Solar Manufacturing Seeks A China Fix As Regions Push For Energy Security

Solar manufacturing, until now synonymous with giant factories in China is now finding its roots in several new hotspots worldwide. Initiatives to boost solar manufacturing are being taken worldwide as the world has accelerated the efforts to shift to renewables in a bid to move toward a sustainable future. Notably, over the last decade, the amount of solar PV deployed around the world has increased massively while its costs have declined drastically, mostly thanks to the scale the Chinese brought to the market. The $61 billion modules market (2021) is expected to grow at a CAGR of between 4-6% to 2030, making it a worthwhile opportunity for many countries to seek a share.

Chinese Dominance

The manufacturing capacity for solar panels has increasingly moved out of Europe, Japan, and the United States over the last decade – especially into China which has taken the lead on investment and innovation, as per one IEA report. China’s investment rose to over USD 50 billion in new PV supply capacity – about ten times more than Europe through the last decade. Close to 80 per cent of the world’s solar energy industry is located in China, with dominance especially strong in Ingots, Wafers and cell production, besides polysilicon and Modules. However, with prices for panels dropping sharply, the transportation costs matter more now, helping make other places near consumption centres competitive, especially for module making.

China dominates manufacturing solar and its components like few other sectors it is strong in. As per one report, China exported 49 GW of solar modules in the first four months of this year. Half of these, 24.4 GW, were bought by European countries. But covid, supply disruptions from China, and fear of compromising their energy security and retaining jobs has driven a lot of the biggest consuming countries to support manufacturing within their own borders now. These efforts, sporadic and largely unsuccessful until Covid, have now taken on a life of its own as urgency has grown, particularly after the Russia -Ukraine war and the energy crisis it has triggered. We look at the key moves made and progress so far

European Union

The western world has remained a major hub for solar manufacturing and the efforts of some of these developed countries pushed solar power into vogue. Yet, the EU countries together roughly share 3 per cent of global solar manufacturing capacity. Recently, the Commission tried to go beyond its current state as it formally endorsed a new Solar Photovoltaic Industry Alliance.

With the new alliance, the commission looks to scale up manufacturing technologies of innovative solar photovoltaic products and components in the face of current geo-political dynamics – such as the Ukraine-Russia war – that hint toward the need to improve the resilience of the EU’s energy system. and accelerate the deployment of solar power across the EU.

The Alliance finds its roots in the EU Solar Energy Strategy, adopted in May 2022 as part of the REPowerEU Plan. The plan is expected to help the EU reach over 320 GW of newly installed solar photovoltaic capacity by 2025, and almost 600 GW by 2030.

Further, the European Solar Initiative is also launched in February 2021, to re-develop the 20-GW manufacturing capacity of solar PV technologies in Europe by 2025. With the help of its two arms, namely the Solar Manufacturing Accelerator and the Business Investment Platform, the initiative aims to scale up solar PV manufacturing capacity. A year earlier, in September 2020, Europe also launched the Solar Industrial Programme to accelerate the implementation of solar PV component manufacturing projects.

Rise of Domestic Manufacturing

Several solar manufacturing companies in EU have come alive in past few years.

The European interest in rejuvenating its solar manufacturing may well be one of the reasons that Meyer Burger Technology AG seems turning around its no profit-making run of at least twelve months. The Switzerland-based solar module manufacturer recently sealed a supply agreement with US project developer DE Shaw Renewable Investments (DESRI). The company will supply 3.75 GW to 5 GW of HJT solar modules to DESRI over a period of five years from 2024. Meyer Burger believes it is positioned to benefit from political momentum evident from not only European initiatives – Fit for 55 package and REPowerEU Plan – but also the US Inflation Reduction Act. Meyer Burger is now targeting around 3 GW of new annual production capacity by the end of 2024.

Some solar manufacturers looked to expand making use of the commission’s initiatives such as Innovation Fund. In April 2022, The Italian renewable energy firm Enel Green Power signed a grant agreement with the European Commission to build a solar panel gigafactory in Italy for which the grant will be offered under the European Union’s (EU) first Innovation Fund to build an industrial-scale bifacial photovoltaic (PV) module production facility.

There are some other solar manufacturers who also got push with recent measures and initiatives taken to boost domestic solar manufacturing in EU, such as SolarWorld, Hanwha Q Cells, Kioto Solar, Photowatt, etc. Reliance owned REC Solar has also got an award of grant from the European Union for the construction of a 2 GW heterojunction (HJT) module factory in France. Italy based Peimar with it’s 500 MW PV manufacturing line is also looking outwards for growth now.

United States

The initiative of the US for boosting its manufacturing is to first restrict the firms allegedly trying to evade US trade laws. Earlier this year, the country extended tariffs on solar products containing crystalline silicon from China. The Uyghur Forced Labor Prevention Act banned products including solar components from China’s Xinjiang region.

While the American Solar bodies have been against these probes, raising alarms that such actions would pose a huge risk to clean power growth in the country, the US manufacturers welcomed the curbs and demanded more support for domestic growth. The domestic manufacturers of the US are expected to add 5.6 GW of solar capacity out of over 15 GW the country hopes to bag by the end of the current year.

Earlier this year, lawmakers passed the Inflation Reduction Act (IRA) 2022 may help the US compete with China in terms of renewable production, especially solar energy. The act introduced an investment package of $369 billion for the clean energy transition. It will be a critical factor for the country which aims to triple domestic solar manufacturing by 2024. The region has less than a 3 per cent share of global solar panel manufacturing capacity.

Rise of Domestic Manufacturing

The reawakening of the government of the US in support of indigenous growth of technology saw emergence of domestic manufacturing. The recent measures are expected to go a long way as they worked in the past.

Because of 30 per cent import tariffs earlier implemented by the Trump Administration in 2018, and extended by Biden administration, which affected solar panels and manufacturing materials several Asian solar companies, most notably those in China, have begun moving operations and manufacturing solar panels in America.

More importantly, these initiatives gave room for the growth of domestic solar manufacturers, such as First Solar, Inc. The growth of the Arizona-based company can be ascertained by observing its share price which jumped 153 per cent higher than it was three years ago. It is the only domestic company in the top solar equipment manufacturing with headquarter at US. In the aftermath of Inflation Reduction Act, the shares of the company have doubled since July 2022 and are up more than 70 per cent year-to-date. First Solar also announced its intent to build its fourth domestic factory with an annual capacity of 3.5 GWDC, in the US Southeast as the company expects to invest up to $1 billion in the new factory. First Solar also has plans to establish a 3.2 GW plant in India for its thin film solar modules.

Australia

Australia has taken a remarkable initiative in solar equipment manufacturing toward harnessing the country’s renewable energy potential. The legislation to establish the $15 billion National Reconstruction Fund (NRF) is introduced to parliament. The fund aims to boost investment in onshore manufacturing, including the production of not only solar panels but also batteries and hydrogen electrolysers, and components for wind turbines.

The federal government is now in a stage of consultation with investors and industry as it looks to shape the government-owned finance corporation which will allocate up to $3 billion.

Middle East

The middle east offers the best location to harness solar energy. Yet, the region itself lacks manufacturing of solar components and is dependent on imports to develop its solar power projects. Though, middle eastern nations are now exploring solar manufacturing initiatives as well.

Saudi Arabia has attracted PV Hardware (PVH) to exploit the country’s market, a critical move toward the Kingdom’s 2030 sustainability goals. PVH announced the launch of its manufacturing facility, PV Hardware Middle East will produce PV trackers, mounting structures, and robotic cleaning devices. Further, the company will develop and train local manufacturers, equipping them with the knowledge to produce subassembly parts of the technology themselves.

Bin Omairah Holding, a Saudi electric company, launched the largest factory for solar panels production in the Middle East and North Africa (MENA) region, in Tabuk Industrial City, with a production capacity of nearly 1.2 GW.

The UAE is a member of a multi-country alliance spearheaded by the International Renewable Energy Agency (IRENA) and India-headquartered International Solar Alliance (ISA) to diversify global solar manufacturing supply chains.

South East Asia

South East has become one of the solar manufacturing hubs, although most of the manufacturing system built up in South East Asia, especially Vietnam, Malaysia, and Thailand, is allegedly Chinese-backed – schemed to skirt sanctions on direct imports from China in the US and other markets.

Some of the biggest names in solar manufacturing hail from the region, such as Boviet Solar and Allesun which operate with two manufacturers in Vietnam & Cambodia, specializing in solar cell and module manufacturing.

Latin America

For now, the efforts to domestic production on the South American continent are mostly driven by private players. Mexican solar module manufacturer Solarever recently announced an investment of US$1 billion to develop an industrial park in Jalisco dedicated to developing modules, solar cells, batteries, aluminium and glass, among other elements needed to produce solar panels.

Similarly, Brazilian PV system provider Sengi Solar announced an investment of BRL 440 million ($85 million) for the construction of two solar panel factories with a combined capacity of 1GW in the states of Paraná and Pernambuco.

Conclusion

All in all, it has to be said that the face of the solar market might wear a very different look by 2025, when a number of these national and regional initiatives start showing results. In India, results have already become apparent, as sale of Chinese modules is set to nosedive from H2 this year itself. However, these moves come with a significant caveat, in the form of the dependence of especially module making initiatives on imports from China. Be it cells, wafers, or even polysilicon in some cases, readers need to keep in mind that modules are just the final part of an extended value chain with many parts, with each preceding part more complicated than the previous one. That, plus high demand for solar will ensure a strong market for China going ahead too, and the biggest shift will probably happen only when the Chinese majors themselves decided to outsource manufacturing to key markets to avoid tariffs. We expect that even by 2026, China-based firms will control close to 60% of the solar supply chain , thanks to the large domestic market in China as well as moves made to outsource production and lead on pricing and research.