China dominates the solar vitality business. Can the US catch up? –

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The recent infrastructure deal between Congress and the Biden administration doesn't give the president everything his party wanted on the clean energy front. It leaves out incentives to invest more in solar energy – the Democrats have said they will not give up.

But it will take a lot to make the United States a major competitor in the production of solar systems. China is the dominant actor; About 80% of the global supply chain for solar production runs through China. There are very few American solar manufacturers left. That was not the case before.

Of all newly installed electrical power in the United States last year, 40 percent was solar. The price of solar panels has decreased by 70% over the past decade, in large part due to Chinese production.

“When you have and have installed a solar panel on your roof [it] For the past five to ten years in the US, it has most likely been made in China by a Chinese manufacturer, ”said Jordan Schneider of the Rhodium Group, which analyzes China's economic development along with its global energy and political issues.

Before 2000, China's solar production was limited to its space program and military, according to Chen Gang, senior research fellow at the East Asian Institute at the National University of Singapore.

“It had its first solar panel in the 1970s to power its first satellite, but it was pretty late for commercial production,” he said. In 2000, China produced nearly 0% of the world's solar systems. By 2012 it produced 60% and is now the world's dominant player.

An open door for China

Mark Widmar, CEO of US solar maker First Solar, said this transformation began when solar makers in Europe and other affluent economies began relocating their manufacturing facilities to China in the 2000s.

“That opened the door to China because now China had the opportunity to learn, gain insights, perspectives, technology and things that it couldn't without them,” he said.

At this point in time, the technology transfer was “still possible and possible on a large scale,” said Gang.

Chinese entrepreneurs began making their own solar products, destined for places like Europe, where governments subsidized the installation of solar power. They benefited from the same strategies that made China so successful in manufacturing in general, said Schneider of the Rhodium Group.

“They had a really tight supply chain with suppliers in the same city, incredible competition that resulted in lower prices and the help of the Chinese government,” he said.

And then came the Great Recession from 2007 to 2009. The demand for solar systems collapsed and the global energy market bottomed out. The solar industry was struggling worldwide.

“Hibernation” during the Great Recession

“These Chinese companies were able to shut down and hibernate more efficiently than the western companies,” said Schneider.

At around the same time, the Chinese government stepped in. “Governments at all levels have recognized this industry as something of strategic importance and have begun to give a lot of support,” said Chen Gang, senior research fellow at the East Asian Institute at Singapore National University.

Building the solar manufacturing industry – at many points along the supply chain – has become a national priority. The Chinese government financed research laboratories at solar companies and promoted the upstream production of polysilicon, one of the most important raw materials for solar modules. In addition, says Chen Gang, “the government gives a lot of subsidies to energy because this industry needs a lot of energy, and cheap land and bank loans too. They all help Chinese industry become more competitive. ”Much of the support came from local governments, which he says little is known about.

Until 2013, China boosted the demand for solar in China.

“Solar parks had very strong incentives to build … and the demand for solar panels and solar panels increased significantly,” said Dennis Ip, an analyst at Daiwa Capital Markets in Hong Kong. “The supply chain exploded aggressively in 2016,” with the installed capacity doubling this year, making it the world's largest producer of solar power.

Some government support is said to have been more covert. In 2014, a grand jury accused five hackers working for China's military for hacking solar technology from US companies and then sharing it with Chinese companies. In 2020, prosecutors accused another group of hackers of collaborating with the Chinese Ministry of State Security to steal industrial intellectual property, including solar panels.

First Solar's Widmer said government support in all its forms has helped Chinese companies differentiate themselves from the competition.

“They subsidize industries, strongly motivate them to create excess capacities, which then creates pricing power. They are exporting this product to international markets with predatory pricing behavior and smashing all competition, ”he said.

Tariffs on Chinese solar products

Both the US and Europe accused China of unfair dumping and, from 2012, imposed tariffs on certain Chinese solar products. However, China responded with tariffs on US polysilicon producers that both protected its own polysilicon producers and significantly damaged US production. China's dominance in the supply chain only grew.

John Smirnow, General Counsel of the Solar Energy Industries Association, said that aside from debates over dumping, there is a lesson to be learned from China's approach.

“It still cannot be denied that the Chinese state and federal government have made significant long-term investments in these industries,” he said.

The emphasis is on “long term”. In contrast to China's continued commitment, the US has always taken a new approach to its support for solar energy. Tax credits were allowed to expire and then re-enacted over and over, said Michael Davidson, assistant professor at the University of California at San Diego.

“That did not result in a very strong market signal and this uncertainty could hold back any US manufacturer hoping to move into the US,” said Davidson.

China is currently reducing its subsidies, its solar industry is mature, and its overcapacity has caused problems even for Chinese companies.

“Production was faced with enormous overcapacity,” said Gang. “There is even over-competition among Chinese manufacturers of solar modules, so the situation is very chaotic.”

The USA has a long catching up to do.

“If you're in the US or Europe trying to raise capital for solar systems … it's difficult. In many ways it is not investable because there is no level playing field, ”said Widmar from First Solar.

That won't change quickly, said Daiwas Ip.

“Building a completely new supply chain at low cost within five years is very difficult, so I think China's solar sector will continue to dominate for the next three to five years.”

The U.S. solar industry, meanwhile, is urging the U.S. government to invest in research and development, offer long-term tax credits on investments, and encourage more demand – basically to take a page out of China's book.

“You need a number of federal investments that focus on three elements,” said Smirnov of SEIA. “On the one hand, you need a demand signal that comes in the form of a long-term extension of the investment tax credit. This is our top priority. You also need government support to incentivize private capital to invest in manufacturing facilities and equipment. ”Third, Smirnov said, the US needs to fill the gaps in the supply chain in the manufacture of materials and components such as Solar glass.

“It will take time,” he said.


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