In the past ten years, the manufacturing capacity of solar photovoltaic modules has been transferred from Europe, Japan, and the United States to China. In particular, Germany is worried about the status of its manufacturing because the solar industry has been completely seized China. Now that China's dominance in the global solar photovoltaic market has become overly concentrated, the International Energy Agency (IEA) is concerned that global solar development may become too dependent on China in the future.
Global energy and climate goals have been agreed upon, solar photovoltaic deployment will need to grow on a large scale, and manufacturing capacity must also be greatly expanded. It is estimated that by 2030, the solar photovoltaic power generation capacity of the global power system will need to increase more than four-fold per year to embark on the IEA’s the path to net zero emissions by 2050. Polysilicon ingots, wafers, cells, and modules will need to more than double from today's levels by 2030 and existing production facilities will need to be modernized.
Now the global solar photovoltaic supply chain is increasingly inelastic. For example, high commodity prices and supply chain bottlenecks have caused the price of solar photovoltaic modules to rise by about 20% compared with last year. Supply chain disruptions are more pronounced in the polysilicon market, a key material, resulting in global solar photovoltaic delivery delays and price spikes.
Now that countries around the world are examining the supply chain problems of the solar photovoltaic industry, the IEA believes that too much concentration will be a big problem. Over the past decade, China has regarded solar photovoltaic module production as a strategic industry and is also increasing domestic demand. Now, China has a market share of over 80% in all manufacturing stages of solar photovoltaic modules, more than double China's global demand. China’s exports of photovoltaic materials and equipment that convert solar energy into electricity totaled more than $30 billion in 2021, accounting for nearly 7 percent of its trade surplus over the past five years. The total global trade volume related to solar photovoltaics increased by more than 70% over the previous year, exceeding US$40 billion.
The report states that "the world should thank China for reducing the cost of solar photovoltaics by more than 80% in the past decade," but warns that by 2025, the world will be almost completely dependent on China for solar photovoltaic module manufacturing and China's global market share will soon reach nearly 95%. In terms of polysilicon, a key material for the production of solar photovoltaic modules, the Xinjiang region in northwest China alone accounts for 40% of the global supply. As the world moves towards net-zero emissions by 2050, the solar photovoltaic industry's demand for minerals is likely to increase significantly and such rapid growth could lead to more supply-demand imbalances, leading to increased costs and supply shortages, the report noted.
The IEA pointed out that the world must overcome the low-cost competitiveness of Chinese manufacturing and reducing the cost of electricity is the key. The electricity required for polysilicon accounts for 40% of the production cost and 80% of the global polysilicon production is controlled by China. The average electricity price in China is US$75 per MWh, nearly 30% lower than the global average. The cost of producing solar photovoltaic modules in China is 10% lower than in India, 20% lower than in the US and 35% lower than in Europe.
The report emphasizes that "countries need to ensure that transitions to sustainable energy systems are based on security," and that the United States is trying to strengthen its own solar supply chain, with the goal of tripling domestic solar manufacturing capacity by 2024. Legislation such as the US Competition Act would provide US solar manufacturers with $3 billion in funding by 2026. However, in an era of global abandonment of coal and nuclear power and wars disrupting the natural gas supply market, leading to rising global electricity costs, China's position in the solar photovoltaic manufacturing industry supported by coal combustion is even more difficult to shake.