China's Grip On Solar Looks Hard to Break

"China has come to dominate every step of the long, complex manufacturing process for solar panels.

Part of the reason for that dominance, built over two decades, is that the cost of everything from electricity to labor is much cheaper there than in places such as the U.S. or Europe. More recently, the massive scale of China's solar-manufacturing operations has become an advantage, as it attracts talent, research money and ecosystems of suppliers.

Now, as demand for renewable energy explodes, the U.S. is trying to build its own solar-manufacturing supply chain almost from scratch and supporting the effort with sizable subsidies.

Here's what that will entail, and why it is so tough to go up against China.

Cornering a market

The primary building block for some 97% of the world's solar panels is high-purity silicon, or polysilicon. In the U.S., that share is smaller because of the popularity of another type of panel made by spreading a thin film of chemicals on glass. Still, more than three-quarters of solar panels installed in the U.S. in 2022 were made from polysilicon.

Making that silicon is the first big step in the solar manufacturing process. It is the most energy- and capital-intensive piece because of the high temperatures and expensive equipment used in refining.

Semiconductors are also made of silicon, purified to an even higher grade. But solar panels are much bigger than computer chips. And these days, the solar industry uses far more polysilicon than the chip industry.

Until around 2005, polysilicon manufacturing was dominated by companies from the U.S., Europe and Japan. With China's huge expansion and investment into solar, that has flipped. In 2023, roughly 91% of the polysilicon for solar panels was produced in China.

Cheaper in China

China's cost savings extend throughout the production process. The U.S. is trying to close the gap with big production incentives tied to each major stage of that process.

Manufacturers say those subsidies, offered through the Inflation Reduction Act that was passed in 2022, are for the first time making factories in the U.S. financially feasible.

But not all parts of the supply chain qualify for support, and companies say that inflation and ballooning capital costs, combined with a crash in Chinese solar prices, are widening the cost gap again." [1]

1. China's Grip On Solar Looks Hard to Break. Dvorak, Phred; Mollica, Andrew.  Wall Street Journal, Eastern edition; New York, N.Y.. 13 Feb 2024: B.1.