Why Biden’s push to expand renewable energy runs through China
As President Joe Biden aims to reimagine a more sustainable, low-carbon economy, the industry at the center of the renewable energy transformation is faced with a familiar competitor: China.
Fueled in part by billions in state and local subsidies, and the domestic industry’s ability to scale up quickly, China today dominates nearly every part of the solar supply chain. More importantly, over half of the world’s polycrystalline silicon — a critical raw material used in solar panels — comes from the troubled Xinjiang region, where the U.S. has accused Beijing of carrying out a genocide.
While Biden has framed his $2 trillion infrastructure package as an opportunity to build out a booming green economy, supporters of his plan quietly worry it will come at the mercy of China.
“On China, the Biden administration is in between a rock and a hard place,” said Mikaela McQuade, senior analyst at Eurasia Group. “You’re not going to be able to necessarily meet those domestic environmental imperatives and ambitions, without continued, and probably growing your exposure to Chinese economic dominance in those supply chains.”
Those U.S. imperatives call for the country’s electricity grid to be carbon free by 2035. The president seeks to do that by establishing a clean electricity standard, that calls for a dramatic increase in solar and wind energy. But China maintains a tight grip on global production involved in manufacturing solar panels, end-to-end, according to Andy Klump, CEO and founder of Clean Energy Associates, who audits and manages supply chains for companies around the world. Klump said more than 70% of the world’s polycrystalline silicon comes from China. The number jumps to nearly 100% for wafering, the process of slicing ingots that are ultimately processed into solar cells.
“Wind and solar is an abundant resource. It should create liberation and we should all have the ability to benefit from,” said Mark Widmar, CEO of First Solar (FSLR), the largest U.S. manufacturer of PV modules. “In a short decade all that decimated with the Chinese approach to wanting to dominate this industry.”
China’s path to global leadership
China’s path to global leadership followed a familiar path. While the early growth of solar technology was fueled in part by private and public investments in the U.S., Japan and Germany, among other countries, China mastered scale and cost, by pouring billions of dollars into home-grown players.
In some instances, provincial and local governments offered subsidized land and electricity, financial support, and tax relief to the industry. While China’s solar manufacturing industry accounted for just under 10% of global market share prior to 2005, it notched a 200-times growth in a span of six years, according to a report by the Information Technology and Innovation Foundation. China’s share surpassed 60% in 2011 and has remained above that level ever since.
But Klump said those subsidies only tell half of the story. He witnessed the growth firsthand, when he began working for Trina Solar, a Chinese photovoltaics (PV) manufacturer, back in 2006, where he was tasked with establishing its leadership position in supply chains.
“When you have three or four or five suppliers that are all willing to co-locate right next to your facility, you can gain synergies that you can't get anywhere else,” Klump said. “Trina wasn't getting free handouts from the government, but they did have multiple suppliers calling and knocking on the door and saying, I'll set up a massive glass facility right next to your module plant just so you can take that glass immediately and save capital.”
Economic disruption potential ‘very high’
China’s dominance in solar manufacturing has gotten renewed attention in recent months, largely because of where much of the components are manufactured. Roughly 80% of China’s polycrystalline silicon supply is produced in the Northwest region of Xinjiang, the industrial hub where the U.S. has accused Beijing of committing “genocide and crimes against humanity” in its treatment of Uyghurs and other Muslim minority groups.
Political pressure to crackdown on China’s human rights abuses, threatens to undo the industry’s reliance on the region. Earlier this year, the U.S. House of Representatives reintroduced a bipartisan bill that bans imports from Xinjang, unless corporations prove the products were not sourced with forced labor. That followed a similar Senate bill that was first introduced last year.
The Chinese Communist Party has denied all allegations of forced labor in Xinjiang.
“The economic disruption potential is very high,” said McQuade. “The longer the Chinese have a foothold in that market and have that kind of dominant position, the harder it is going to be for other countries to develop those supply chains in a way that is economically competitive.”
Greater transparency and self-reliance
The solar industry has responded by calling for greater transparency. Last fall, trade group Solar Energy Industries Association (SEIA) urged members to reroute their supply chains away from Xinjiang. Klump is now working with SEIA to develop protocols that allow leading companies to better trace where their supplies come from.
Klump said U.S. tariffs placed on solar panel imports, under the Obama and Trump administrations, have also slowly helped diversify supply chains away from China to Southeast Asia.
But Widmar said his company offers a different path away from Asia. First Solar manufactures all panels sold in the U.S., at its Ohio factories, using components largely sourced from North America. Because it doesn’t use polycrystalline silicon, it sources less than 1% of its supplies from China.
Widmar said he has been in touch with the White House “daily” to educate the administration about the technology and capabilities available in the U.S., to become more self-sufficient.
“I think we've proven our stuff in this industry over the last decade,” Widmar said. “What we need is a stable policy environment and an understanding of ensuring a level playing field...we've been waiting, and we're ready to go, and we can get a factory into Ohio very quickly.”
Akiko Fujita is an anchor and reporter for Yahoo Finance. Follow her on Twitter @AkikoFujita
