US Lets China Feud Stall Solar Growth

The spuriously named but well-funded Inflation Reduction Act (IRA) has been hailed as a giant step toward global US leadership in clean energy manufacturing and use. Maybe, eventually. But in the meantime, feuding with China threatens to have the opposite effect, leaving the US several more years behind not just China but also Europe in the energy transition, and especially solar. Chinese solar exports to Europe more than doubled last year, and China simultaneously pulled off a near 60% jump in domestic solar installations — while US solar additions fell from 2021 levels. The US wants, and needs, clean energy manufacturing capability. But Washington’s heavy-handed approach on solar and other renewables imports is counterproductive, given that it has little such capacity as yet. It’s good news for the oil industry, though. US dependence on gas-fired power will remain higher for longer as a result.

China installed 86 gigawatts of photovoltaic (PV) capacity last year, up 59% from 2021. Europe added over 41 GW, up 47% year on year. The US added barely over 20 GW of solar in 2022, down 16% from 2021.

Interestingly, the EU imported more than twice the quantity of solar modules than it installed, with 2022 deliveries from China soaring 112% to 86.6 GW. But installations lagged due to permitting and other problems, and after spiking in the first half, imports slowed as inventories built, according to Taiwan-based solar consultancy InfoLink. First-half 2022 activity gives an idea of China’s robust ability to rev up solar sales on short notice at relatively low prices. Buyers have but to ask and the goods appear.

The US evidently didn’t ask last year and it may not this year either. In a report for the US Solar Energy Industries Association, Wood Mackenzie says US solar installations could surge by 41% in 2023 to 28.4 GW — but only if imports rules stabilize and if relatively flexible rules are issued quickly for determining what qualifies for IRA tax credits.

Many of the problems can be attributed to wild swings in Biden administration policy on solar imports. Early in 2022, the Commerce Department announced it was investigating whether to subject solar panels entering the US from four Southeast Asian countries to possibly huge “circumvention” tariffs and penalties because they were in fact from China. To no one’s surprise, Commerce found in December that Cambodia, Malaysia, Thailand and Vietnam were indeed being used as conduits for largely Chinese panels. Biden had pre-empted that finding midyear amid plunging imports, suspending any potential tariffs on solar imports from Southeast Asia for two years. But Congress is threatening to override Biden’s executive order.

Adding to solar installers’ woes, the Biden administration has been holding up many panels coming directly from China on different grounds: The often unanswerable question of whether any of the components come from China’s Western province of Xinjiang. US law prohibits imports from Xinjiang — home to more than half the world’s capacity to make polysilicon, the base material in solar panels — due to alleged use of Uyghur forced labor.

European Approach

Like the US, Europe is attempting to resuscitate and expand domestic solar manufacturing that succumbed earlier this century to competition from China. The EU tried using tariffs on and off to combat the onslaught, but the Chinese kept on selling.

The fossil fuel supply crisis that hit Europe in 2022 increased pressure both to build out renewable power as quickly as possible — evidenced by the surge in solar imports from China early last year — and to avoid a repeat of the heavy dependence on a single outside supplier that proved so problematic in fossil fuels when Russia invaded Ukraine. Indications at this stage are that, if the two goals come into conflict, the EU and especially Germany will choose to keep the renewables import taps open.

This was the message many took away from a controversial 11-hour trip German Chancellor Olaf Scholz took to Beijing last November, accompanied by captains of German industry worried about high energy prices and the need to get more renewable electricity, fast. Washington’s concern about Europe’s reliance on China for new energy, and its similarity to Germany’s earlier dependence on Russia for gas and oil, reportedly appeared on the agenda in an even lower-key visit by Scholz with Biden in Washington early this month.

This attempt to balance a near-term need for Chinese solar and other new-energy imports against fear of overreliance on that country for new-energy technology is also evident in the European Commission’s proposed Net-Zero Industry Act. What of this proposal will make it into European law is anybody’s guess, but the notion underpinning it is that Europeans themselves should be able to build 40% of their own solar and other clean-energy technology by 2030. That’s an arguably realistic approach to bolstering Europe’s clean-energy industrial base without slowing the transition.

Chinese Approach

China has been plotting a course to large-scale manufacturing capacity in solar and numerous other new-energy technologies for much longer still. It’s “Made in China 2025” industrial development plan from 2015 set detailed goals with timings attached — including boosting domestic content in core technologies to 40% by 2020, a decade ahead of the commission’s similar goal. The policy was public. Whether it was all legal under World Trade Organization rules is another question. But it was not a secret. And the 40% goal was easily surpassed in many technologies.

Not everything was in the official document, of course. In practice, it seems China’s strategy on solar, batteries and other technologies has been to let it rip with construction of private capacity, encouraging lots of companies to invest lots of money. Overcapacity results, driving down prices until demand grows to approach, if not fully meet the capacity. As it prepares for further expansion, Beijing typically starts a weeding-out process, to consolidate the industry and ensure high-quality output.

This isn’t an approach the US or other Western governments are likely to take, even in this era of more activist government in Washington. But to the extent the US is using planning tools with which it is unfamiliar, it might pay Washington to consider some of the lessons from both China and Europe.

Lessons to Be Learned

Building or even substantially expanding existing industries takes time. An effective industrial strategy needs to encompass what to do during those long build-out years and a gradualist approach to introducing domestic goods into what may well be a lower-cost market for imported goods. At some point tariffs or other protective mechanisms may need to figure in the strategy. But not at the beginning.

In the US, skepticism in the business community about stability in government policy — especially in a sector as prone to policy shifts as renewables — means it may take some muscular assurances to get private companies to invest. That is an implicit consideration behind the IRA’s multiyear approach. What it should not require is halting imports while factories get built, thus slowing the transition. That’s what has been happening, however, and the popularity of China-bashing in the US Congress makes it likely the Biden administration will stay on this tack through the next election cycle and, if it’s still around, potentially beyond.

Given five or six more years, enough solar factories may be built to cover demand, which will have been constrained for years at that point. Neither China, the EU or other countries will have been standing still in the meantime, and the US could be way behind on the transition. As noted, the big winner in that could be the domestic US gas industry, which will likely be struggling with shrinking export opportunities by that point, and could benefit from having a secure domestic US market for a longer time.

Sarah Miller is a former editor of Petroleum Intelligence Weekly, World Gas Intelligence and Energy Compass. The views expressed in this article are those of the author.