By 2025, China will Dominate 95% of the Solar PV Supply Chain

By Rahul Guhathkurta

Cover Image Attribute: Workers are seen assembling Solar PV Panels at a factory in Hangzhou, Zhejiang province, on August 26, 2019 / Source: Caixin Global

According to a report published in July by the International Energy Agency (IEA), China is currently responsible for producing and distributing more than 80 percent of the world's solar photovoltaic (PV) panels. As a result, the country holds a significant market share across the entire value chain, including polysilicon, ingots, wafers, cells, and modules. This represents more than twice China's share of the total demand for photovoltaics worldwide. In addition, ten of the world's top 20 solar photovoltaic manufacturing equipment suppliers are based in China. Based on the expansion plans that are currently in place, it is anticipated that China's share of the global production of polysilicon, ingots, and wafers will reach almost 95 percent.

The price of solar modules dropped by approximately 97% worldwide between 1980 and 2012. An in-depth analysis of the factors that contributed to the cost reduction found that policies that stimulated market growth were responsible for 60% of the overall cost decline in solar modules. In comparison, government-funded research and development (R&D) accounted for 40% of the reduction. R&D in developed economies played an essential role in the early years; however, the exponential decrease in cost over the past decade was due to economies of scale in manufacturing, and China must be given credit for this achievement.

In the past decade, China has surpassed Europe, Japan, and the United States to become the world's leading PV solar manufacturer for use in residential and commercial settings. Previously, these three countries were more active in the PV supply domain. However, one of the primary reasons other countries are dissuaded from joining the global PV supply chain is the high costs involved. For instance, costs in China are 10% lower than India's, including labor, overhead, and the entire manufacturing process. And, compared with the US and Europe, it's 20% and 35% lower, respectively.

Building up financial and non-financial trade barriers is something that many countries are doing to protect their domestic PV manufacturers from Chinese ones. However, such trade barriers raise the cost of transitioning to low-carbon growth paths and, as a result, go against the spirit of finding a standard solution to a global problem communicated in multilateral climate platforms' negotiating frameworks. The fact that the United States and Western Europe are considering the imposition of carbon-related border adjustment taxes lends credence to the notion that green marginalization is, in fact, a possibility that has to be taken seriously. But, according to Xu Fei, managing director at Inno Investment Bank, "Our supply chains are quite competitive," he said. "Even if more tariffs are imposed, it won't dampen the robust consumer demand, and consumers would have to take on the burden of high prices by tariffs themselves."

As per the data compiled by Infolink Consulting LLC, a consultancy specializing in the energy industry, China shipped photovoltaic (PV) modules to Europe in the first seven months of 2022 with a combined capacity of 51.5 gigawatts. This is a 25.9% increase over the total amount that China shipped to Europe in 2021. One of the primary factors leading to a rise in demand is the skyrocketing cost of electricity in Europe, which Russia's invasion of Ukraine has caused. In May 2022, the EU introduced the REPowerEU plan to diversify the energy supply, accelerate the decarbonization of the bloc's economy, and emphasize increasing renewable energy sources.

As of now, the dominance and competitiveness of China across the entire PV value chain are pretty evident and irreplaceable. But the wheels are already in motion to shift the balance with the entry of India with its ambitious plan of generating 500 gigawatts of solar-driven electricity by 2030. The goal is to lure companies, including Reliance Industries Limited and Adani Group, to the sector with ₹19,500 crores (US$ 2.6 billion) Performance Linked Incentives (PLI). Currently, India makes up almost 3% of solar module manufacturing and 1% of cell manufacturing.  Overall, the narrative is becoming all about controlling the future geo-political international economic order rather than having a “well-intentioned” global conversation about climate change and environmentalism. And this would affect China’s economic and trading competitiveness in the long run.

About the Author:

Rahul Guhathakurta (ORCID: 0000-0002-6400-6423) is a strategic management consultant. A primary investor in IndraStra Global — a US-based publishing company.

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