In February, the solar industry took another step closer to having one supplier (China) when LG announced it would exit solar manufacturing by mid-year. The company will reportedly attempt to find work within the corporation for approximately 900 employees worldwide or offer severance packages. Citing higher prices for materials and shipping, supply chain difficulties due to COVID, and price competition, LG is choosing to focus on higher-margin and more profitable renewable energy segments such as energy storage and home energy management. Concerning its warranty obligation, the company will continue supporting modules currently in the field. LG manufactured high-end n-type modules primarily for rooftop residential and commercial applications.

Considered a premium brand, LG’s n-type modules are in high demand in countries with strong residential rooftop markets – and at a premium price. Unfortunately, price and margin erosion were inevitable, given the strong competition from China and manufacturers in Southeast Asia.

Competitive pricing wasn’t the only problem facing LG; higher prices for polysilicon, consumables, glass, backsheets, shipping, manufacturing shutdowns because of COVID, and shipping delays also contribute to lower margins.

Europe’s manufacturers. The US. Panasonic, then, pretty much all Japanese manufacturers, including Solar Frontier, and now South Korea-based LG – and another one gone and another one gone. LG’s exit is important because it highlights the difficulty of competing in a virtual monopoly. In 2011, solar manufacturers in Europe and the US began exiting following sharp price decreases. Years later, manufacturers in Japan quietly stepped back, facing the same margin pressures.

LG’s exit means less choice for buyers even with industry cell capacity >300-GWp.

Globally, there is ~305-GWp of thin-film and crystalline cell capacity and ~397.1-GWp of module assembly capacity. Eighty-three percent of module assembly capacity and 87% of cell capacity is either located in China or is China-owned and located in Southeast Asia. By the end of 2022, ~88% of polysilicon capacity will be located in China or China-owned. China dominates backsheet production and glass production. In 2020, Beijing miscalculated the demand for solar glass leading to a worldwide shortage.

The solar industry has one primary supplier and many markets. Any disruption in the value chain, including but not limited to war or social unrest, a pandemic, trade wars, shipping disruptions, accidents, or other mishaps in manufacturing facilities, upends the industry.

Changes in pilot-scale timelines are driven by manufacturers in China – once, it took three to five years to begin commercial production; now, it takes a month. Cell and module quality has decreased with truncated pilot-scale timelines.

Markets without sufficient domestic manufacturing of metallurgical silicon, polysilicon, cells, modules, and other components, have no price control. Buyers were able to ignore their vulnerability for over a decade as prices reliably decreased – this changed in 2020 when the pandemic brought with it manufacturing shutdowns and shipping delays. Accidents in polysilicon facilities led to shortages. Prices ticked up and continued increasing, giving China’s manufacturers the healthiest margins, they’d experienced. Once viewed as the most efficient way to operate, just-in-time manufacturing fell short in the face of a swarm (or wedge) of black swans.

China’s domination of the solar supply chain was encouraged by buyers and governments who, under the assumption that the low prices were progress, failed to support domestic manufacturing. Buyers are now struggling to find modules and will take anything they can get from previously little-known manufacturers while hoping for no unexpected price increases.

What can be done? Candidly, it will take years and significant government funding to build back domestic polysilicon, wafer, cell, module manufacturing in Europe, Japan, and the US – and it doesn’t stop with the module. Governments need to commit to supporting consumable production, glass production, backsheet production, and production of other system components. Governments need to commit to buyer incentives and, unfortunately, some protections against low price imports. Getting to the commitment is difficult – maintaining it is nearly impossible. Meanwhile, buyers will need to buy domestic products even when they are more expensive than the imports – this last, good intentions aside, is highly unlikely. Example: you have the choice of two identical TVs only one is $300 less expensive. The expensive TV is made in your country. Most of the time, you will buy the cheaper TV.

The current market situation will ease. An overcapacity situation is coming and with it lower prices. By the time the US, Europe, and Japan rebuild their domestic solar manufacturing, buyers will be enjoying lower prices and higher availability. Memories are short. But don’t worry, though the current dire market situation will ease, and it will be back.