A shortage of glass is raising costs and delaying production of new solar panels in China, which manufactures over 70 percent of the world’s solar panels. Prices for glass that coats photovoltaic panels have increased 71 percent since July, and manufacturers are not able to produce it fast enough to keep more than a week’s worth of sales in inventory. Glass requirements have increased as the solar industry turns toward manufacturing bifacial panels, providing greater power output. Bifacial panels coat both the top and bottom with glass, allowing for an increase in power generation from sunlight reflected off the ground. Bifacial panels are expected to make up half the market in 2022—up from about 14 percent last year.
Solar panel producers in China are asking the government to approve new factories so that glass price increases will not stifle the industry by making solar power too expensive. In 2018, China’s government forbade glass companies from adding new capacity due to the energy intensive nature of the industry and the thought that it might be facing over-capacity. Glass currently accounts for about 20 percent of the total cost of solar panel production—up from about 10 percent. Because glass factories take so long to build, the solar industry could be 20 percent to 30 percent short of the glass it needs next year.
The shortage is coming at a bad time as government subsidies for solar power are being reduced. This year owners of new residential and commercial solar can deduct 26 percent of the cost of the system from their taxes and next year the subsidy drops to 22 percent. In 2022, owners of new commercial solar energy systems can deduct 10 percent of the cost of the system from their taxes, but there is no federal credit for residential solar energy systems.
Polysilicon and Human Rights
Another material needed in solar panel production is polysilicon and China has 80 percent of the world’s capacity. Raw polycrystalline silicon, commonly known as polysilicon, is a primary feedstock material used for the production of solar cells. Polysilicon feedstock generally consists of large rods which are broken into chunks or chips of various size, then cast into multicrystalline ingots. The ingot materials are subsequently sliced into silicon wafers suitable for solar cell production.
In 2019, about one-third of the polysilicon used to make solar panels came from Xinjiang—the region in which China is reportedly abusing Uighurs and other Muslim minorities. The U.S. House of Representatives passed a bill in September that would ban goods made “wholly or in part” in the region unless the producers were proven not to have used forced labor. The U.S. Senate has a companion bill to the House legislation.
The Solar Energy Industries Association, the top U.S. trade group for the industry, is publicly encouraging companies to move their supply chains out of the region and is relaunching an initiative to raise awareness within the industry on the importance of ensuring ethical supply chains that do not include slave or forced labor. The impact of import bans would be huge to the solar panel industry because the industry does not have much diversity in its supply chain.
By 2021, five companies in Mainland China and Hong Kong are expected to control two-thirds of the world’s polysilicon market. One of those is Daqo New Energy Corporation, which started building polysilicon plants in Xinjiang in 2011 due to the region’s cheap electricity from coal-fired power plants. The regional power grid is operated by a division of Xinjiang Production and Construction Corps, or XPCC, which the U.S. government describes as a paramilitary organization.
The U.S. Treasury Department sanctioned the XPCC in July in connection with “serious rights abuses.” In 2019, the XPCC was added to a U.S. Commerce Department “entity list” after the government determined that the group was “acting contrary to the foreign policy interests of the United States.” The U.S. departments of State, Treasury, Commerce and Homeland Security warned businesses in July that engaging with companies on the Commerce Department’s entity list could trigger law enforcement action.
If the U.S. government links a polysilicon company to labor abuses, Customs and Border Protection could seize shipments of solar cells and panels that contain the raw material from that producer, and under the Tariff Act of 1930, importers could be criminally investigated. Customs and Border Protection cited the law in September when it ordered the seizure of certain imports from Xinjiang. To make a seizure, Customs and Border protection needs information that “reasonably” indicates the use of forced labor.
To make matters worse, the solar industry may not be able to address the human rights concerns by sourcing polysilicon from other parts of China because Uighurs have been forcibly transferred from Xinjiang to work elsewhere in the country. And, polysilicon buyers often mix material from multiple producers, making it difficult to trace the polysilicon in an individual solar panel back to its source.
U.S. solar developers are highly dependent on China for materials that are instrumental in solar panel production. Whether it be the solar panels themselves, the glass that is needed for bifacial panels, or the polysilicon for the solar cells, issues are arising dealing with cost, delays and human rights. The danger of costly disruptions to the solar supply chain are emerging at a time when Joe Biden is planning on using solar and wind power to meet a mandate of net zero emissions from the generating sector by 2035, and the deployment of 500 million solar panels within 5 years.
U.S. companies are trying to take back some of the polysilicon market from China, but that will not solve the problem because even if the United States produced enough of the raw material to meet domestic demand, it does not have the factories it needs to turn polysilicon into the wafers and cells that ultimately get assembled into solar panels. Chinese companies dominate the supply chain there too.