"Instability" in the China-EU PV Price Commitment Agreement
August 25 09:07:10, 2025
Under the circumstances where the ideal outcome of free trade cannot be achieved, the China-EU PV price commitment agreement represents a less-than-ideal but necessary compromise. The primary concern today is whether the pricing rules within this agreement are sufficiently flexible to adapt to market changes. With rapid technological advancements and shifting dynamics in the energy sector, the cost and price of photovoltaic products are expected to continue declining. If the pricing mechanism fails to account for these trends, Chinese companies could face exclusion from the EU market due to enforced high prices.
In the short term, the price commitments negotiated between the China Photovoltaic Products Import and Export Chamber of Commerce, the China Photovoltaic Industry Alliance, and the European Commission have helped avoid a major trade conflict. This arrangement allows Chinese PV products to continue entering the EU market under agreed terms, maintaining a stable market share and reducing industry uncertainty. While not ideal, it serves as a practical solution when free trade is unattainable.
Looking at the minimum import price of 0.56 euros per watt, the current spot price of Chinese solar panels in Europe is significantly lower than the 0.8 euro per watt proposed by the European Photovoltaic Industry Alliance, which reflects a protectionist stance. This suggests that the price competitiveness of Chinese PV products remains strong. According to Reuters, the agreement allows China to supply 7 billion watts of panels to the EU market—nearly 47% of the total 15 billion watts consumed last year. Even with a 47.6% tariff, this market share is still acceptable. However, the combination of price commitments and tariffs may lead to reduced demand in the EU, potentially shrinking the overall market. In the short term, the 7 billion watts of supply might even exceed 47% of the market share.
Since the EU Trade Commission introduced its preliminary tariff proposal on June 5, demand and sales of PV products in Europe have already declined sharply. Additionally, if this agreement is paired with domestic industrial restructuring, it could also drive efficiency improvements and long-term sustainability within the Chinese PV sector.
Despite these benefits, there are still uncertainties surrounding the agreement. The detailed terms, pricing formula, and duration of the deal have not been officially announced. Our main concern is whether the pricing mechanism will allow for flexibility in response to future changes in fossil fuel prices and technological progress. If the agreement is too rigid and does not adjust to falling fossil fuel prices or faster innovation, Chinese companies could eventually be priced out of the EU market.
Technological progress is a key factor in determining the reasonable price of any product, especially in fast-evolving industries like photovoltaics. Over the past decade, the cost of PV has dropped rapidly, outpacing traditional industries. China’s PV industry has seen even faster reductions in cost and improvements in efficiency compared to its global competitors. However, this doesn’t mean overseas players won’t make significant progress in the coming years, even if their pace lags behind China’s.
The biggest challenge for the global PV industry is not competition from other countries, but the dominance of fossil fuels. Solar power is growing rapidly in a context where oil and natural gas prices are rising. However, solar still faces challenges in terms of reliability and grid stability. Without continued cost reductions, it risks being left behind in the broader energy market.
It's important to note that while oil prices remain around $100 per barrel, this is largely driven by geopolitical speculation rather than solid fundamentals. For instance, coal prices in China have dropped from 1,200 yuan per ton to under 600 yuan, and the U.S. "shale gas revolution" has put downward pressure on global natural gas prices. As more liquefied natural gas (LNG) projects come online in East Asia, the region’s previously high-priced natural gas market is expected to see a sharp decline. If fossil fuel prices fall, the pressure on PV to compete will increase.
If the pricing rules in the China-EU agreement are too inflexible, they may fail to respond to future declines in fossil fuel prices or technological breakthroughs. Within three to five years, traditional energy prices could drop, leading to a similar decline in PV prices in the EU. Although Chinese companies maintain cost advantages, they may struggle to remain profitable if the price commitment clause prevents them from adjusting to market conditions.
To mitigate such risks, it's essential to expand the domestic market and reduce reliance on foreign demand. Another key concern is how the agreement will be perceived in relation to antitrust regulations.
The negotiations were conducted by several industry groups, including the China Chamber of Commerce for Import and Export of Mechanical and Electrical Products and the China Photovoltaic Industry Alliance. These groups believe the agreement will be implemented in the future. However, this kind of coordination resembles the practice of setting up a commodity branch through the Foreign Trade and Economic Cooperation Chamber of China to manage member companies’ behavior and prevent low-price competition.
This approach, however, raises concerns about potential anti-monopoly accusations. When trade protectionists use anti-monopoly laws as a tool against China, they aim to suppress its ability to gain market influence. The Sino-US vitamin C case, which lasted eight years, shows how vulnerable Chinese firms can be. In 2023, a U.S. court ruled that Chinese vitamin C producers had monopolized the U.S. market, setting a dangerous precedent.
China has established and used export price coordination mechanisms, which have been labeled as “monopoly manipulation†by Western countries. Given this, the China-EU PV price commitment agreement could easily be interpreted as a monopoly. We must not ignore this risk. To reduce the chances of facing anti-monopoly claims in the EU, it’s crucial to seek formal recognition of China’s existing and future price coordination mechanisms and ensure they are not classified as anti-competitive behavior.
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