Over the last decade, global manufacturing of solar panels has increasingly moved out of Europe, Japan, and the US, and into China. Its share of the key manufacturing stages of solar panels now exceeds 80%, according to a report by the International Energy Agency (IEA); and for certain vital elements, China is predicted to have more than 95% of the manufacturing process (based on capacity and future planning) by 2025. On top of this, supplies of raw materials will need to more than double by 2030.
Europe is trying to match the pace, but it is a long way behind. Earlier this year, Enel, the world’s biggest listed renewable energy company, signed a deal with the European Commission to expand production to three gigawatts, more than 15 times its present capacity. Investment in Enel’s Sicilian plant will total around €600m ($594m), of which €118m will be from the EU’s Innovation Fund, making the facility, 3Sun, Europe’s largest solar panel provider.
Under the tortuous acronym “TANGO” (iTaliAN pv Giga factOry), the European Union (EU) is aiming to reinvigorate the European photovoltaic (PV) value chain and offer sustainable alternatives amid the continent’s increasing shortage of reliable energy sources. Construction has begun, and the 3Sun Gigafactory is scheduled to start operations in 2023.
The bloc’s drive to onshore low-carbon energy production comes amid soaring gas prices and Russian energy blackmail, even as energy demand is hit by climate change bringing huge variations in temperature, as the continent experienced this summer. The EU plans to completely end Russian gas supplies and source at least 40% of its energy from renewable sources by 2030.
Enel, which is 23.6% owned by the Italian state and operates in 30 countries, started producing solar panels in Sicily in 2011 in a joint venture with Sharp, the Japanese multinational, and STMicroelectronics, a Geneva-based semiconductor producer. Even as it expands its European capacity, Salvatore Bernabei, head of Enel’s Green Power unit, has said the company is looking to invest in the US and Asia, including Vietnam, South Korea, and India — almost everywhere except China.
In contrast to the slow pace in Europe, China has worked to build up its renewables industry and encourage innovation since the early 2000s, when it began incentivizing domestic manufacturing through low-cost loans and grants. As a result, China became the leading manufacturer of solar panels, overtaking Europe, Japan, and the US.
On the plus side, this made solar one of the most inexpensive and widely viable low-carbon options in the world, yet at the same time, the focus (and success) of the policy has made much of the globe dependent on China.
There is already a raw material shortage due to China’s dominance, and it is about to become an even bigger problem as more countries implement net-zero strategies, increasing global demand for PV panels and the materials needed to make them.
China has a chokehold and can charge a premium. The IEA cites silver, which is crucial to solar panel production, as an example. Estimates suggest demand for the metal will be 30% higher than total global production by 2030, and it is just one of many key ingredients, some of which saw demand exceed supply by more than 100% in 2021. “This rapid growth, combined with long lead times for mining projects, increases the risk of supply and demand mismatches, which can lead to cost increases and supply shortages,” the researchers said.
As became clear during the coronavirus pandemic, the concentration of global production in one location can strain logistics as supply rises to meet demand, creating bottlenecks and an uncomfortable amount of pressure. Over the last year alone, supply chain problems have led to an increase of around 20% in solar panel prices. (The West faces similar issues over semiconductor production which is heavily concentrated in Taiwan.)
World leaders, policymakers, and energy analysts have identified solar panels as crucial to meeting both net zero emissions goals and ever-growing energy demand. This requires resilient supply chains to deliver these items and the raw materials they rely on. Manufacturing facilities could attract around $120bn of investment by 2030.
In the race for low-carbon energy solutions, solar PV is just the beginning, and supply challenges necessitate action. Suggestions from the IEA to boost domestic PV production include tax breaks, import tariffs on equipment produced overseas, investment tax credits, subsidies for electricity costs, and funding opportunities for labor and operational spending. Overall, governments and policymakers need to improve business opportunities and accelerate domestic production. It is time to pull the plug on China’s monopoly of the supply chain.
Cordelia Buchanan Ponczek is a Clarendon Scholar and doctoral candidate at the University of Oxford, where she is researching public-private investment into extractive industries.
Before Russia launched its war of aggression, its roads and railways served as major arteries for trade between China and the European Union (EU). But the conflict, and widespread Western sanctions, have upended Eurasian connectivity, possibly to the benefit of its neighbors.
The Middle Corridor has some drawbacks which may prove problematic, but for now, it presents an opportunity. Starting in Turkey, it reaches Central Asia via the road and railway infrastructure of the South Caucasus and the improving ferry-crossing capabilities in the Caspian Sea.
The route is the shortest from western China to eastern Europe. But it nevertheless has a number of obstacles.
The first is its multimodal nature traversing both land and sea. And while the northern route consisted almost entirely of one country – Russia — the Middle Corridor composes at least four.
The second is the lack of necessary infrastructure. Cross-Caspian transshipment is currently inadequate. Port infrastructure on the Georgian side of the Black Sea is likewise in serious need of both upgrade and expansion. Some minor steps were made in this direction with the Poti and Batumi terminal upgrades, but the ambition to become a major artery requires a deep seaport. The Anaklia port construction failed due to murky internal Georgian politics and possible Russian meddling, underlining the Kremlin’s fear of how its deep-water, Black Sea port of Novorossiysk could be undermined. With no concrete plans for the near future and intense political infighting among Georgian parties, short-term port improvements seem unlikely.
There is also a wider geopolitical problem. Russia is currently preoccupied with Ukraine which constrains its ability to forestall the emergence of the Middle Corridor, but that may change. Already keenly aware that neighboring countries (most notably Kazakhstan) are using the opportunity to create some breathing space, a refocused Russia will highly likely be hostile towards a new corridor taking traffic and revenue.
Yet there are positive signs for the route. In July, the European Bank for Reconstruction and Development (EBRD) pledged a €100m ($100m) investment in Kazakh railways. Moreover, Georgia has been unusually busy on the project, with Prime Minister Irakli Garibashvili making a series of visits to Central Asian states. On July 26-27 he was in Kazakhstan where he held intensive discussions around the Middle Corridor, or Trans-Caspian International Route (TITR), as it is also known. It is notable that bilateral trade between the two states in the first half of 2022 increased almost fivefold to $147.7 m. The growth is very likely an indication of goods finding new routes to market.
The Georgian leader also visited Turkmenistan and Uzbekistan, where transportation routes were also discussed. In Tashkent, the two sides signed an agreement on the use of existing transport infrastructure. Georgia has reasons to be active diplomatically — in the first half of this year, Georgian Railway earned $70 million from freight, which is the highest figure in years.
This fits into various projections where cargo shipments from Central Asia to the Black Sea could increase by 600% growth in comparison with the previous year.
In March, Georgia joined Turkey, Kazakhstan, and Azerbaijan in hammering out a common declaration that formulated the countries’ approach to the development of the Middle Corridor.
The effects of the Russian invasion are reverberating across the entire region and nudged nearly defunct transportation projects into new life. One such is the China-Kyrgyzstan-Uzbekistan (CKU) railway, which has been discussed for decades without progress. Yet with the route through Russia now closed, there are significant shifts in how the costly and difficult-to-implement project might be realized. Uzbekistan recently announced that the agreement on the railway will soon be signed. Uzbek leaders are also eyeing the possibilities of using South Caucasus infrastructures such as the existing Baku-Tbilisi-Kars railway, or the suggested route through Armenia connecting Azerbaijan proper with its exclave of Nakhchivan.
There was further positive news on the CKU railway from Kyrgyzstan, whose president said that he had secured the agreement of Russia to develop the route. The Kremlin has been careful not to oppose the project openly, but it was well known that it had worked to capitalize on Kyrgyz anti-Chinese sentiment, and more broadly to foster economic dependence on Russia.
Other bigger players are also embracing the Middle Corridor. Turkey is heavily involved. In early August, it joined Azerbaijan, and Uzbekistan to establish a new format that will respond to new transportation demands following February’s upheaval. In May, Erdogan hosted his Kazakh colleague and both explicitly supported the route.
Europe is also keen to encourage development. In July, the European Union (EU) and Azerbaijan signed an important agreement to more than double gas deliveries. While most attention focused on this major development, European diplomats also mentioned investments of some $2bn to help remodel Baku port into a transregional hub between Central Asia and the Black Sea. This follows European companies’ growing interest in the route. For instance, in April, the Maersk shipping line shifted its transit route from Russia to the Middle Corridor. A similar move was made by Nurminen Logistics of Finland.
Yet without the biggest Eurasian economy, China, the Middle Corridor will struggle. China is certainly interested, though it has not been as vocal as others in supporting the route. Political moves however show it is willing to develop the corridor as an alternative.
The Middle Corridor is after all the shortest distance and while the belt and road initiative does not officially cover the South Caucasus, and is anyway experiencing expansion problems, China is slowly adapting. The CKU railway is one case.
Nevertheless, it remains to be seen how far China would be willing to go. It may not want to anger Russia and has generally deferred to Russian geopolitical interests in the South Caucasus.
Yet China needs to get its goods to market and the Russian route is currently unavailable, as it may be for some time to come. That means most countries have an interest in developing a new route as an alternative for EU-China trade. The Middle Corridor is not an easy option, but it may turn out to be the only plausible land route.
Emil Avdaliani is a professor at European University and the Director of Middle East Studies at the Georgian think-tank, Geocase.
Europe is racing ahead. The Artificial Intelligence Act, proposed in April 2021, requires software developers to comply with a detailed list of technical and auditing requirements for “high-risk” applications. These European rules make Washington uncomfortable.
In contrast, the US so far has imposed few concrete regulatory steps and refuses to join international partnerships. When UNESCO’s 193 member countries approved a first-of-its-kind recommendation for AI ethics in November 2021, the US did not sign.
Without a transatlantic partnership, China and Russia will face little opposition to spreading their authoritarian approach, leveraging the technology for mass surveillance. At the recent CEPA Forum, former Google Chairman Eric Schmit noted, ominously, that “China is producing more AI papers than the US.”
Although Brussels and Washington say they agree on the importance of promoting ethical AI – prohibiting software that produces social scoring and facial recognition in public places – they do not seem to agree on how to achieve this goal. The EU’s AI Act labels different technologies that fall under the term ‘AI’ by their risk. “Minimal” and “limited” risk applications, which represent the vast majority of technologies currently employed, will face few restrictions. But high-risk systems will be subject to strict obligations. Unacceptable-risk applications (such as social scoring) will be banned.
In contrast, key American decision-makers believe that it is premature to regulate a technology that we struggle to understand. “Europe’s proposed AI regulation” is “sensible, written in European public policy language,” says former Google CEO Schmidt, who chaired the US National Security Commission on Artificial Intelligence and co-authored the recent book The Age of AI. “But in the middle of it, it says that for critical infrastructure, you cannot deploy it, unless the AI system can explain itself. There is no AI system today that can explain itself. The technology is not there.”
US business and policymakers fear Europe’s regulation will hamper innovation. According to the Center for Data Innovation, Europe’s AI Act could cost the continent’s economy upwards of €30 billion over the next five years. In their recent paper, researchers Mikołaj Barczentewicz and Benjamin Mueller offer a series of concrete examples which could be banned in Europe. A school’s admission office could be blocked from using a Microsoft Excel macro to check a student’s eligibility. A small business would no longer be able to use a computer to check whether job applicants have the correct professional license.
No one doubts the need for reigning in the most dangerous types of AI. President Trump supported transatlantic initiatives such as the Global Partnership on AI and the AI Partnership on Defense. The Biden Administration has pushed forward a National AI Initiative Act in 2020 that mandates the federal government to provide oversight and guidance for a “trustworthy AI.”
Without concrete restrictions, however, Europeans fear that individual rights and freedoms will be threatened. Studies show that unchecked AI could increase gender and racial discrimination.
Researchers from the Oxford Internet Institute see risks in a wide range of fields, ranging from finance to aviation.
In the US, these fears have led to criticism of the government’s go-slow approach. David Edelman, director of MIT’s Internet Policy Research Initiative and former White House advisor, worries about under-regulation. “It paints a false dichotomy for anybody to say that regulation is wholesale good or is wholesale bad for innovation,” adds Terah Lyons, who shaped AI policy during the Obama administration and is currently the executive director of the Partnership on AI.
US inaction risks undermining its global influence. A poor track record at home could make it hard to convince others around the world to embrace ethical principles. The Biden administration wants to construct an alliance of democracies. To do so, it must address the international debate over ethical AI.
China, for its part, is heading international ethics boards and trying to set global (authoritarian-friendly) standards. The US must not let the authoritarians score cynical points. Instead, it must show it is serious about engaging with like-minded democracies. This means speaking with Europe and moving fast to impose an alternative regulatory framework, while also considering regulations of its own.
Europe, on the other hand, needs to slow down and avoid making its quest for “trustworthiness” into a choke on innovation. Otherwise, it risks seeing the most innovative software development flee to the continent and move to North America or to Asia. It must revise its overly broad definition of “risky” AI and limit the requirements for compliance to truly risky operations.
A deal is possible. The US needs partners. Europe needs to avoid overregulation. Both sides must acknowledge that if democracies fight over AI, the ultimate winner risks being China.
Bill Echikson is editor of CEPA’s Bandwidth content stream. David Klotsonis is an intern with CEPA’s Digital Innovation Initiative.