By Kenneth Rapoza, CPA Industry Analyst
Wall Street has its eyes on the global solar industry as China's Xinjiang province is increasingly in the spotlight for forced labor issues. The region just happens to be home to 30% of China's polysilicon supply, a key ingredient used in making solar cells for solar panels.
It’s enough to raise eyebrows of investment analysts from Bank of America (BofA). China, the OPEC of solar power, is getting the polysilicon it needs to make solar cells from Xinjiang, home to forced labor camps of Uyghur Muslims.
The US doesn’t import polysilicon from China. We actually sell it to China, or we used to before China put tariffs on our polysilicon as part of their retaliatory tariffs. China is the number one user of solar, followed by the US. Domestic solar panel manufacturers account for around 20% of the US market, with imports mostly from China-owned companies making up the rest.
But that could change if tariffs are held in place over the long term. And if the Customs and Border Protection (CBP) agency finds that polysilicon is being made with forced labor in Xinjiang. BofA sent a warning note to its clients, suggesting Wall Street is watching this closely.
Solar is expected to be the energy source with the most growth potential in the near term as Europe, in particular, moves away from fossil fuels. Should Joe Biden be elected president this month, he also promises to “install 500 million” solar panels throughout the US.
From a BofA report on this very issue of Xinjiang sourced polysilicon:
“Given forced labor concerns in the Xinjiang region of China, with recent legislation in the US House of Representatives, for US utilities, we note the potential impact to the solar supply chain given the high dependence on Chinese manufacturing of polysilicon used to make solar panels…. Most of global poly supply is produced in China, at 76%, with 30% of this Xinjiang.”
Daqo New Energy, which gets some of its polysilicon from Xinjiang, issued a press release denying concerns, and said there is “no forced labor” in their supply chain.
China importers will be forced to take a closer look at where they are sourcing those key materials for manufacturing solar products.
Xinjiang province accounts for at least a third of China's polysilicon capacity and manufacturing there has expanded recently due primarily to low energy costs. We think there’s a high chance it is also due to low labor costs, perhaps even free labor.
On September 22, 2020, following documentation of human rights violations against Uyghurs, the House passed the Uyghur Forced Labor Prevention Act (HR 6210) almost unanimously at 406 to 3. There is clear, bipartisan support to hit China on this issue, and that will impact supply chains for some businesses.
Pending a Senate vote expected after the election, the bill would ban US imports of polysilicon or solar cells or solar panels made from polysilicon from the Xinjiang region unless Customs determines that the materials are clean, meaning they were not manufactured by convict labor, forced labor, or by indentured servants.
The CBP has acted on private petitions from human rights organizations and others to stop the import of numerous goods sourced in Xinjiang made by particular companies. It is rare that there would be a ban on a region. However, Customs has initiated so-called Withhold Release Orders (essentially a ban; products get stuck in port until proven clean) on single products, like tobacco, sourced from all of Malawi, not just a single region or farm.
Customs could essentially do the same with polysilicon, which would make it almost impossible to import solar cells and panels that are made from it in China until China companies were able to prove their innocence. A ban like this could force a major reshaping of the solar supply chain, and an opportunity to accelerate the growth of US producers.
CBP actions (which largely began in July) are independent of any new legislation, and could now be expanded to the solar importers, BofA said. CBP can act to withhold items at border pending investigation if the CBP commissioner sees 'reasonable suspicion', which it has already applied, resulting in forfeiture in select instances.
BofA said that there is also potential for copy-cat legislative action in Europe.
“We need to stop products coming in from Xinjiang on economic grounds and on ethical grounds,” said Jeff Ferry, CPA chief economist. “But the ban really needs to be country wide because Beijing controls Xinjiang and it is near impossible to administer a regional ban," he said. Regardless of what actions the CBP takes, the US needs "to lay the groundwork for a resurgence of a local solar cells manufacturing industry to go alongside the ongoing resurgence we are witnessing in solar module manufacturing," Ferry said.