China dominates the solar photovoltaics value chain – analysis


by Lydia Powell


Renewable energy, especially solar energy, is available in all regions of the world, although some regions are more suitable than others for generating electricity from solar energy. The scattered availability of solar energy has led to expectations that it will decentralize energy production and consumption and free the world from the geopolitical power that lies in the geographic concentration of traditional forms of energy such as oil and gas.

The concentration of solar photovoltaic (PV) production capacity in China, along with China’s control over the minerals used to produce solar photovoltaics, has cast doubt on this approach. In response, major economies, including India and the United States (US), are investing heavily in domestic solar photovoltaic production capacity. This could reduce global reliance on China for PV modules, but it could also increase the cost of decarbonising the global energy sector.

Solar PV value chain

The solar PV value chain begins with the refining of silicon dioxide (SiO2) into solar polysilicon. In this important upstream segment of the value chain, China’s share will increase from about 30 percent 10 years ago to more than 80 percent by 2022. Of the top 10 companies producing polysilicon, seven are from China, including the top three. China also dominates the steps that convert polysilicon into ingots, wafers, cells and eventually solar panels, each with more than 80 percent of the global capacity. The top 10 suppliers of solar energy production equipment are also Chinese. Production of other segments of the solar PV value chain, such as the rest of module components (e.g. using glass), is also located in China. Production of inverters that convert direct current (DC) to alternating current (AC), as well as the aluminum and steel frames used to mount solar panels, are also concentrated in China.

When the ongoing expansion plans of China’s solar industry are completed, market share in all segments of the value chain is expected to increase to 90-95 percent. Massive capital investment in the past decade estimated at more than $50 billion, strength in low-cost manufacturing backed by low-cost electricity for energy-intensive production of polysilicon and ingots, loan guarantees for private investors, and strategic forecasting are cited as drivers. Chinese solar industry. These supply-side factors were complemented by significant demand-side policies from Western economies that inadvertently favored solar panel production in China.

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Ever since fossil fuel use and resulting carbon dioxide emissions were identified as a cause of climate change in the 1990s, Western governments, particularly the oil-importing major industrial economies of the US, Germany and Japan, have increased research and development ( R&D) increased. on solar energy, which was started in the 1970s after the oil crisis. Solar panel production costs in the US, Japan and Germany were high, but federal subsidies in the US and attractive feed-in tariffs (FiT) offered by the Japanese, German, Italian and Spanish governments created demand for solar panels. China had a small solar production sector, accounting for about 3 percent of global production capacity, to meet demand from off-grid households in China’s rural areas. Faced with the growing demand for solar panels and the inability of Western manufacturers to meet the demand, China quickly expanded capacity and captured the market for solar panels imported from industrialized economies.

The Ministry of Science and Technology (MOST) of the Chinese government supported research and development activities in solar PV and provided assistance to enterprises to achieve the government goals set out in their five-year plans. China’s 10th Five-Year Plan (2000-2005) identified renewable energy as an important option for optimizing China’s energy basket. The 11th five-year plan (2006-2010) provided $6 million in annual funding for solar PV research and development, and the 12th five-year plan (2011-2015) increased it 12 times to $75 million, so that solar PV covers all areas of the value chain . In addition, the “National Basic Research Program of China” (973 program) and the “National High Technology Research and Development Program of China” (863 program) and the “Plan of National Science and Technology” have facilitated the development of renewable energy technologies . , especially solar PV technology. Since 2004, China’s solar PV production has also benefited from support provided through the “List of China’s High-Tech Products for Export” program, which includes tax exemptions, free land for factories, and low-interest government loans. China’s 13th Five-Year Plan (2016-2020) included specific goals for innovation in solar PV technology, including the commercialization of monocrystalline silicon cells with an efficiency of at least 23 percent and multicrystalline silicon cells with an efficiency of 20 percent Were.

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Worldwide, the cost of solar panels fell by about 97 percent between 1980 and 2012. According to a detailed analysis of the factors behind the cost reduction, the total cost reduction of solar panels accounted for 60 percent of the decline and government-funded R&D accounted for the remaining 40 percent, with policies encouraging market growth. R&D was important in advanced economies in the early years, but the exponential drop in costs in the last decade was due to economies of scale in manufacturing, for which China should take credit.

sovereignty in the supply chain

The global capacity to produce wafers, cells and eventually solar panels exceeds demand by at least 100 percent, with most of the excess capacity located in China. But the production of polysilicon is a recurring bottleneck, which is reflected in the price of polysilicon. Polysilicon, the primary input material for solar panel manufacturing, begins by refining silica (SiO2) into metallurgical grade silicon (MG-Si). The raw material silica or quartz is the second most abundant mineral after oxygen, but the refining process to convert it into MG-Si is capital intensive, energy intensive and knowledge intensive. This adds to the volatility of the price of polysilicon as investment “piles up” in capacity expansions.

In 1990, the spot price of polysilicon was US$57/kilogram (kg) and remained around that level until the late 2000s. In 2008, the spot price of polysilicon hit a record high of US$362/kg due to increased ingot, wafer and cell production capacity in China and the resulting increase in demand for polysilicon. In 2012, the price of polysilicon fell to $22/kg due to anti-dumping duties imposed on Chinese producers by Western countries. Overcapacity in low-cost polysilicon production in China caused prices to fall below US$10/kg in 2019. after the pandemic. An increase in the price of polysilicon and other critical minerals and metals used in PV solar module production will inevitably increase the cost of decarbonising the power sector. Investing in domestic solar PV production capacity will drive that cost up toward the goal of achieving supply chain sovereignty. Development in India is an example of this.

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A low solar tariff is driving solar installations in India. Since 2010, solar energy rates have dropped 82 percent, mainly due to low-cost solar PV modules imported from China. From January 2021, India’s solar energy tax will increase by 25 percent, as well as a 25 percent basic customs duty (BCD) on solar cell imports from April 2022 and 40 percent on solar PV module imports to support the nascent domestic protect PV production . The BCD of the percentage is . industry. A 40 percent increase in imported solar panels, driven by a rise in polysilicon prices, adds to the cost of tariff barriers. The overall increase in the cost of operating solar PV systems will slow down the decarbonization of energy systems, especially in cost-sensitive developing countries. The resurgence of economic nationalism and supply chain sovereignty suggests that concerns about trade and security outweigh concerns about climate change. In the future, climate science can make it very clear that it disagrees.




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