to promote location-based competition between potential partner countries, as this gives it a certain political balance, which is currently very much disturbed.
An effective strategy to diversify away from China also requires promoting awareness among European companies operating internationally. The most important thing is for the European Union to finally be able to conclude new trade and investment agreements with emerging economies in Asia, Latin America and Africa. The lifting of mutual trade barriers is the main precondition for increasing trade opportunities with these countries. Many free trade agreement negotiations have stalled, been abandoned or stuck in the ratification process for years. Such a strategic shift in priorities is likely to face resistance from the civic society. However, in order to start talking about the implementation of such steps at all, first of all, an open political debate is needed. Germany, but also the entire European Union, should first of all understand that there is a clear conflict of interest, because even if China is currently offering the most cost-effective terms of cooperation when it comes to trade in renewable energy technology, in the long run there is a serious risk that it will use this situation to their advantage, especially when we are dealing with an autocratic dictatorship that completely disregards the values shared by the West. Therefore, the comparison with German-Russian relations in terms of gas trade is most appropriate in this situation.