Solar energy: how China dominated panel manufacturing – 03/08/2024 – Market

China has revealed the full strength of its solar energy industry over the past year. The Asian country has installed more solar panels than the United States in its entire history and has reduced the price of the panels it sells wholesale by almost half. Exports of assembled solar panels increased by 38%, while exports of key components nearly doubled.

As the United States and Europe try to revive renewable energy production and help companies avoid bankruptcy, China is racing far ahead.

At the annual opening of China’s legislature this week, Premier Li Qiang — the country’s second-highest official after Xi Jinping — announced that the country would accelerate the construction of solar panel farms as well as wind and hydropower projects.

With the economy reeling, China’s stepped-up spending on renewable energy, particularly solar, is the cornerstone of a big bet on emerging technologies. The country’s leaders say a “new trio” of industry sectors — solar panels, electric cars and lithium batteries — have replaced an “old trio” of clothing, furniture and appliances.

The aim is to help offset the sharp decline in China’s housing construction sector. China hopes to harness emerging industries like solar energy, which Xi likes to describe as “new productive forces,” to reinvigorate an economy that has slowed for more than a decade.

The focus on solar energy is the latest chapter in a two-decade program to make China less dependent on energy imports.

China’s solar exports have already provoked urgent responses. In the United States, the Biden administration has introduced subsidies that cover much of the cost of manufacturing solar panels and part of the much higher cost of installing them.

The alarm in Europe is particularly great. Officials are bitter because a dozen years ago, China subsidized its factories to make solar panels, while European governments offered subsidies to buy panels made anywhere. This led to a burst of consumer purchases from China that hurt Europe’s solar industry.

A wave of bankruptcies has swept European industry, leaving the continent largely dependent on Chinese products.

The vestiges of the European solar industry are disappearing. Norwegian Crystals, a leading European producer of raw materials for solar panels, filed for bankruptcy last summer. Meyer Burger, a Swiss company, announced on February 23 that it would halt production in the first half of March at its plant in Freiburg, Germany, and attempt to raise funds to complete plants in Colorado and Arizona.

The company’s U.S. projects could take advantage of renewable energy manufacturing subsidies provided by President Joe Biden’s Inflation Reduction Act.

China’s cost advantage is formidable. A European Commission research unit calculated in a January report that Chinese companies could manufacture solar panels for 16 to 18.9 cents per watt of generating capacity. In contrast, it cost European companies 24.3 to 30 cents per watt, and U.S. companies about 28 cents.

The difference partly reflects lower wages in China. Chinese cities have also provided land for solar panel factories at a fraction of market prices. State banks lent heavily at low interest rates, although solar companies lost money and some went bankrupt. And Chinese companies have figured out how to build and equip factories cost-effectively.

Low electricity prices in China make a big difference.

Manufacturing the main raw material for solar panels, polycrystalline silicon, requires enormous amounts of energy. Solar panels generally must generate electricity for at least seven months to recover the electricity needed to manufacture them.

Coal provides two-thirds of China’s low-cost electricity. But Chinese companies are cutting costs even further by installing solar farms in the deserts of western China, where public land is essentially free. They then use the electricity from these farms to produce more polycrystalline silicon.

On the other hand, Europe has expensive electricity, especially after it stopped buying natural gas from Russia during the war in Ukraine. The land used in Europe for solar farms is expensive. In the southwestern United States, environmental concerns have slowed the installation of solar farms, while zoning issues have blocked permits for the transmission of renewable energy.

China’s coal consumption has made it the world’s largest annual contributor of greenhouse gas emissions. But the country’s pioneering role in making solar panels less expensive has slowed the rise in emissions.

“If Chinese manufacturers hadn’t reduced the cost of panels by more than 95%, we wouldn’t be able to see so many installations around the world,” said Kevin Tu, a Beijing-based energy expert and non-resident fellow at the Beijing Center for Global Energy Policy. Columbia University.

Annual solar panel installations have nearly quadrupled worldwide since 2018.

Some of the new solar farms generating electricity for polysilicon production are in two southwestern Chinese provinces, Qinghai and Yunnan. But much of the polysilicon is produced in the Xinjiang region of northwest China. The United States bans the import of materials or components made by forced labor in Xinjiang, where China has predominantly repressed Muslim minorities such as the Uyghurs.

This has led the United States to block some solar panel shipments from China, while the European Union has been considering similar actions.

Chinese companies increasingly carry out the initial, high-value steps of solar panel manufacturing in China and then ship the components to factories abroad for final assembly. This allows shipments to avoid trade barriers such as tariffs imposed on many Chinese imports by President Donald Trump. Several of China’s largest solar panel makers are building final assembly plants in the United States to take advantage of subsidies offered as part of the Inflation Reduction Act.

The law includes extensive subsidies to revive the U.S. solar panel industry, which nearly collapsed completely a decade ago in the face of low-cost imports from China. But building an industry that can sustain itself will be difficult.

China produces virtually all of the world’s equipment to make solar panels and nearly all of the supply of every solar panel component, from wafers to specialty glass.

“There’s technical expertise in this, and it’s all in China,” said Ocean Yuan, CEO of Grape Solar, a company in Eugene, Oregon, that works with Chinese solar companies that are establishing assembly operations in the United States.

This technical knowledge used to be in the United States. Until 2010, Chinese solar panel producers relied mainly on imported equipment and faced long, costly delays if something broke.

“It took days or weeks to get replacement parts and engineers,” said Frank Haugwitz, a longtime solar energy consultant specializing in the Chinese industry.

In 2010, Applied Materials, a Silicon Valley company, built two sprawling laboratories in Xi’an, the city in western China famous for its terracotta warriors.

Each laboratory was the size of two football fields. They were intended to carry out final tests for assembly lines with robots that could produce solar panels with virtually no human labor.

But within a few years, Chinese companies figured out how to do it themselves. Applied Materials has significantly scaled back its production of solar panel tooling and focused on making similar equipment for semiconductor manufacturing.