Monday Study – The Need To Expand Solar’s Global Supply Chain

IEA Special Report on Solar PV Global Supply Chains

July 2022 (International Energy Agency)

Abstract

Solar PV is a crucial pillar of clean energy transitions worldwide, underpinning efforts to reach international energy and climate goals. Over the last decade, the amount of solar PV deployed around the world has increased massively while its costs have declined drastically. Putting the world on a path to reaching net zero emissions requires solar PV to expand globally on an even greater scale, raising concerns about security of manufacturing supply for achieving such rapid growth rates – but also offering new opportunities for diversification.

This special report examines solar PV supply chains from raw materials all the way to the finished product, spanning the five main segments of the manufacturing process: polysilicon, ingots, wafers, cells and modules. The analysis covers supply, demand, production, energy consumption, emissions, employment, production costs, investment, trade and financial performance, highlighting key vulnerabilities and risks at each stage. Because diversification is one of the key strategies for reducing supply chain risks, the report assesses the opportunities and challenges of developing solar PV supply chains in terms of job creation, investment requirements, manufacturing costs, emissions and recycling. Finally, the report summarises policy approaches that governments have taken to support domestic solar PV manufacturing and provides recommendations based on those.

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Executive Summary

China currently dominates global solar PV supply chains Global solar PV manufacturing capacity has increasingly moved from Europe, Japan and the United States to China over the last decade. China has invested over USD 50 billion in new PV supply capacity – ten times more than Europe − and created more than 300 000 manufacturing jobs across the solar PV value chain since 2011. Today, China’s share in all the manufacturing stages of solar panels (such as polysilicon, ingots, wafers, cells and modules) exceeds 80%. This is more than double China’s share of global PV demand. In addition, the country is home to the world’s 10 top suppliers of solar PV manufacturing equipment. China has been instrumental in bringing down costs worldwide for solar PV, with multiple benefits for clean energy transitions. At the same time, the level of geographical concentration in global supply chains also creates potential challenges that governments need to address.

Government policies in China have shaped the global supply, demand and price of solar PV over the last decade. Chinese industrial policies focusing on solar PV as a strategic sector and on growing domestic demand have enabled economies of scale and supported continuous innovation throughout the supply chain. These policies have contributed to a cost decline more than 80%, helping solar PV to become the most affordable electricity generation technology in many parts of the world. However, they have also led to supply-demand imbalances in the PV supply chain. Global capacity for manufacturing wafers and cells, which are key solar PV elements, and for assembling them into solar panels (also known as modules), exceeded demand by at least 100% at the end of 2021. By contrast, production of polysilicon, the key material for solar PV, is currently a bottleneck in an otherwise oversupplied supply chain. This has led to tight global supplies and a quadrupling of polysilicon prices over the last year.

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Solar PV products are a significant export for China. In 2021, the value of China’s solar PV exports was over USD 30 billion, almost 7% of China’s trade surplus over the last five years. In addition, Chinese investments in Malaysia and Viet Nam also made these countries major exporters of PV products, accounting for around 10% and 5% respectively of their trade surpluses since 2017. The total value of global PV-related trade – including polysilicon, wafers, cells and modules – exceeded USD 40 billion in 2021, an increase of over 70% from 2020.

Today, electricity-intensive solar PV manufacturing is mostly powered by fossil fuels, but solar panels only need to operate for 4-8 months to offset their manufacturing emissions. This payback period compares with the average solar panel lifetime of around 25-30 years. Electricity provides 80% of the total energy used in solar PV manufacturing, with the majority consumed by production of polysilicon, ingots and wafers because they require heat at high and precise temperatures. Today, coal generates over 60% of the electricity used for global solar PV manufacturing, significantly more than its share in global power generation (36%). This is largely because PV production is concentrated in China – mainly in the provinces of Xinjiang and Jiangsu where coal accounts for more than 75% of the annual power supply and benefits from favourable government tariffs.

Continuous innovation led by China has halved the emissions intensity of solar PV manufacturing since 2011. This is the result of more efficient use of materials and energy – and greater low-carbon electricity production. Despite these improvements, absolute carbon dioxide (CO2) emissions from solar PV manufacturing have almost quadrupled worldwide since 2011 as production in China has expanded. Nonetheless, solar PV manufacturing represented only 0.15% of energy-related global CO2 emissions in 2021. As power systems across the world decarbonise, the carbon footprint of PV manufacturing should shrink accordingly. Transporting PV products accounts for only 3% of total PV emissions.

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Concentration of PV supply chains brings vulnerabilities, posing potential challenges for the energy transition

Meeting international energy and climate goals requires the global deployment of solar PV to grow on an unprecedented scale. This in turn demands a major additional expansion in manufacturing capacity, raising concerns about the world’s ability to rapidly develop resilient supply chains. Annual solar PV capacity additions need to more than quadruple to 630 gigawatts (GW) by 2030 to be on track with the IEA’s Roadmap to Net Zero Emissions by 2050. Global production capacity for polysilicon, ingots, wafers, cells and modules would need to more than double by 2030 from today’s levels. As countries accelerate their efforts to reduce emissions, they need to ensure that their transition towards a sustainable energy system is built on secure foundations. For solar PV supply chains to be able to accommodate the requirements of a net zero pathway, they will need to be scaled up in a way that ensures they are resilient, affordable and sustainable.

The world will almost completely rely on China for the supply of key building blocks for solar panel production through 2025. Based on manufacturing capacity under construction, China’s share of global polysilicon, ingot and wafer production will soon reach almost 95%. Today, China’s Xinjiang province accounts for 40% global polysilicon manufacturing. Moreover, one out of every seven panels produced worldwide is manufactured by a single facility. This level of concentration in any global supply chain would represent a considerable vulnerability; solar PV is no exception.

Solar PV’s demand for critical minerals will increase rapidly in a pathway to net zero emissions. The production of many key minerals used in PV is highly concentrated, with China playing a dominant role. Despite improvements in using materials more efficiently, the PV industry’s demand for minerals is set to expand significantly. In the IEA’s Roadmap to Net Zero Emissions by 2050, for instance, demand for silver for solar PV manufacturing in 2030 could exceed 30% of total global silver production in 2020 – up from about 10% today. This rapid growth, combined with long lead times for mining projects, increases the risk of supply and demand mismatches, which can lead to cost increases and supply shortages.

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The long-term financial sustainability of the solar PV manufacturing sector is critical for rapid and cost-effective clean energy transitions. The net profitability of the solar PV sector for all supply chain segments has been volatile, resulting in several bankruptcies despite policy support. Bankruptcy risk and low profitability could slow the pace of clean energy transitions if companies are unwilling to invest because of low returns or are unable to withstand sudden changes in market conditions.

Trade restrictions are expanding, risking slower deployment of solar PV. As trade is critical to provide the diverse materials needed to make solar panels and deliver them to final markets, supply chains are vulnerable to trade policy risks. Since 2011, the number of antidumping, countervailing and import duties levied against parts of the solar PV supply chain has increased from just 1 import tax to 16 duties and import taxes, with 8 additional policies under consideration. Altogether, these measures cover 15% of global demand outside of China.

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Diversification can reduce supply chain vulnerabilities and offer economic and environmental opportunities

Recent disruptions have raised important supply chain questions. The Covid19 crisis, record commodity prices and Russia’s invasion of Ukraine have all focused attention on the high reliance of many countries on imports of energy, raw materials and manufacturing goods that are key to their supply security. Countries can improve resilience by investing to diversify their manufacturing and imports.

New solar PV manufacturing facilities along the supply chain could attract USD 120 billion investment by 2030. Annual investment levels need to double throughout the supply chain. Critical sectors such as polysilicon, ingots and wafers would attract the majority of investment to support growing demand.

The solar PV industry could create 1 300 manufacturing jobs for each gigawatt of production capacity. The solar PV sector has the potential to double its number of direct manufacturing jobs to 1 million by 2030. The most job-intensive segments along the PV supply chain are module and cell manufacturing. Over the last decade, however, the use of automation and automated guided vehicles has increased labour productivity, thereby reducing labour intensity.

Diversification of supply chains and the decarbonisation of the power sector could rapidly reduce solar PV manufacturing emissions. Domestic manufacturing can reduce manufacturing CO2 emissions if the local electricity mix is less carbon-intensive than in the exporting country. Europe holds the highest potential, given the considerable shares of renewables and nuclear in its power mixes, followed by countries in Latin America and sub-Saharan Africa that have strong hydropower output.

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Diversifying solar PV supply chains will require addressing key challenges

Currently, the cost competitiveness of existing solar PV manufacturing is a key challenge to diversifying supply chains. China is the most cost-competitive location to manufacture all components of the solar PV supply chain. Costs in China are 10% lower than in India, 20% lower than in the United States, and 35% lower than in Europe. Large variations in energy, labour, investment and overhead costs explain these differences. Still, in the absence of financial incentives and manufacturing support, the bankability of manufacturing projects outside of panel assembly remains limited outside of China and few countries in Southeast Asia.

Low-cost electricity is key for the competitiveness of the main pillars of the solar PV supply chain. The diversification of highly concentrated polysilicon, ingot and wafer manufacturing would provide security-of-supply benefits. Electricity accounts for over 40% of production costs for polysilicon and nearly 20% for ingots and wafers. Around 80% of the electricity involved in polysilicon production today is consumed in Chinese provinces at an average electricity price of around USD 75 per megawatt-hour (MWh). This is almost 30% below the global industrial price average. Maintaining competitiveness in these segments requires that manufacturers have access to comparable or lower electricity costs.

Building solar PV manufacturing around low-carbon industrial clusters can unlock the benefits of economies of scale. Solar panel manufacturers can also use their products to generate their own renewable electricity on site, thereby reducing both electricity bills and emissions. Electricity-intensive solar manufacturing could be located near emerging industrial clusters (e.g renewablebased hydrogen), enabling them to benefit from cost-competitive renewable electricity. Meanwhile, economies of scale and vertical integration of manufacturing can reduce variable costs and further increase competitiveness.

Recycling of solar PV panels offers environmental, social and economic benefits while enhancing security of supply in the long term. If panels were systematically collected at the end of their lifetime, supplies from recycling them could meet over 20% of the solar PV industry’s demand for aluminium, copper, glass, silicon and almost 70% for silver between 2040 and 2050 in the IEA’s Roadmap to Net Zero Emissions by 2050. However, existing PV recycling processes struggle to generate enough revenue from the recovered materials to cover the cost of the recycling process.

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Government policies are vital to build a more secure solar PV supply chain

High commodity prices and supply chain bottlenecks led to an increase of around 20% in solar panel prices over the last year. These challenges have resulted in delays in solar panel deliveries across the globe. Globally, policies to support solar PV to date have focused mostly on increasing demand and lowering costs. However, resilient and sustainable supply chains are also needed to ensure the timely and cost-effective delivery of solar panels worldwide. Governments therefore need to turn their attention to ensuring the security of solar PV supplies as an integral part of clean energy transitions. Countries should consider assessing their domestic solar PV supply chain vulnerabilities and risks – and developing strategies and actions to address them.

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The IEA’s five key policy action areas to ensure solar PV security of supply:

Diversify manufacturing and raw material supplies

• Move solar PV supply chain diversification up the policy agenda as an integral part of advancing clean energy transitions.

• Consider crafting an industrial policy while maintaining a commitment to principles of open and transparent markets and avoiding barriers to trade.

• Consider integrating solar PV manufacturing facilities in industrial clusters, near traditional energy-intensive plants or other larger renewable electricity consumers (green hydrogen or green steel consortia) to help aggregate demand.

• Diversify raw material and PV import routes to reduce supply chain vulnerabilities.

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De-risk investment

• Facilitate investment in manufacturing, e.g. through finance and tax policies, and other measures to de-risk PV manufacturing investment.

• Tailor demand support policies (e.g. auctions) in order to take into account longterm financial sustainability across solar PV supply chain segments.

• Encourage public-private collaborations, e.g. involving research institutions and labs, and public clean energy funding to catalyse private investment.

Ensure environmental and social sustainability

• Strengthen international cooperation on creating clear and transparent standards, taking into account environmental and social sustainability criteria.

• Focus on skills development, worker protection and social inclusion across the solar PV supply chain. Adopt policies promoting employment standards and transparency in order to help improve working conditions.

• Ensure PV manufacturing facilities adopt low-carbon and material-efficient manufacturing practices.

Continue to foster innovation

• Expand research and development funds with the aim of further improving solar cell conversion efficiency and reducing raw material use and costs.

• Promote technology innovation in manufacturing processes that reduce material intensity, especially for critical minerals such as silver and copper.

Develop and strengthen recycling capabilities

• Implement comprehensive regulatory frameworks to define stakeholder responsibilities and establish minimum requirements for collection and recycling.

• Support technology development efforts that improve recycling processes as well as solar PV panel design for recycling, reusability and greater durability…

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