US Solar Manufacturers Come Out With Prescription for Domestic Manufacturing

A new report commissioned by the Solar Energy Manufacturers for America (SEMA) Coalition and authored by Guidehouse Insights Inflection Point makes a case for stronger government efforts to ensure the US domestic solar manufacturing industry withstands the challenge mounted from China or Chinese  linked imports.

“Thanks to the efforts of Congress and the Administration, with the Inflation Reduction Act we have an opportunity to build a sustainable, strong American supply chain for solar that will make sure our country isn’t dependent on China for this critical energy resource,” said SEMA Coalition Executive Director Mike Carr. “This report shows that if we actually want a clean energy future in this country, we will require a continuing whole-of-government effort that doesn’t allow our trading adversaries to derail the reshoring effort.”

Some of the key findings from the report:

• Demand for solar is strong but relies too heavily on imported goods. A thorough supply chain analysis identifies serious gaps for U.S. ingots, wafers, and cells and shows strong Chinese dominance.
• It is critical to US energy security to break the current monopoly on needed components. Chinese-headquartered companies now make up 99% of the world’s solar wafer and over 80% of the world’s polysilicon production — two core components that make up over half the value of the solar panel, according to the report.
• Large subsidies and insulation from traditional market forces in China and Southeast Asia are creating headwinds to U.S. reshoring efforts. Overcapacity and exports far in excess of demand have already substantially eliminated manufacturing in the EU; they are currently driving significant stockpiling of products in the U.S., pushing prices to new lows that don’t reflect true production costs. This is undermining otherwise justified investment in US factories.

The report claims, that depending on tariff scenarios, the US will see 2.4 to 2.7 times the amount of module supply relative to demand in the U.S. in 2024. This is higher than the International Energy Agency’s current estimate of 1.5 years of module supply in inventory.

The report also finds an effective duty rate of 0.4% for solar modules in 2023, down from 9.6% in 2021.

Attacking the focus on module costs from solar developers as the be all and end all of solar deployment, the report claims that If America on-shores its solar production, the industry, workers, and consumers will benefit. Investing in domestic solar manufacturing capabilities increases our energy security, reduces our exposure to global supply chain disruptions, and creates
middle-class enabling jobs. Claiming that module cost has a limited impact on the deployment of solar, it asserts that manufacturing solar materials and components in the U.S. means cleaner production and higher labor standards.

Policy Recommendations Include:

• Domestic Content: Policymakers should set strong standards for getting bonus tax credits for using domestic content and federal procurement in order to incentivize investment in the high-value, capital-intensive parts of the supply chain such as wafer and polysilicon production.
• Vigorous Enforcement of U.S. Trade Laws: Strong enforcement of antidumping trade laws and aggressively enforcing the UFLPA are crucial to maintaining a level playing field for domestic producers who adhere to higher labor and environmental standards.
• Procurement: Beyond instituting policies for bonuses associated with domestic solar manufacturing, the U.S. government could lead by example and require all solar power producers with which it has power purchase agreements to use solar panels with the highest standards for U.S.-made components.

Claiming that these policy recommendations would push the market towards buying more expensive U.S. modules, it says total system cost increases only mildly depending on the application when incorporating the higher U.S. module cost. Potential cost reductions in other areas of solar deployment (i.e., permitting, installation/overhead, and balance-of-system operations) are likely to have a larger impact on market growth.

“Solar manufacturers in America are operating well below their full potential because the government is facilitating an over-reliance on China and failing to provide a level playing field to help fuel investment and innovation,” continued Carr. “The CHIPS Act and the IRA were game-changing in the tools they provided to the Administration, but they must use the tools to their full effect to break China’s monopoly by onshoring the entire solar supply chain.”

The moves in the US to in effect, do what India has done vis a vis Chinese imports, ie, impose tariffs, DCR requirements and use non tariff barriers like ALMM will probably have limited impact on Indian solar exports to the US in the short term, but could easily be expanded to target those too in the future. Keep in mind that India has had a standout year of solar exports to the US, gaining market share at the expense of China mostly, even as South East Asia is the other centre that has gained tremendously.

The full report can be accessed here.