The climate change crisis has intensified. Shifting to clean energy or renewables is one way to address it. Using renewable energy resources such as the sun, wind and water, removes the reliance on fossil fuels as the primary energy source; while also reducing emissions. Renewables also puts economies on a sustainable growth trajectory that is cleaner.
The International Energy Agency’s (IEA) 2019 market report on renewables forecasted that the world’s total renewable-based power capacity will grow by 50% between 2019 and 2024. Solar PV will account for 60% of this increase, while the share of renewables in global power generation is expected to rise from 26% to 30% in the same period.
Supply chain controlled by China
A recent report from the IEA finds that although the demand for solar PV is the highest in Europe, the manufacturing and supply of solar PV is dictated by China. China has invested more than $50 billion in new PV supply capacity, creating more than 300,000 manufacturing jobs across the solar PV value chain since 2011.
Exhibit 1: Solar PV manufacturing capacity by country and region, 2010-2021
Between 2017 to 2021, China’s cumulative PV annual trade balance stood at over $78 billion, with the share of PV in total trade surplus reaching 6%.
Exhibit 2: Cumulative PV-grade polysilicon, wafer, cell and module trade balances, 2017-2021
Although the growth of solar PV manufacturing is a positive sign, the world will also need to contend with the fact that today, coal generates over 60% of the electricity used for global solar PV manufacturing, significantly more than its share in global power generation (36%).
Exhibit 3: Global electricity supply by source and for solar PV manufacturing (left) and in Chinese provinces by fuel (right), 2022
China’s increasing share in the production and supply of polysilicon, ingot and wafer poses a potential threat of too much reliance on a single country.
Exhibit 4: Country, province and single-plant concentration as shares of global manufacturing capacity
“China has been instrumental in bringing down costs worldwide for solar PV, with multiple benefits for clean energy transitions,” said IEA Executive Director Fatih Birol. “At the same time, the level of geographical concentration in global supply chains also poses potential challenges that governments need to address.”
Diversification is key
Understandably, allowing this level of concentration represents a grave vulnerability for the future of solar PV. Diversification of solar PV supply chain holds the key and is also critical in the face of expanding trade restrictions.
Exhibit 5: Number of antidumping, import and countervailing duties, 2011-2022
The IEA has identified five key policy action areas to ensure the security of global solar PV supply.
- Focus in developing policies to push the diversification of solar PV manufacturing and raw material and PV import routes
- Develop policies to support the demand of solar PV, while facilitating investment in manufacturing and increasing public-private partnerships
- Focus on skills development and development and implementation of international environmental and social sustainability standards
- Promote R&D investments and technology innovation to enhance solar cell conversion and reduce raw material use and costs
- Develop regulatory frameworks to improve solar PV panel design for recycling, reusability and greater durability