US Moves To Sanction Chinese Solar Firms, Implications for India

Industry seeks relaxation on duties on imports in Budget 2023

Dynamics in the solar equipment market, dominated by China, just got more complicated with reports of the US Administration of President Joe Biden imposing sanctions against specific companies.

That ramps up an already testy relationship when it comes to solar imports from China to the US, where the US under the Trump administration had first imposed selective tariffs in 2018.

The US has targeted production emanating from China’s Xinjiang province, home to the Uyghur minority, which the US, and many other countries allege, have been subjected to severe restrictions due to their religion, and forced labour at some of these plants. Three additional firms have been placed on an export blacklist, namely Xinjiang Daqo New Energy Co, a unit of Daqo New Energy Corp, Xinjiang East Hope Nonferrous Metals Co, a subsidiary of Shanghai-based manufacturing giant East Hope Group; and Xinjiang GCL New Energy Material Co, part of GCL New Energy Holdings Ltd. All are significant manufacturers of polysilicon and other key solar module inputs.

China’s solar firms have been attracted to Xinjiang and neighbouring provinces in the North West of the country  thanks to government incentives, massive land availability and dry, cold weather that is actually a very good test case for solar energy production. Neighbouring Quinghai province is also a similar option, and between these two and Jiangsu lie some of the biggest equipment manufacturers in China.

The Biden admin move  is reportedly targeting one key PolySilicon manufacturer, Hoshine Silicon Industry Co Limited, in the form of customs restrictions that put the onus of proving clean manufacturing using no slave labour on the firm. Hoshine reportedly produces almost 800,000 tonnes of polysilicon per annum, a figure that places it among top tier manufacturers of the key raw material for solar modules straightaway. Similarly, a few firms will possibly be placed on an export blacklist, which places restrictions on doing business with them for US entities.

The move, coming at a time when polysilicon prices have already moved up sharply due to disruptions and high demand could further roil the solar market, making it even more difficult to predict price movements in the medium term. Added to these were rising prices of almost all metals, including silver that is used in modules, and even solar glass, as we have covered earlier. Many major manufacturers had already announced major expansion projects to fill the gap, as solar growth has not only defied projections, but offers a clear demand roadmap for the coming decade.

A market that was expected to stabilise in the second half of the year after some wild movements in the first half of 2021, might yet have a few surprises for firms. The US itself is poised for three more years of strong growth as incentives wind down, with research firm Woodmac predicting an additional 160 GW of new capacity by 2026. The country crossed 100 GW this year.

For developers in India, the move is definitely not welcome, for the extra uncertainty in prices it adds to their purchase plans. However, some might even benefit from a possible price correction, if a large export market like the US gets too restrictive for Chinese majors.

India of course will make no such move on Chinese imports, as actions linked to human rights violations have always been considered with extreme caution here, thanks to the country itself being at the receiving end of similar moves at various times in the past.

The US move, though widely predicted, still falls short of the wider sweep of China-based firms many activists have been demanding. That it has targeted the solar sector specifically also points to the hit the solar manufacturing sector in the US has taken from Chinese competition, with a significant global presence reduced to an almost token domestic presence in recent years. It’s a situation the Biden administration, which has been pushing its green deal to revive the economy and achieve climate goals, wants to reverse. Some recent moves by firms to expand manufacturing in the US has also indicated the direction of change.  But with the Xinjiang region hosting almost 45 percent of global monosilicon and polysilicon production, it will be tough, if not impossible,  to avoid dealing with the Chinese majors without a serious hit to solar growth.