Reliance on China has made solar PV affordable but created ‘unbalanced’ supply chains, says IEA

Diving Brief:

  • China currently controls more than 80% of all manufacturing essential to the production of solar panels and could produce more than 95% of polysilicon and wafers in the near future, according to a new IEA report.

  • The industry’s dependence on individual companies and even factories in China makes the solar sector vulnerable to disruptions that could be triggered by a single event such as natural disaster, war, technical failures or decisions of a single government or a single company, according to AIE. Many of these circumstances have already materialized, the report notes, leading to higher prices and extended lead times for solar deployment.

  • Expanding and diversifying the solar supply chain could create 1,300 manufacturing jobs for every gigawatt of generation capacity, according to the report. However, cost competitiveness remains a challenge – manufacturing costs are 20% lower in China than in the US.

Overview of the dive

According to the report, China was home to 79% of global polysilicon capacity in 2021, 97% of global wafer manufacturing and produced 85% of global solar cells. But even within that country, the IEA finds that solar manufacturing is not evenly dispersed.

China’s Xinjiang province accounts for 40% of global polysilicon manufacturing, and one in seven panels produced globally contain components from a single facility, according to the IEA.

This concentration is largely the result of Chinese industrial policies that have identified solar photovoltaics as a strategic sector, according to the IEA. These policies have fostered economies of scale and innovations that have made solar energy one of the most affordable forms of electricity generation, reducing costs by more than 80%, and have made energy solar an important export for China, accounting for 7% of the country’s trade surplus.

However, the IEA notes that industry concentration not just in a single country, but in specific regions of China, has contributed to global bottlenecks that have caused polysilicon prices to quadruple over the past year. the last year. And despite this, the report predicts that China’s share of polysilicon, ingot and wafer production is expected to increase through 2025.

The report also finds that diversifying the solar supply chain could create many new jobs and reduce the carbon footprint associated with solar panel production. But as manufacturing costs remain lower in China than in other countries, the IEA concludes that this diversification is unlikely to happen without policy action.

“Without financial incentives and manufacturing support, the bankability of manufacturing projects outside of panel assembly remains limited outside of China and a few Southeast Asian countries,” indicates the report.

The IEA report calls on policymakers to make supply chain diversification a higher priority and create formal industrial policy while maintaining open markets and avoiding trade barriers. He recommends creating financial and tax incentives for manufacturing, expanding research and workforce development efforts, and building support for recycling efforts.

Last month, President Joe Biden invoked the Defense Production Act to boost domestic production of solar panels and other energy-related equipment.

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