By Michael Parr, Executive Director, Ultra Low-Carbon Solar Alliance
Global supply chains are a mess, leading to higher prices and delivery delays for all kinds of products. Shipping delays, worker shortages associated with COVID-19 and rising commodity costs are all contributing to higher solar costs and constrained supplies. But solar is somewhat different than other manufactured products. There are factors that create significant supply risks well into the future, long after the current problems are resolved.
Unique risks in the Chinese solar supply chain
Global solar manufacturing is overconcentrated in China, where there are unsustainable practices in parts of the supply chain. Much of the growth in Chinese solar manufacturing is in Xinjiang province. Production there is powered by coal, and the U.S. government contends that China uses forced labor by Uyghurs and other Muslim majorities in its factories.
Because of this, many buyers are shying away from solar panels whose supply chains reach into Xinjiang. Also, the U.S. Customs and Border Protection agency is turning back imports of modules where it suspect ties to Xinjiang.
This is constraining the supply of solar panels. Some analysts are projecting that one-half of the planned solar projects for 2022 may not be completed. This is a serious challenge given the role that solar energy plays in addressing global carbon emissions and energy needs. Further, these supply challenges will only grow and may threaten the pace of carbon reduction.
Opportunities for resilient growth
But there is good news. There are many companies making low-carbon solar components and finished modules outside of China. To meet projected solar demand, manufacturers will have to expand capacity. If manufacturing continues solely in China, carbon emissions from solar panel manufacturing could double the global emissions of the aluminum industry within 20 years.
The location of new factories will determine whether manufacturers produce low-carbon solar that the world needs. If new factories are built in lower carbon economies, we can create a more geographically diverse, resilient and sustainable solar supply chain.
We are already seeing signs of this. Solar panel manufacturing capacity in the United States is projected to double in the next two years, and we are witnessing expanded manufacturing in Europe and other parts of Asia as well. Because of tariffs, Chinese companies cannot import solar grade polysilicon from any of the three U.S. producers to make solar wafers. As a result, these clean producers are not operating at full capacity.
In a clear sign of supply chain realignment, a major Chinese firm has announced that it will build a large solar wafer plant in Vietnam. It has signed supply contracts with U.S. polysilicon producers, creating an alternate supply chain that does not pass through Xinjiang. This will unlock stranded U.S. polysilicon manufacturing capacity and rapidly expand the supply of low-carbon solar panels.
Policy makers are getting into the game
India has a major program to promote solar manufacturing. In the United States, the reconciliation package contains significant tax incentives to deploy solar and provides extra value for solar panels made with domestic content. It also contains the provisions of the Solar Energy Manufacturing for America Act, which provides tax credits for companies that scale up solar manufacturing in America.
The Reclaiming the Solar Supply Chain Act, which would help reduce the cost of building solar manufacturing facilities in the United States, has been introduced in the House of Representatives. And the Global Electronics Council is modifying its global sustainability ecolabel, EPEAT, to include carbon criteria for solar panels. This will allow buyers to specify low-carbon solar panels in their projects and power purchase agreements with confidence because the ecolabels provide rigorous third-party verification of carbon claims.
The pathway to a better solar supply chain
This is not to say this transition will be easy. It will take time to build this supply chain. But there’s clear progress, and these short-term supply troubles pale in comparison to the risks presented by the current supply chain.
And what about the cost? The price of solar panels has tumbled for years. In part that reflects the extensive subsidies, lenient environmental standards, aggressive trade policies and cheap capital that have characterized the Chinese government’s approach to solar manufacturing. So, manufacturers outside China have had to become more efficient to compete.
Plants have become highly automated, and companies increasingly build gigawatt-scale factories to give them economies of scale. With a better solar supply chain, we will continue to see solar costs decline.
But companies must consider more than just the price on an invoice. They must factor in the billions of tons of excess carbon emissions, the continued use of forced labor and unreliable supply. That’s especially true for companies with strong environmental, social and governance (ESG) commitments.
We can build a better solar supply chain while making low-cost, low-carbon products needed to meet our decarbonization goals. Solar buyers have a key role to play by demanding the use of sustainable, low carbon solar panels in their projects and power purchase agreements. That signal will motivate solar manufacturers to build their next plants in low carbon economies. Now that’s a virtuous circle.
Michael Parr is executive director of the Ultra Low-Carbon Solar Alliance, which represents companies across the solar supply chain working to decarbonize solar manufacturing. He has over 40 years of experience in energy, manufacturing, and public policy.