In a move that could affect multi-gigawatts of residential, commercial, and utility-scale installations in 2022, in March, the US Commerce Department announced that Auxin had presented sufficient evidence for an investigation into transshipments from China through Southeast Asia. The order is region-wide and not manufacturer-specific; for example, Hanwha Q-Cells, a South Korean manufacturer with cell and module manufacturing in Malaysia, is included in the investigation, as is Taiwan-based UREC (Malaysia, Vietnam, Thailand). Using supporting information from a Bloomberg Report and NREL, Auxin claims that cell processing is a minor part of the total module cost. Based on the Bloomberg Report, Auxin claims that wafers, silver and aluminum paste, and silane represent the majority of cell and module processing costs. Auxin, a module assembler based in San Jose, California, stated that the cell manufacturing and module assembly processes are relatively trivial, further claiming that little IP is involved in cell processing. Tariffs, if imposed, would be retroactive. 

The petition does not cover thin-film manufacturers in Southeast Asia.

Once the investigation was announced, developers reported that manufacturers began canceling outstanding orders, even those for 2022. Modules delayed because of supply chain problems turned into canceled orders, and manufacturers outside of Southeast Asia raised prices accordingly. As many developers were waiting for delayed orders for multimegawatt installations already in progress, module mismatch is an unintended consequence of the investigation. Having their orders canceled, developers must look to other countries to provide modules with the appropriate specifications for their projects. As module assemblers in Europe, India, and elsewhere get their cells from Southeast Asia and China, developers risk new and potentially retroactive tariffs on new orders.

The DOC has 150 days to investigate and another 150 days to decide and make recommendations. At this point, it is unknown whether or not the DOC will impose tariffs, whether or not they will be retroactive if imposed, and whether or not the bifacial exemption will apply.

Analysis:

In its petition, Auxin avers that cell manufacturing is a relatively minor part of the solar technology chain and that the investment required to produce cells from wafers and then assemble modules is minimal compared to that of investment required for polysilicon/ingot/wafer production. Auxin relied on a report published in February 2021 by Bloomberg for much of its assessment. Quoting from the report, Auxin asserted that “the technical hurdles required for cell manufacturing are lower than for polysilicon through-wafer manufacturing.” This assertion is repeated nine times without listing any specific technical hurdles.

To offer proof of the difference in investment, Auxin offers a range of $643 million to $2.1 billion for polysilicon capacity versus $7.7-million to a maximum of $160- million to add solar cell capacity. Yes, polysilicon production requires significant capital and a lot of time. Comparing the investment required for polysilicon production to the investment required for cell manufacturing requires an explanation as to why the comparison is relevant. The comparison is not relevant because the two processes cannot be compared. Making the comparison via a range without any detail shows a lack of critical thinking, unacceptable even in a high school essay.

Auxin states that R&D is primarily conducted in China and that all materials necessary to produce cells and modules are manufactured in China and shipped to subsidiaries in Southeast Asia. Further, Auxin, referring to the report, stated that the cost of silicon wafers, silver paste, solar glass, aluminum frames, junction boxes, EVA, and backsheets supposedly supplied by China to companies in Southeast Asia make up the majority of module costs.

Auxin is both correct and incorrect. The investment required at each point in the chain (polysilicon, ingots and wafers, cells, and modules) is different – with the investment required for polysilicon production the most significant. Making a judgment based on combining the investment required for polysilicon, ingots, and wafers compared with the cost of producing cells and modules will obviously result in the conclusion that poly/ingot/wafer production requires more money than cell manufacturing and module assembly—a conclusion that splits hairs to meaninglessness. 

As to Auxin’s point that the photovoltaic value chain is primarily located in China, it is accurate that China has chosen to build up and support its domestic PV manufacturing base, including expansions into Southeast Asia. It is equally valid that the US, Europe, Japan, and for many years India accepted low prices for China’s cells and modules instead of supporting domestic manufacturing at home. At this point, the PV manufacturing scales are so tilted in China’s favor that it will take years to resolve the imbalance.

Assuming that cell manufacturing is somehow less technical and has fewer hurdles is a leap not well explained by either Auxin or Bloomberg. Likewise, assuming that R&D is a function performed only in China is, well, a leap into science fiction. China’s manufacturers have transferred R&D knowledge to subsidiaries – but all PV knowledge is transferred from universities, national labs, and other manufacturers. The US has deep PV R&D in its universities, national labs, and startups and, other than First Solar, it just hasn’t transferred to domestic production. Australia’s universities are still the gestation point for much of today’s commercial cell technology, for example, PERC – and Australia has not chosen to support domestic manufacturing despite being the world leader in PV wafer and cell research.

During the 201 hearings in 2021, Auxin testified that it was ready to begin cell manufacturing, which indicates that it understands the technical aspects of cell processing. Suppose Auxin is prepared to manufacture cells at its San Jose, California facility. In that case, it understands that cell processing is highly complex, highly technical, and high risk – this indicates that using the assertion that cell processing has fewer technical hurdles than wafer and polysilicon processing is disingenuous. 

• Polysilicon production is a messy, dirty, high-energy process. Currently, there is more investment in the Siemens process than the fluidized bed process. Polysilicon manufacturing requires considerable money and at least two years from investment to production. 
• The simplest way to describe the wafer process is: the polysilicon is melted into a crucible to form the ingot, and the ingot is sliced into wafers (there is also kerfless wafering). The aforementioned is not meant to stand in as a definitive description of wafer manufacturing. 

• The basic steps in cell processing are: precheck and pretreat, texturing, acid cleaning, diffusion, etching and edge isolation, post-etch washing, anti-reflective coating deposition, contract printing and drying, testing and sorting. 

Comment: The US has launched an investigation to protect domestic manufacturing that, other than First Solar’s CdTe, it does not have, nor will it have significant domestic manufacturing any time soon.

Should the investigation and decision take the allotted 300 days, developers and installers in the US will continue facing higher prices and fewer choices.

What if the US encouraged China to locate cell manufacturing in the US? Would it then investigate wafer manufacturers in China claiming that cell manufacturing alone was of little value? Would Auxin withdraw its petition if a Chinese wafer/cell manufacturer invested in Auxin for expansion into cell manufacturing?

Lesson: Currently, the US has strong climate change goals – though the country is one election away from those goals going up in a puff of carbon dioxide – it will not realize its goals without domestic cell manufacturing or relaxation on tariffs. 

China’s photovoltaic manufacturing sector dominates global PV manufacturing. It is well past time to stop disputing the reality and for other governments to consider the opportunity cost of not following suit by supporting domestic manufacturing with incentives and subsidies.

Aiko Solar recently announced that it had received RMB 300-Billion from the government for expansion purposes, publicly announcing what China’s manufacturers had previously disavowed. Figure 2.1 observes China’s solar cell capacity growth from 2011 through 2021. At the end of 2021, China’s solar cell sector was so far ahead of the rest of the world that it is difficult to imagine a change in the situation.

Figure: China and ROW Solar Cell Capacity Growth, 2011-2021

How did China accomplish its goal of dominating solar cell manufacturing? First, it subsidized its industry; manufacturers enjoyed cheap or free labor and energy, and they engaged in aggressive pricing strategies that rendered competition almost impossible.

Though cheap energy in and of itself is not bad, coal as a primary driver of solar cell manufacturing is counter worldwide goals to limit global warming.

The definition of cheap labor depends on the market, but free labor based on forced labor should not be countenanced.

Although not a strategy specific to China, aggressive pricing was used by the industry observers and insiders as proof of progress – even as manufacturers in Germany, the US, and Japan failed. The typical talking point concerning the inability to compete was that China’s manufacturers were more efficient than manufacturers in other countries. In reality, they were just able to accept lower margins for a longer period.

Aside from almost erasing the competition, the industry has no real data to support cost improvement instead relying on back-engineering based on assumptions.

As solar manufacturers were priced out of the market in Europe, the US, and Japan, the US switched its goals to either becoming a cutting-edge solar technology IP machine, which didn’t happen or finding the next-generation technology, a goal that produced CIGS manufacturer Solyndra.

For the most part, the US and Europe provided support for markets (demand), ceding solar cell manufacturing to China. No one foresaw a prolonged supply chain disruption period caused by a global pandemic.

By choosing to support their markets instead of manufacturing, focusing on next-generation technology instead of commercialized technologies, while continuing to support fossil fuels, countries missed an opportunity to invest in domestic solar manufacturing – they could have invested in both. The opportunity cost of the choices countries other than China made is to end up in a situation where there is no domestic manufacturing precisely when it is needed and losing the long-term jobs that come with thriving manufacturing industries.

Two years into the pandemic, global supply chains remain upheaved. At the same time, the solar industry continues suffering the realities of disruptions in production and shipping, not to mention volatile prices for all components.

In 2022 the global solar industry faces a variety of risks – all, except the last, interrelated.

• Pandemic Risk
• Recession Risk
• Tariff Risk
• Incentive Risk
• Supply Chain Risks
• Price Risk
• Quality Risk
• Political Risk
• Military Conflict Risk
• Climate Change Risk

Pandemic Risk: The risk that the mutating virus will continue shutting down manufacturing and potential projects causing ongoing supply chain upheaval.

Recession Risk: Inflation, consumer uncertainty, the war in Ukraine, and China’s slowing economic growth indicated a high potential for a recession at the end of 2022. A major recession could lead to an investment pullback and end-user reluctance to buy. Countries (in Europe, the US, and India) might become reluctant to invest in start-up manufacturing during a recession. During a severe recession, the probability of one or more down years in solar demand is high.

Tariff/Ban Risk: To avoid tariffs, manufacturers can establish manufacturing in new countries not subject to tariffs, or, in the country imposing the tariff, or can ship partially completed products through a manufacturer in a tariff-neutral country for minimal processing and on from there to its destination.

Tariff risk is currently specific to the US and India. The US market already has tariffs on imported cells and modules from China and other countries, with the 201 tariffs specific to China. The new US investigation into transshipments from manufacturers in China to subsidiaries and other manufacturers in Southeast Asia has upended the US market. It is unclear whether US bifacial exemption from the 201 tariffs will apply, and importers have pulled back in advance of the hearing cancelling contracts and refusing to sell to US buyers. The US currently has only one cell major manufacturer, CdTe producer First Solar, and about 4-GWp of module assembly capacity, most of which is ill-prepared to serve the multi-megawatt ground market. 

The US also has a custom’s ban and more than one law against importing modules produced with material manufactured in Xinjiang by forced labor. The original law was never enforced. The current law is under discussion concerning enforcement. In 2021, the CBD’s WRO stranded product in port led to the return of ~1.6-GWp of module product. Clearly, there is no justification for buying goods produced with forced labor. China has stated that the allegation is not true. Sellers and buyers run the risk that cells and modules will be rejected at US customs and returned to the shipper.

As with the US, India does not currently have sufficient capacity to serve its market. In 2021 it imported 99% of the cells and modules it installed. The country has established a reasonably generous incentive for manufacturers along the solar value chain to locate facilities in the country, but this will take time. In the meantime, India imposed a 25% tariff on imported cells and a 40% tariff on imported modules.

The US and India are protecting a domestic supply chain that they currently do not have.

The EU is going in a different direction and has suggested that its member countries reduce VAT to 0% to 5% on a variety of products that module from rooftop applications.

Tariffs are a tax on the buyer and encourage importers to develop workarounds or avoid the market altogether, something that the US is experiencing at the beginning of 2022.

Incentive Risk: Going hand-in-hand with political risk, it is the risk that the incentive will decrease over time, will not be renewed, or be subject to retroactive changes. The history of solar incentives supports all three outcomes and does not support stable, long-term incentives.

Supply Chain Risks: COVID manufacturing work stoppages have become common since 2020, leading to periods of constrained supply. Shipping disruptions and delays have become common. Once shuttered, even temporarily, resuming polysilicon production takes time and is costly. One result of the supply chain disruptions is higher prices.

But the real problem with the photovoltaic supply chain is that China, including its expansions in Southeast Asia, controls over 90% of polysilicon production, close to 100% of glass production, close to 100% of backsheet, EVA, and other materials, 86% of global cell capacity, and over 90% of global module assembly capacity. China’s manufacturers have a virtual monopoly on the materials required to manufacture a PV module and control the availability of products and prices. It will take years for other countries to develop supply chains sufficient to serve their domestic markets.

Price Risk: Price risk tags neatly with supply chain risk because, in a virtual monopoly, overcapacity does not necessarily lead to lower prices.

Quality Risk: Industry-wide, quality control receives less interest from manufacturers than ever. Pilot-scale production has shrunk from five years to one month, if that, and is likely one reason for poorly performing modules, another reason being poor packaging protocols. In 2021, at least 2.6-GWp of poorly or nonperforming modules were removed from the field. The solar industry’s accelerated growth has much to do with the lack of pilot-scale production as more and more product is rushed into the field without a proper assessment. The problem will only worsen, and buyers and governments will eventually lose confidence.

Political Risk: Many markets for solar deployment are unstable politically, leaving the country vulnerable to social unrest, economic unrest, and as with the current war in Ukraine, war.

Even in countries with relatively secure systems and governments, one election can change the outlook for solar deployment. All elections in all countries can and have resulted in governments being less friendly to renewables and less likely to promote policies that increase deployment.

Military Conflict Risk: Constant conflicts in the Middle East should have prepared the world for the high potential of conflict elsewhere.

Climate Change Risk: Coal is the primary energy source for polysilicon, wafer, and cell production in China and much of Southeast Asia. Therefore, even as the industry promises a cleaner future, it neutralizes this promise by contributing to the pollution that is driving global warming.

On the system side, extreme weather events are a risk to solar electricity production for all applications from rooftop to multi-megawatt ground mount. Climate change risk as it relates to solar goes directly to lost production and the need for rapid recovery and climate change weather forecasting.