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Solar energy has become an unlikely battleground between U.S. trade hawks and proponents of a self-sufficient solar supply chain. In May, the U.S. House and Senate passed resolutions that would reinstate tariffs on solar panels manufactured in Asia. President Joe Biden vetoed the measures. The stakes: U.S. efforts to regain ground lost to China in photovoltaic (PV) materials, solar panels and components, and a clean-energy infrastructure.
The tariffs were paused for two years by Biden in 2022 to allow the import of solar panels used in utility-scale solar project development. However, two issues have stalled supplies. The 2021 Uyghur Forced Labor Prevention Act (UFLAP) prohibits the sourcing of polysilicon, a key component of solar panels, from certain regions of China. More recently, an investigation led by the Commerce Department indicated some Asian nations were circumventing existing U.S. tariffs against China.
In 2012, tariffs were imposed on panels manufactured in China as a result of the nation’s efforts to undercut competitors’ prices. Following the tariffs, China reportedly sold panels to other Asian nations. Those nations then exported the panels after modest modifications. The U.S. Department of Commerce’s investigation in 2022 issued a preliminary finding that panels made in Cambodia, Malaysia, Thailand and Vietnam were circumventing existing tariffs. If that finding is finalized, new tariffs could be imposed.
Developers of solar-energy projects in the U.S. have had difficulty sourcing panels, according to the Solar Energy Industries Association (SEIA), which has been a setback to U.S. clean energy efforts. Biden’s veto, however, is expected to reopen supply lines.
“President Biden’s veto has helped preserve our nation’s clean energy progress and prevented a bill from becoming law that would have eliminated 30,000 American jobs, including 4,000 solar manufacturing jobs,” said Abigail Hopper, president and CEO of the SEIA, in prepared remarks. “This action is a reaffirmation of the administration’s commitment to business certainty in the clean energy sector, and a signal to companies to continue creating jobs, building domestic manufacturing capacity and investing in American communities.”
The Commerce Department’s solar tariff case effectively shut down the solar industry last spring, and the short-term tariff pause was strategically implemented to both allow project development to continue and create a bridge to a domestic manufacturing future, she added. The SEIA did not respond to further queries.
The U.S. solar PV market reached $25.4 billion in 2021, and is expected to grow 15.9% from 2022 to 2030, according to Grand View Research. Favorable policies and incentive schemes at the state and federal levels and decreasing prices of solar panels are expected to boost the industry’s growth in the U.S., the research firm added.
Although the recent tariff battle could be seen as political, solar energy is viewed as a critical U.S. industry too dependent on China and Asia, similar to semiconductor manufacturing. The U.S. Inflation Reduction Act (IRA) seeks to reverse that trend by providing tax incentives to stimulate U.S. manufacturing of solar modules, wind turbines, inverters, batteries for electric vehicles (EV) and power storage, as well as the extraction and refining of critical minerals. Those incentives could add up to $30 billion over the next decade.
There have been several announcements regarding solar initiatives since the passage of the IRA. Existing solar companies, regional development agencies and organizations expanding their clean-energy footprint in the U.S. did not respond to repeated inquiries.
Solar began in the U.S.
The U.S. first invented photovoltaic (PV) technology in the 1950s to power satellites and spacecraft, according to the New York Times, and retained its leadership in solar for decades. In the 2000s, China began providing massive state subsidies to manufacturers in key industries, including semiconductors and solar.
Since then, the U.S. share of solar component shipments worldwide fell to less than 1% in 2021 from 13% in 2004, according to the Center for Strategic and International Studies (CSIS). China’s share of the production of solar components has increased over the past two decades from virtually nothing to nearly 85% today.
The Chinese government has supported its clean energy efforts through direct subsidies, loan guarantees, low-cost land concessions or tax breaks for a decade. Clean energy tech companies in China have also benefited from local government support and measures to attract foreign investment.
Additionally, many of the components that support solar development are also sourced from China. At present, 85% of solar-cell manufacturing capacity is in China, while only 0.6% is in North America, according to the International Energy Agency (IEA). China is similarly dominant in the batteries that store solar power. The IEA estimates that China produces three-quarters of all lithium-ion batteries and holds 70 percent of the production capacity for cathodes and 85 percent for anodes. This means that even batteries produced outside of China are likely to rely on components made there.
Enter the IRA
Incentives created under the U.S. IRA are unprecedented in size and duration and are expected to have a transformative impact on the domestic clean energy technology landscape, solar proponents say. More manufacturing, mining and refining in the U.S. could help diversify supply chains and improve the country’s domestic manufacturing ecosystem.
In Pittsburg, PA, steel suppliers are partnering with solar tracker manufacturers to shorten the solar supply chain. An industrial scale manufacturing facility for PV cells has been planned for Inola, OK.
The IRA allows $20 billion to finance loans issued by the Department of Energy (DOE) to support domestic EV manufacturing. Finally, the investment tax credit, another $10 billion, will incentivize the production of EV, wind turbine and solar panel factories.
The IRA also includes extensive economic incentives to support the deployment of zero-emission electricity sources and energy efficiency. The IRA will result in a rise in clean energy generation as a share of total electric generation from 40% today to as much as 80% by 2030, according to one estimate. Increased demand for solar modules and wind turbines, as well as support for other technologies, is expected to stimulate domestic production.
U.S. vs. China vs. domestic demand
The IRA is good news for U.S. efforts toward reversing climate change and expanding the clean technology manufacturing base. In terms of competing with China, however, experts point out the nation outspent the U.S. in clean energy for the better part of the 2010s. Even if tariffs are not re-imposed on solar panels, some analysts don’t think there will be enough factory capacity up and running by June 2024—when the tariff ban expires—to ensure that U.S. demand for solar modules is met.
U.S. solar generation capacity could rise from 129 GW today to 335 GW in 2027, according to the U.S. Solar Market Insight Q3 2022 report from Wood Mackenzie and the SEIA. The U.S. DOE expects the solar market to rebound from a decline in 2022 with 29.1 GW to be added in 2023. That would more than double the 2021 utility-scale record of 13.4 GW.
The DOE’s “Solar Futures Study” predicts aggressive cost reduction, supportive policy and large-scale electrification would mean solar could supply 40% of U.S. electricity in 2035, and 45% in 2050. That would require an average annual growth of 30 GW in new solar capacity this year and next, rising to 60 GW extra per year from 2025 to 2030. There are still a lot of “ifs” in that forecast.
The report also concludes “policy will be crucial for promoting decarbonization as the marginal costs of decarbonization increase.” In the case of solar panels, U.S. trade policy has bumped up against its energy policy. This is far from the last time trade and business interests will collide.
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