While President Biden is removing tariffs on China’s solar panels, that country is positioning itself to be the manufacturing superpower of the solar industry. In a recent report, the International Energy Agency (IEA) warns about the consequences on the solar sector of China’s dominance—a sector that Biden sees as key to reaching his dream of net zero emissions by 2050. China’s share in all the world’s manufacturing stages of solar panels currently exceeds 80 percent, and for key elements including polysilicon and wafers, it is set to increase to more than 95 percent. The agency indicates, “This level of concentration in any global supply chain would represent a considerable vulnerability.” For perspective, OPEC’s 13 countries produce close to 40 percent of total world oil.
But, that is not the only net-zero concern. China’s BYD just became the world’s largest electric vehicle maker, ousting Tesla from that ranking, and surpassed South Korea’s LG as the world’s second-largest producer of EV batteries. China’s CATL is the world’s largest EV battery maker. The development comes as much of the West enacts policies to convert their internal combustion engine fleets to electric vehicles in the near future, but those initiatives depend on raw materials processing that are highly concentrated in Asia. China’s market share for battery components increased from 43 percent in 2014 to 60 percent in 2020 due to tight control of critical elements like lithium, nickel, cobalt and palladium. China is increasing its hold on critical minerals while environmentalists and the Biden administration are keeping new metal mines from opening in the United States.
IEA Solar Report
According to the IEA Special Report on Solar PV Global Supply Chains, there are imbalances in the current solar PV supply chains. Global manufacturing capacity for solar panels has increasingly moved out of Europe, Japan and the United States over the last decade and into China, which has taken the lead on investment and innovation. China invested over $50 billion in new PV supply capacity – ten times more than Europe − and created more than 300,000 manufacturing jobs across the solar PV value chain since 2011. As a result, China’s share in all the key manufacturing stages of solar panels exceeds 80 percent today and for key elements including polysilicon and wafers, it is set to increase to more than 95 percent in the coming years, based on current manufacturing capacity under construction. This is more than double China’s share of global PV demand. In addition, the country is home to the world’s 10 top suppliers of solar PV manufacturing equipment.
In 2021, the value of China’s solar PV exports was over $30 billion, almost 7 percent of China’s trade surplus over the last five years. In addition, Chinese investments in Malaysia and Viet Nam also made these countries major exporters of PV products, accounting for around 10 percent and 5 percent, respectively of their trade surpluses since 2017. The total value of global PV-related trade – including polysilicon, wafers, cells and modules – exceeded $40 billion in 2021, an increase of over 70 percent from 2020.
According to the IEA, meeting international energy and climate goals requires the global deployment of solar PV to grow on an unprecedented scale, which demands a major additional expansion in manufacturing capacity, raising concerns about the world’s ability to rapidly develop resilient supply chains. Annual additions of solar PV capacity around the world need to more than quadruple to 630 gigawatts by 2030 to be on track with the IEA’s pathway to reach net zero emissions by 2050. Global production capacity for the key building blocks of solar panels – polysilicon, ingots, wafers, cells and modules – would need to more than double by 2030 from today’s levels and existing production facilities would need to be modernized. Currently, China’s Xinjiang province accounts for 40 percent of global polysilicon manufacturing, using low-cost electricity generated with coal. And, one out of every seven panels produced worldwide is manufactured by a single facility.
High commodity prices and supply chain bottlenecks have led to an increase of around 20 percent in solar panel prices over the last year. These bottlenecks– particularly apparent in the market for polysilicon, a key material for making solar panels – have resulted in delays in solar PV deliveries across the globe and higher prices.
Because PV production is largely concentrated in China – mainly in the provinces of Xinjiang and Jiangsu where coal accounts for more than 75 percent of the annual power supply and benefits from favorable government tariffs, coal generates over 60 percent of the electricity used for global solar PV manufacturing—nearly twice its share of global power generation. According to the report, the emissions from electricity-intensive manufacturing of solar PV are offset by the solar panels operating for four to eight months. That payback period, according to IEA, compares with the average solar panel lifetime of around 25 to 30 years, which is about half that of a coal, natural gas or nuclear plant.
The report finds that new solar PV manufacturing facilities along the global supply chain could attract $120 billion of investment by 2030. According to the report, the solar PV sector has the potential to double the number of direct PV manufacturing jobs to about 1 million by 2030, with the most job-intensive areas in the manufacturing of modules and cells.
China Now Leads the EV Market
China is becoming the world’s leading auto market. BYD, a Chinese automaker backed by Warren Buffett’s Berkshire Hathaway, sold 641,000 electric vehicles in the first six months of the year. That was triple the company’s sales in the prior-year period, and enough to overtake Tesla’s sales of 564,000 vehicles to lead in global sales. Tesla sold 386,200 vehicles in the same period last year, making this year’s sales 46 percent higher. However, Tesla recorded an 18 percent drop in sales over the first three months of the year as the firm’s production and sales were hit by Shanghai lockdowns to deal with COVID-19 outbreaks. While the Shanghai lockdown hit Tesla sales adversely, BYD saw rapid growth in sales of its electric vehicles. China was the biggest EV market in 2021 with more than 40 percent of Tesla’s sales coming from China.
Last year, Tesla sold a little more than 936,000 units, capturing a market share of close to 14 percent. BYD was third, behind VW group with about 9 percent share in the world EV market in 2021.
Conclusion
As IEA points out, the West may be losing the global technology race to Chinese dominance, especially with regard to the transition to “clean” energy. Western nations’ policies are forcing national dependency on China for, among other things, solar panels. China accounts for twice as high a percentage of the world’s solar panels as the world currently depends upon OPEC for oil.
According to the IEA report, the level of geographical concentration in global supply chains poses potential challenges that governments need to address immediately if they intend to meet their net zero goals. China has been and will continue to be the leader in solar PV panels, particularly as Biden is dropping President Trump’s tariffs and is conspiring with environmentalists to block critical mineral mines in the United States. China has also become the leading automaker in the EV market, ousting Tesla, who Biden slighted by not inviting to his meeting with automakers, and China now holds the top two rankings in EV battery manufacture. The United States is way behind and slipping further as Biden continues to implement his “no action” policies for “clean” energy supply chains.
