July 1, 2016   Posted by: Wouter Vermeersch

Brexit: impact on PV sector

BrexitFollowing the UK’s shock decision to leave the EU after the referendum at the end of June ’16, there are a number of consequences and opportunities for the solar market:

Currency fluctuations: temporary price jump
Exchange rate volatility arising from the Brexit increased solar panel prices immediately. Asian manufacturers use the dollar as reference currency and prices of materials for European manufacturers are also based in dollar. Given the fact that the pound and euro lost against the dollar, the £-prices, and to a lesser extent, €-prices increased instantly after the referendum result. However, this effect has already flattened out after one week and is expected to rebalance.

 
 

 

Investor confidence: under pressure
The uncertainty around the Brexit is arguably making financiers and investors nervous in the short term. When the sector is confronted with this variability, investors tend to hold off on spending. However, given the UK’s own ambitious renewable energy targets and long lead-time on project development, there may be no immediate impact on sector growth. The Wall Street Journal even argued that in highly competitive environments, such as the PV market, investors will not take a ‘wait and see attitude’ towards the post-Brexit world, but instead invest and hire in order to take advantage of opportunities that may arise when Britain is no longer shackled to Europe.

Brexit UK EU

EU-China trade deal: loss of UK free trade support
According to diplomats, the UK was in 2013 among the 14 EU members that opposed to punitive tariffs on Chinese solar panels. Within the EU, the UK was one of the greatest advocates of free trade. The Brexit will undoubtedly cast a shadow on the EU-China PV trade deal. European companies lose with the UK an ally in favour of free trade and thus against the import duties.

UK-China trade deal: difficult and lengthy process
During a visit to the UK last year, Chinese president Xi Jinping called openly (which is exceptional) on Britain to remain in the European Union: “China hopes to see a prosperous Europe and a united EU, and hopes Britain, as an important member of the EU, can play an even more positive and constructive role in promoting the China-EU ties”. China has since called for a calm response to the Brexit vote, stating that a “stable and united European Union was in the interest of all parties”. It might however prove hard for the UK to negotiate a more favourable trade deal with China. The China Daily reported that it will take 500 British officials and 10 years to agree a new trade deal with China.

Brexit CN UK

Free trade in UK: removal of MIP and duties
The European duties on Chinese solar products, and the price undertaking, have significantly restricted the number of installations in Europe. As Europe has no solar manufacturers that are competitive on a global scale, the minimum import price (MIP) simply pushes up the price of projects with no discernable benefit in return. In addition the UK has even no domestic solar manufacturing to speak of, so there is absolutely no reason for the country to keep trade barriers in place. The hope is that the MIP could potentially go, on large-scale projects that accounts for a price difference of $50.000 $ to $100.000 per megawatt. With more competitive and high quality solar panels available to the UK, the market will get stimulated.

Conclusion
In the short term, the market is not impacted by the Brexit, apart from some temporary market and currency volatility. In the mid term, it will be important to preserve investor confidence in the UK. The UK solar market could in fact benefit in the long run, if it manages to get rid of the stifling EU import duties. On the other hand, the EU PV market loses with the UK an important partner in its fight against the counterproductive EU trade barriers.