By Michael Parr, Executive Director, Ultra-Low-Carbon Solar Alliance
Global supply chains are in shambles, leading to higher prices and delays in delivery of all kinds of products. Shipping delays, staff shortages related to COVID-19 and rising raw material costs are all contributing to higher solar costs and limited inventories. But solar energy is slightly different from other manufactured products. There are factors that pose significant delivery risks well into the future, long after current issues have been resolved.
Unique Risks in China’s Solar Supply Chain
Global solar energy production is over-concentrated in China, where unsustainable practices are taking place in parts of the supply chain. Much of the growth in China’s solar energy production is taking place in Xinjiang Province. Production there is powered by coal, and the US government claims that China uses forced labor by Uyghurs and other Muslim majorities in its factories.
As a result, many buyers shy away from solar panels whose supply chains extend as far as Xinjiang. Also, the US Customs and Border Protection Agency is reversing imports of modules it suspects have links to Xinjiang.
This limits the supply of solar panels. Some analysts predict that half of planned solar projects by 2022 may not be completed. This is a serious challenge given the role solar energy plays in addressing global carbon emissions and energy needs. Furthermore, these supply challenges will only increase and could threaten the rate 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 the expected demand for solar energy, manufacturers will have to expand their capacity. If production is continued exclusively in China, the carbon emissions from solar panel production double the global emissions of the aluminum industry within 20 years.
The location of new factories will determine whether manufacturers produce the low-carbon solar energy the world needs. If new factories are built in low-carbon economies, we can create a more geographically diverse, resilient and sustainable solar supply chain.
We are already seeing signs of that. The production capacity of solar panels in the United States is expected to double in the next two years, and we are witnessing extensive production in Europe and other parts of Asia. Due to tariffs, Chinese companies cannot import solar grade polysilicon from any of the three US manufacturers to make solar wafers. As a result, these clean producers are not running at full speed.
In a clear sign of supply chain realignment, a major Chinese firm has announced that it will build a large solar wafer factory in Vietnam. It has signed supply contracts with US polysilicon producers, creating an alternative supply chain that does not cross Xinjiang. This will unlock stranded polysilicon production capacity in the US and rapidly expand the supply of low-carbon solar panels.
Policymakers come into play
India has an important program to promote solar energy production. In the United States, the reconciliation package includes significant tax incentives to deploy solar energy and provides additional value for solar panels made with domestic content. It also includes the provisions of the Solar Energy Manufacturing for America Act, which provides tax credits for companies scaling up solar energy production in America.
The Reclaiming the Solar Supply Chain Act, which would help reduce the cost of building solar power production facilities in the United States, has been introduced in the House of Representatives. And the Global Electronics Council is adapting its global eco-label for sustainability, EPEAT, to include carbon criteria for solar panels. This allows buyers to specify low-carbon solar panels in their projects and power purchase agreements with confidence, as the eco-labels provide rigorous third-party verification of carbon claims.
The way to a better solar energy supply chain
This is not to say that this transition will be easy. It will take time to build this supply chain. But there is clear progress, and these short-term supply problems pale in comparison to the risks posed by the current supply chain.
And what about the costs? The price of solar panels has been falling for years. In part, that reflects the extensive subsidies, lenient environmental standards, aggressive trade policies and cheap capital that characterize the Chinese government’s approach to solar energy production. Manufacturers outside of China therefore had to become more efficient in order to compete.
Factories are highly automated and companies are increasingly building gigawatt-scale factories to give them economies of scale. With a better solar energy supply chain, we will continue to see the cost of solar energy come down.
But companies need to consider more than just the price on an invoice. They have to account for the billions of tons of excess carbon emissions, the continued use of forced labor and the unreliable supply. This is especially true for companies with strong environmental, social and governance (ESG) obligations.
We can build a better solar supply chain while making the low-cost, low-carbon products needed to meet our decarbonisation goals. Solar buyers play a key role by requiring the use of sustainable, low-carbon solar panels in their power purchase projects and agreements. That signal will motivate solar manufacturers to build their next factories in low-carbon economies. That’s a vicious circle.
Michael Parr is Executive Director of the Ultra-Low-Carbon Solar Alliance, which represents companies across the solar supply chain working to decarbonise solar production. He has over 40 years of experience in energy, manufacturing and public policy.