The True Cost of Chinese Solar Panels

Robinson is an Associate Fellow at the Center for Strategic and International Studies and a Fellow with the Clean Energy Leadership Institute.

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The Biden Administration’s green industrial policy was put to the test last year. Even with the support of subsidies and tariffs, U.S. solar manufacturers struggled to compete with the flood of cheap solar panels pouring out of China into the global market. While some argue that the U.S. should loosen restrictions on cheap Chinese solar panels to accelerate renewable energy deployment, this approach is unsustainable.

2023 was a bumpy year in the race to deploy renewable energy. In the U.S., rising interest rates, delayed guidance for tax credit eligibility, and a project permitting process desperately in need of reform tempered deployment. However, solar emerged as a bright spot, accounting for three-fifths of new renewable electricity capacity worldwide. According to the International Energy Agency, solar is the only renewable technology being deployed at a rate to meet net zero by 2050 targets.

While this trend is good news for the climate, it is better news for China. Just a decade ago, China supplied 40% of the world’s solar panels. Today, its global market share is over 80%, a near monopoly.

It’s no accident that China is so well positioned to capitalize on this solar boom. In the mid-2000s, China’s government invested hundreds of billions of dollars into developing its renewables manufacturing sector, focusing on what officials have since dubbed “the new three:” electric vehicles, lithium batteries, and solar cells.

Highly integrated supply chains, innovative manufacturing techniques, and consistent government support aided the growth of China’s solar industry. As did its massive domestic market—China boasts nearly four times the installed solar capacity of the U.S., which is the world’s second-largest market. However, the Chinese solar industry’s ambitions extend beyond satiating the globe’s most power-hungry economy, China. Solar exports from China increased 34% in the first half of 2023 compared to the previous year.

China’s solar manufacturing industry has played a crucial role in accelerating the global deployment of renewable energy. But this green patina obscures a darker truth.

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The connection between the Chinese solar industry and the Chinese Communist Party’s persecution of the Uyghur ethnic minority in Xinjiang is well-documented. Between one-third and one-half of the world’s solar-grade polysilicon is produced in the Xinjiang Uyghur Autonomous Region. The U.S. has limited direct solar imports from China through policies such as the Uyghur Forced Labor Prevention Act and tariffs established to protect American industry from dumping and non-competitive practices. Yet, many solar modules assembled in Vietnam, Thailand, and Cambodia, the largest sources of U.S. solar panels, use Chinese components. Today, a majority of solar modules produced globally can be traced to the Uyghur Region.

While Chinese solar panels may produce carbon-emissions-free energy, producing these panels is not so environmentally friendly. Coal, the dirtiest fossil fuel, accounts for a majority of China's electricity generation. In Xinjiang Uyghur Autonomous Region, where the most energy-intensive step in the solar panel manufacturing process, polysilicon refining, is concentrated, coal accounts for 77% of power generation. As a result, a recent study found that solar panels manufactured in China produce 30% more greenhouse gas emissions than if this supply chain was reshored to the U.S.

Furthermore, China’s continued solar dominance jeopardizes the security of the U.S. and its allies. In 2021, the European Union relied on Russia for nearly half of its total natural gas consumption. The EU paid a heavy price for placing its energy security in the hands of Vladimir Putin. While some environmental advocates argue that renewable energy cannot be weaponized like fossil fuels, this is deeply naïve. Today, Europe is the destination for more than half of all Chinese solar exports. Once again, our European allies are selling their security for cheap energy. The U.S. must not make the same mistake. Though the trade dynamics of solar modules and fossil fuels differ, overwhelming reliance on any one country, particularly a hostile country, poses a real security threat.

Critics of the Biden Administration’s green protectionism argue that eschewing cheap Chinese solar panels slows the energy transition. This may partly be true. Yet, while Chinese solar panels are 20% cheaper than their American equivalents, this number is not the difference between the success and failure of the U.S. solar energy industry. High interest rates and the permitting quagmire must also be addressed.

Ending China’s dominant position in the global solar market is not possible. It benefits from a massive head start. However, the U.S. should work to loosen China’s chokehold. The domestic clean energy manufacturing incentives in the Inflation Reduction Act are a start. The Biden Administration can also re-impose tariffs on Chinese-made solar components routed through Southeast Asian countries. Furthermore, it can pressure the European Union and other allies to take a stronger stand against Chinese solar companies’ anti-competitive behaviors and human rights violations. Finally, the Biden Administration should work with allies like India to strengthen their solar manufacturing capacity, taking advantage of lower labor costs.

This strategy may slightly slow the deployment of solar energy. However, the alternative—allowing China’s global solar monopoly to continue—is simply too high of a price to pay.

Panel production costs in the world’s largest producer of solar energy have declined a whopping 42% from year ago, dropping as low as 15 cents per watt

Solar panel manufacturers in China are enjoying a steep drop in costs this year, with Beijing ploughing billions of dollars into the industry to bump up capacity.

Panel production costs in the world’s largest producer of solar energy have declined a whopping 42% from year ago, dropping as low as 15 cents per watt, according to a report by energy consultant Wood Mackenzie.

That’s more than 60% below the US price of 40 cents per watt, according to the report. A year ago, Chinese panels cost 26 cents per watt.

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China’s price plunge gives manufacturers there an enormous advantage over rivals in places like the United States and Europe.

US producers have been increasingly concerned by the wave of new factories in China, which could make their own uneconomical.

Meanwhile, the United States is incentivising its own small solar industry to take on China.

India emerging solar destination

Panel production cost in India was a tad higher than China at 22 cents per watt, Wood Mackenzie said.

Europe’s production cost stands at 30 cents per watt.

India has quickly risen the ranks in solar power production, buoyed largely by state incentive programmes aimed at growing the industry.

In a report last month, Wood Mackenzie said India would become the world’s second-largest solar module producer by 2025.

Even so, the country imported $1.1 billion worth of solar modules in the first six months of fiscal 2023-24, PV magazine reported. That surpassed the country’s total imports for entirety of fiscal 2022-23, which stood at $943.53 million.

China was the largest supplier to India despite a 76% year-on-year drop in the country’s solar module shipments to its neighbour.

 

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Winter chill setting on China’s solar market

China accounts for 80% of the world’s solar manufacturing capacity and is expected to dominate the global solar supply chain for much of the next decade.

In November, Wood Mackenzie estimated that China’s solar power capacity would be enough to meet annual global demand through to 2032.

The jump in solar production has been largely propelled by China’s efforts to bump up production capacity. The Xi Jinping-led government has invested $130 billion in the industry just this year.

Those moves have created a glut in solar production, which is set drive module prices to further lows.

Module prices in China slid to a record low in December as manufacturers in the country rushed to clear their inventories amid a seasonal lull, PV magazine reported last week. Solar panel demand tends to drop off during the winter months in the country.

Prices are set to fall for the remainder of 2023 and could remain low even in 2024, before stabilising in 2025, the report added.

• Reuters, with additional inputs from Vishakha Saxena

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Vishakha Saxena

Vishakha Saxena is the Multimedia and Social Media Editor at Asia Financial. She has worked as a digital journalist since 2013, and is an experienced writer and multimedia producer. As a trader and investor, she is keenly interested in new economy, emerging markets and the intersections of finance and society. You can write to her at [email protected]

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