By Jeff Ferry, CPA Chief Economist
Last year was a great year for the US solar power industry.
US production of solar modules went from close to zero in 2017 to reach an annual rate of production of 5 gigawatts (GW) by the end of last year, indicating that the US now produces about a third of the solar modules it consumes. The Section 201 tariffs, imposed in 2018, made it possible for the US solar module industry to come back from the near-dead. Contrary to the unsubstantiated claims of the knee-jerk opponents of tariffs, solar tariffs did not raise prices. Instead, the price per watt for installed solar last year fell 10 percent to an all-time low of $1.41 a watt, while installations shot up 25 percent to a record 13.4 GW, according to data from market analysts Wood Mackenzie.
Today, First Solar employs over 2,000 Americans making solar panels in Ohio and elsewhere, Hanwha Q Cells employs over 600 making modules in Georgia, and a number of smaller companies are making solar modules at facilities from Florida to Oregon. When you add in the upstream suppliers supplying equipment, components, and other inputs, we estimate some 20,000 Americans are today engaged in solar manufacturing.
On the global scale, an important achievement for the US industry was the recent news that a US company, First Solar, has entered the top ten list of global solar manufacturers for the first half of this year, marking the first time in years that a US-owned company is on that list. There are now two non-Chinese companies on the list. Korean-owned Hanwha Q Cells is number 6 and First Solar is number 8. Both of these companies operate state-of-the-art manufacturing facilities in the US.
However, China is not standing still. China is determined to dominate this global industry and drive other players out of the market. It views solar power as a key technology for the future and it’s not wrong about that. Renewable energy is a growth industry because it’s clean, sunlight is plentiful, and solar cells are on a declining cost curve. So China wants to dominate the global industry. It’s using the same playbook it used in steel, aluminum, and others, using billions of dollars of government subsidy and industry directives to drive its largest solar producers to expand capacity, bring prices down and drive non-Chinese players out of the market.
According to solar industry publication PV Magazine, early this year, the Chinese solar manufacturing industry kicked off an “investment frenzy” with $17 billion of investment funds for this year alone, aimed at increasing solar cell production capacity by 111 GW and solar module capacity by 104 GW. Last year, according to the IEA, the industry installed 115 GW, so China is aiming to double global production with this investment campaign. Even though demand is growing at double-digit rates in several major markets, this level of production is likely to create a surplus and drive prices down further.
The industry plan was unveiled by China’s Ministry of Industry and Information Technology (MIIT) in July. It set a target of 23 percent efficiency for all new solar cells and 22.5 percent for all existing cell manufacturing lines. Industry experts say these standards will be hard to meet and could drive the Tier 2 and Tier 3 players out of the business. But MIIT went further than simply issuing orders to the cell and panel manufacturers. Throughout the supply chain, the Chinese Communist government is organizing the growth of the solar industry, and funding it with a bottomless checkbook.
On the customer side, Chinese investment funds are allocating loans and investments for Chinese power utilities to ensure they buy and install the growing volume of solar panels coming off the assembly lines. On the upstream side, leading maker of wafers for solar cells, Longi, is planning an 80 percent capacity expansion to be completed by the end of this year, to bring its wafer capacity to 75 GW.
There has been a steady drumbeat this year of Chinese manufacturers announcing expansion plans. World number 1 Jinko plans to almost double its solar module capacity from 16 GW to 30 GW by the end of this year. Trina Solar, number 3 in the world league table, has made four factory expansion announcements so far this year. Together they add up to new capacity larger than the entire US market, and that’s all from one company. According to a Sept. 30th Trina press release: “Trina has planned total 25 GW of module and 15 GW of solar cell capacities so far in 2020 and all of them will locate in Jiangsu Province.” The location is significant, because the city and provincial governments in Jiangsu are also working on plans to build solar power facilities, in other words act as guaranteed customers for a large chunk of the new output.
Chinese companies already account for some 80 percent of global production of solar modules. The doubling of production capacity will drive that domination higher. This is right out of the China playbook we’ve seen over the last 20 years. The Chinese system of incentives is different from what we are used to in the US, but it works for them. The CEOs at the Chinese solar companies who can meet these targets will end up as multi-millionaires with plenty of honors from the Communist Party. The losers will get kicked out of their jobs, or charged with corruption, or if they are clever, sneak off to the boltholes they purchased in San Francisco or Vancouver before the Chinese anti-corruption police can catch them.
All this expansion does not need to be profitable. The growth of the industry is underwritten by loans and investments from the Chinese government, typically via Chinese banks and Chinese investment funds. The Chinese system, dominated by the Communist Party, has unprecedented power to allocate capital to itself and then bestow it upon industries it wants to favor.
Jinko Solar CEO Kangping Chen made it clear his goal is for China’s top five to increasingly dominate the industry in a call with US investors on Sept. 23rd:
“The epidemic has accelerated the survival of the fittest and forced further improvements throughout the industry supply chain…The combined shipment volumes of the top five solar module manufacturers are expected to account for 65 percent to 70 percent of the industry’s total shipments this year…We expect the market share of the top five module manufacturers to increase next year. When the global market share is dominated by a handful of top solar firms, excellence in technology will stand out even more.”
US Must Hang Tough And Resist Chinese Domination
The US government and solar industry must work together to defend our solar industry from being overwhelmed by cheap, subsidized, uneconomic Chinese production. And it’s not just subsidies. The Chinese are up to their old tricks of espionage and IP theft in solar too. Korean-US solar cell maker Hanwha Q Cells is now in court in a patent fight over intellectual property with three Chinese companies.
It would be a tragedy if, after finally overcoming our dependence on Mideast oil, the US were to move to renewable energy only to become dependent on Chinese solar power supplies.
Solar cells were invented in the US, at Bell Labs in 1954. Innovation continues, at government facilities like Oak Ridge National Laboratory and at many of the solar companies in the private sector, including established players and startups. We need the innovation from both public and private sector to continue to lead, innovate and build the US solar industry. Solar power is not just essential for the future of renewable energy. The Defense Department and NASA are increasingly using solar power for defense, space exploration, and national security purposes.
The US must support the US solar industry and not allow imports or predatory pricing to undermine the industry. We need the solar panel industry to continue expanding, and the upstream parts of the industry to invest and relaunch production here in the US to ensure we can control our own future. At the same time, research and innovation must continue because if we can overcome Chinese predation, the American innovation machine is the best in the world. If the industry stays strong, US innovation will drive costs down and introduce new products and processes that will make us once again the world leader.