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Geopolitics on the rise in solar PV manufacturing: IHS Markit

08 February 2022 Kevin Adler

Geopolitics is becoming a major factor in the solar PV industry, according to IHS Markit, as nations across the world seeks ways to expand their installation and manufacturing capacity in order to meet climate goals and decrease their dependency on China.

China is the dominant player in solar PV component supply, with IHS Markit saying that it accounts for about 70% of solar panels and an even higher percentage of solar PV cells manufactured each year. Concern among governments in North America, Europe, and elsewhere is growing about their reliance on China for the components, and the supply chain woes created by the COVID-19 pandemic brought the issue into greater focus.

New worldwide solar PV installations (utility and rooftop) will reach 220 GW in 2022, which IHS Markit said would be a record because it would translate into 20% higher capacity than the 180 GW installed in 2021.

This expectation comes despite solar PV supply chain tightness persisting in 2022, particularly in the first half of the year, IHS Markit said. But it sees "some positive developments that will alleviate the current supply chain challenges," such as existing producers ramping up new polysilicon capacity and additional companies investing in wafer production.

At the same time, world leaders are assessing how they can strengthen their countries' solar PV industries. "Trade barriers and geopolitics will start to reshape the global manufacturing map," IHS Markit said.

India

India is seeking to install at least 280 GW of solar PV capacity by 2030, an integral part of bending the curve on its emissions profile and eventually reaching net-zero by 2070.

IHS Markit estimates 80%-90% of India's solar components today are imported, with China the main supplier. Government figures show India currently has annual production capacity of just 2.5 GW for PV cells and 9-10 GW for modules. Its goal is to reach 30-35 GW of module capacity by 2025.

To support the fledgling industry, India has launched the Production Linked Incentive (PLI) scheme that is aimed at reducing dependency on solar module imports. The program includes Rs 19,500 crore ($2.61 billion) in the country's budget for April 2022 to March 2023 to promote domestic PV module manufacturing. Subsidies are available to selected module plants for up to five years based on their sales, product quality, and local content.

Europe

The European Commission (EC) has a target of 40% renewable power generation across the EU by 2030 under the European Green Deal. The updated "Guidelines on State Aid for Climate, Environmental Protection and Energy," which came into effect on 1 January, are the latest program to support installation of solar PV. The guidelines include exemptions from competitive bidding processes for community PV projects up to 6 MW of capacity and rooftop solar up to 1 MW.

But, as with most of Europe's incentives for solar PV, that's a push on the demand side, not the production side. The figure that's been cited by the EC and industry groups is 20 GW of annual manufacturing and assembly capacity, as noted in the European Solar Initiative.

Recognizing that more needs to be done for the supply chain, the EC on 18 January opened a comment period (through 22 April) for industry and others to provide information on "the benefits of an integrated energy system," including domestic manufacturing capability.

In a letter, solar firms BayWa r.e., EDF Renewables, Enel Green Power, ENGIE, Iberdrola Renewables, Amarenco, Akuo Energy, and Vattenfall Solar backed the 20 GW goal, and they estimated that development of 2 GW/year of cell manufacturing capacity is underway at this time.

The EC has estimated that 420 GW of total renewable power will need to be available by 2030, compared with about 120 GW as of the end of 2021, implying annual installations of all renewables of more than 30 GW per year.

SolarPower Europe, a trade group, reported in December that 25.9 GW of new solar PV capacity was installed in EU member states in 2021, a record amount, and an increase of 34% on the 19.3 GW installed in 2020. For the industry to continue to grow rapidly, the group said member states must raise their solar targets, remove site permitting bottlenecks, and support a homegrown manufacturing sector. "The forecast is bright for European solar, but an industry can only develop sustainably with a comprehensive vision of its supply chain," said Michael Schmela, head of market intelligence at SolarPower Europe.

US activity

In the US, two developments this month show how the federal government is working on bolstering domestic manufacturing.

On 4 February, the Biden administration extended Section 201 tariffs on imported crystalline silicon solar voltaic panels (CSVP) and solar cells for four more years. The tariff rate will be 14.75% from 7 February 2022 through 6 February 2023; and it will decline by 0.25% in each of the subsequent three years. For comparison, the rate that expired on 6 February was 15%.

To avoid interfering with the current pace of solar installation now, Biden exempted the first 5 GW of cells imported each year from the tariff, thereby doubling the tariff-free 2.5-GW quota for the past four years. Biden also maintained the existing exclusion for bifacial panels under the policy.

The tariffs were imposed in 2018 by the US International Trade Commission (ITC) for four years as part of President Donald Trump's America First industrial policy.

Reaction to the tariff extension by the US solar industry has been generally positive, but industry groups say much more needs to be done.

"The decision to extend the 201 exclusion for bifacial modules is a win for jobs and a win for the president's climate agenda," said Heather Zichal, president of the American Clean Power Association (ACPA), which represents companies throughout the renewables value chain. "The president's decision to extend the tariffs, applicable to monofacial solar cells and modules, gives the domestic solar manufacturing industry four more years to adjust to import competition as intended by the statute."

The Solar Energy Industries Association (SEIA), which represents more than 1,000 solar and battery companies, said it is "disappointed" by the continued tariffs. But SEIA credited the administration with "a balanced solution in upholding the exclusion for bifacial panels and increasing the tariff rate quota for cells."

In a lengthy comment statement to the ITC in October 2021, SEIA outlined a variety of reasons why the tariff program has been ineffective and should be ended, arguing it should be replaced by targeted tax credits for new capacity.

In particular, SEIA noted that US manufacturers still have not built any CSVP production capacity even though the tariff on CSVP cells has been in place since 2018. In the module assembly sector—also protected by the tariff—US capacity has more than tripled since 2018, but SEIA said "domestic supply remains quite small in comparison to the need."

One big problem is a mismatch between the type of module assembly available in the US and the market's needs. According to SEIA, most US module assembly is focused on the rooftop solar market and uses monofacial panels. Even new assembly plants that have opened since 2019 focus on rooftop solar applications, as the wattage of the panels they use is not high enough for utility-scale use, and are not the bifacial option that utilities prefer. But about 75% of annual US installations (by capacity) are for the utility market. Since the tariff exempts bifacial panels, it's protecting an industry that barely exists in the US.

The one US company with a significant presence in utility-scale modules is First Solar, with about 2.2 GW of capacity at its Ohio production plant, and construction underway for a new 3.3-GW facility in the state. The company wanted the exemption for bifacial panels to be removed, First Solar CEO Mark Widmar said in a statement on 4 February.

"This exclusion un-levels the playing field by providing unlawfully subsidized bifacial panels an instant, artificial advantage over other panel types, an advantage that is based not on real-world performance or true competitiveness, but merely on distinguishing where the cells happen to be located on the panel. With bifacial being the dominant Chinese solar product today, this decision effectively allows China to outflank American efforts to grow self-reliant solar supply chains," Widmar said.

The American Council on Renewable Energy (ACORE) saw some positives in extending the tariff, in the sense that it does not interfere with "access to the materials and equipment we need to deploy more renewable energy on the grid." But ACORE said it's not a substitute for "focus … on growing the robust domestic supply chain needed to accelerate the energy transition."

Tax incentives

ACORE and SEIA say that the solution is tax incentives, not tariffs. "Tariffs have not created a domestic integrated supply chain, only a few highly automated module assembly plants employing an additional thousand employees," SEIA noted in its letter to the ITC.

Last year, US Senator Jon Ossoff, Democrat-Georgia, proposed tax credits for American polysilicon, solar cell, tracker, and inverter manufacturers as an amendment to the Build Back Better Act. SEIA supported the bill. Although Build Back Better died in the US Senate last month, Democrats say they believe the renewable energy components of the legislation can be passed as a smaller bill this spring.

Another possibility is The America Competes Act, which passed the US House of Representatives on 4 February. It contains $3 billion in loans for US solar component manufacturing facilities within a $252-billion bill that's primarily about protecting US intellectual property against China and regrowing the US computer chipmaker industry that has been overtaken by Asian producers.

In June, the US Senate passed a similar bill, the CHIPS for America Act, with a price tag of $250 billion, and the two legislative bodies will meet soon to reconcile their bills.

Indicative of the sensitivity of China about solar components, China's Ministry of Commerce issued a statement on 5 February critical of The America Competes Act. The bill "does not help the healthy development of the domestic US industry [and will] distort the normal order of international trade in photovoltaics," it said (translated).

Republicans said the bill is irrelevant to actually winning trade contests against China. Representative Cathy McMorris Rodgers, of Washington state, who is the top Republican on the House Energy and Commerce Committee, derided the bill as "The America Concedes Act." The solution, she said, is abandoning "the radical agenda" of Democrats and President Biden, particularly new limits on permitting for critical minerals and fossil fuel projects.

McMorris Rodgers said the $3-billion loan guarantee for solar manufacturing reminds her of the Solyndra debacle of the first decade of the 2000s. Solyndra said it had developed a superior model for rooftop solar panels using crystalline silicon and a unique design; the company received $535 million in US Department of Energy (DOE) funding, in addition to California tax breaks. It was unable to compete with other technologies based on polysilicon components, and declared bankruptcy in 2011, at a loss of $528 million to DOE.

A repeat is in the offing, McMorris Rodgers warned. "The $3 billion Domestic Solar Manufacturing Program [has] less waste, fraud, and abuse protections than what had led to Solyndra. This is supercharged Solyndra that would make us more dependent upon China," she said.

Posted 08 February 2022 by Kevin Adler, Chief Editor

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