There’s a huge problem for the clean energy shift and it comes from China, unprecedented IEA report says

Nearly half a century later, the Paris-headquartered entity’s mandate has evolved and expanded to strengthen the world’s energy security beyond oil, and it’s staring down the barrel at another energy crisis.

On Wednesday, the IEA published a new, unprecedented report on the global solar transition as the world experiences another energy crisis due to Russia’s invasion of Ukraine. It’s got good news and bad news.

The good? Solar power has become the cheapest source of green energy worldwide because of China’s “instrumental” role in solar manufacturing, said Fatih Birol, executive director of the IEA. Over the last two decades, Chinese state-led industrial policies—such as billions in subsidies and tax breaks for companies involved in solar production—have allowed China to leapfrog over the U.S., the very inventor of solar photovoltaic (PV) technology, to become the world’s top solar manufacturer.

Solar manufacturing costs in China are 35% lower than in Europe, 20% lower than in the U.S., and 10% lower than in India. In the eight years from 2010 to 2018 alone, the cost of electricity from utility-scale solar photovoltaic projects plunged by 77% thanks to Chinese manufacturing, while over that period the world’s solar capacity grew at a compound annual growth rate of nearly 43%, according to data from the International Renewable Energy Agency (IRENA).

Now for the bad news.

The danger of a dominant player

China’s dominance over the global solar supply chain could hinder the world’s clean energy shift, the IEA warns.

The world will be almost “completely” dependent on China to supply the critical building blocks for solar panel production through 2025, according to the IEA. “This level of concentration in any global supply chain would represent a considerable vulnerability [and] solar PV is no exception,” it said.

Annual solar capacity additions need to quadruple to 630 gigawatts (GW) by 2030 to meet the IEA’s roadmap to net-zero emissions by 2050. And as countries ramp up their green energy capacity, the concentration of solar manufacturing in China means that supply chains will be “further strain[ed]” in order to meet growing demand, the IEA says. European imports of Chinese solar cell and module parts for instance, surged 127% in May compared to the same time last year, as Europe looks to install 600GW of solar by 2030 and curb its reliance on Russian energy.

China’s share in the key manufacturing stages of solar panels—such as the mining and melting of polysilicon, the main raw material used to make photovoltaic (PV) cells for solar panels—eclipses 80% of the industry. This figure will grow to over 95% in the next three years, as under-construction manufacturing and processing facilities come online, according to the report.

Now, the IEA is calling on countries to diversify their sources of solar panels and increase their own manufacturing capacity to mitigate the supply chain, trade and geopolitical risks of being too dependent on Chinese solar. Polysilicon prices have skyrocketed in the last 18 months—reaching an 11-year high in June—as demand for solar overtakes existing manufacturing capacity, leading to a slowdown in renewables projects.

China is spending billions to boost polysilicon production, which will help reduce supply chain bottlenecks but keep the world reliant on China’s solar supply chain; the country accounts for over 80% of the world’s solar-grade polysilicon production. China-concentrated solar production leaves the supply chain vulnerable to major disruptions, from fires in facilities to flooding in the country, Batih told the FT.

Solar supply chains are also highly vulnerable to trade policy risks. In the last decade, anti-dumping, countervailing and import duties against elements of the solar supply chain has surged from one import tax to sixteen, with eight more policies currently under consideration, the IEA says. The U.S. and Europe accused China of unfair dumping and imposed tariffs on certain solar products from China starting in 2012. China’s solar production has also attracted scrutiny from human and labor rights activists. Nearly half of China’s polysilicon mining and production takes place in its western region of Xinjiang. Advocacy groups say Xinjiang solar companies use forced labor from Uyghur Muslims in the region. Last month, the U.S. enacted legislation that will ban all solar imports (and other goods) from Xinjiang—unless the importer can prove the products aren’t tied to forced labor.

The U.S. meanwhile, is trying to strengthen its own solar supply chain. The Biden administration says the country is on track to triple domestic solar manufacturing capacity by 2024. Legislation such as the America COMPETES Act, would provide $3 billion in funding for America’s solar manufacturers through to 2026.

If the rest of the world doesn’t step up, the IEA warns, the green transition will be largely in China’s hands, and no one player should have all that power.