Solar module prices fell 90 percent over the last decade, but have since increased 18 percent since the start of the year. The price increase is mainly due to a quadrupling in the cost of the key raw material, polysilicon, which is mainly manufactured in the Xinjiang region of China. Polysilicon prices are expected to remain strong through the end of next year and are spurring construction of new polysilicon factories, including a new facility in China that would be the largest facility in the world. Further exasperating the problem are upstream supply-chain cost challenges. Prices for steel, aluminum, and copper are also up, as well as freight charges. Also affecting supply is the shortage of semiconductor components that are also causing shortages in automobile manufacturing.
Solar panels are made from sand that’s heated and purified to ingots of ultra-conductive polysilicon that are sliced into razor-thin wafers, wired into cells and then assembled into the panels for mounting on rooftops or laid out in large fields. Polysilicon is an ultra-refined form of silicon and is one of the most abundant materials on Earth that is commonly found in beach sand.
As the solar industry geared up to meet an expected surge in demand for modules, makers of polysilicon were unable to keep up. Prices for polysilicon have reached $25.88 a kilogram, up from $6.19 less than a year ago—an increase of over 300 percent.
The higher prices for solar panels are affecting demand and may delay some large-scale projects. In India, about 10 gigawatts of projects may be impacted—about a quarter of the country’s current capacity. Large-scale projects in the United States could also get postponed. Projects that have not signed price agreements with utilities that buy the power may get delayed unless the customer is willing to pay a higher rate for the electricity.
The increased prices could result in China’s manufacturers pushing projects into next year. The delays could be large enough to make 2021 the first year of negative growth in global solar installations in 17 years.
China’s Solar Dominance
China dominates the global supply chain for solar power, producing the vast majority of the materials and parts for solar panels that countries rely on for renewable energy. The United States relies almost entirely on Chinese manufacturers for low-cost solar modules, many of which are imported from Chinese-owned factories in Vietnam, Malaysia and Thailand. China also supplies many of the key components in solar panels, including more than 80 percent of the world’s polysilicon. Nearly half of the global supply of polysilicon comes from Xinjiang; 35 percent from other regions in China. In 2019, less than 5 percent of the world’s polysilicon came from U.S.-owned companies.
China’s hold over the global solar sector started in the late 2000s. As part of an effort to reduce dependence on foreign energy and to build its export markets, Beijing provided vast amounts of money into solar technology, enabling companies to make multibillion-dollar investments in new factories and gain market share globally. China’s manufacturing boom caused the price of solar panels to plummet, accelerating the adoption of solar power worldwide and forcing companies in the United States, Europe and elsewhere out of business. For example, in Germany, the number of jobs in solar PV panel production and installation fell from a record 133,000 in 2011 to under 28,000 seven years later.
China has become dominant due to many factors, including cheap coal, poor environmental standards, government subsidies, and alleged forced labor. Polysilicon production is centered in the western region of Xinjiang, which relies heavily on coal for electricity and which is where the allegations of forced labor are most concentrated.
China’s energy structure is dominated by coal power. Because renewable energy (sources such as wind and solar power) are intermittent and unstable, China’s officials indicate that they must rely on a stable power source. They note that coal is readily available, while renewable energy needs to develop further in China. That is the case despite China’s dominance in the solar manufacturing arena. This should be a message for Biden officials and the European Union.
U.S. Solar Manufacturing
The United States has a handful of facilities for manufacturing polysilicon, but they have not done well since 2013, when China put retaliatory tariffs on American polysilicon. Hemlock Semiconductor mothballed a new $1.2 billion facility in Tennessee in 2014, and REC Silicon shut its polysilicon facility in Washington in 2019. But bringing solar manufacturing back to the United States would be a challenge given the time needed to significantly bolster American production and the increase in the price of solar panels that would result. China’s competitive edge with cheap coal-fired electricity is another barrier.
China has become the dominant solar panel supplier, capturing the market from Germany and other countries thanks in part to abundant electricity generated from coal and the use of forced labor. As a result, China is in charge of how quickly countries can obtain the supplies needed for solar panels. Despite solar panels declining in price over the past decade, they have now increased by 18 percent as polysilicon, a key component has increased by over 300 percent. Biden’s foray into renewable generating technologies has gotten more expensive and shortages will affect how quickly he can move toward his goal of 100 percent carbon-free electricity by 2035.