IEA says solar supply chain is too concentrated in China

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A new International Energy Agency (IEA) report welcomes Chinese investment in bringing down global solar power costs but warns of supply chain imbalances.

The IEA has called for new investment to strengthen and diversify global supply chains for solar power components, warning that the sector may struggle to maintain growth amidst rising supply chain risks.

More than 90% of some components required for solar panels come from China, which stands in stark contrast to the highly dispersed global demand for new solar capacity.

China’s solar success

The IEA report, Special Report on Solar PV Global Supply Chains, welcomes Chinese industrial policies focusing on solar PV as a strategic sector, as well as on growing domestic demand. These efforts have helped to dramatically upscale the industry and reduce costs by more than 80% over recent years, helping solar PV to become the world’s most affordable electricity generation technology.

In 2021, the value of China’s solar PV exports was over $30bn, almost 7% of China’s trade surplus over the last five years. In addition, Chinese investments in Malaysia and Vietnam also made these countries major exporters of PV products, accounting for around 10% and 5% respectively of their trade surpluses since 2017.

At the same time, however, this success has seen significant supply-demand imbalances in the sector. Global capacity for manufacturing wafers and cells, which are key solar PV elements, and for assembling them into solar panels, exceeded demand by at least 100% at the end of 2021.

Environmental solar success

Just as importantly, progress made by the large-scale investment by China means that electricity-intensive solar PV manufacturing, even where mostly powered by fossil fuels, only requires the produced solar panels to operate for four to eight months to completely offset their manufacturing emissions.

This payback period compares with the average solar panel lifetime of around 25-30 years. Electricity provides 80% of the total energy used in solar PV manufacturing, with the majority consumed by production of polysilicon, ingots and wafers because they require heat at high and precise temperatures.

The remarkably fast carbon-payback time is the result of efficient use of materials and energy – and greater use of low-carbon electricity production – improving performance per unit over time.

Absolute CO2 emissions from solar PV manufacturing represents only 0.15% of energy-related global CO2 emissions in 2021 and transport of units accounts for only 3% of embedded carbon of PV units. That makes solar power one of the most low-carbon energy sources, as well as one of the cheapest, even after factoring in manufacture-related carbon.

Supply chain risk

The IEA report warns that meeting international energy and climate goals requires the global deployment of solar PV to grow on an unprecedented scale, which raises real concerns about the supply chain.

Expansion in manufacturing capacity will be needed to quadruple annual solar PV capacity additions to 630 gigawatts (GW) by 2030, the level needed to meet the IEA’s Roadmap to Net Zero Emissions by 2050. Global production capacity for polysilicon, ingots, wafers, cells and modules would need to more than double by 2030 from today’s levels.

At present and for the short term, expansion will see the world continue to depend on China for the supply of key building blocks for solar panel production. The report warns that China’s share of global polysilicon, ingot and wafer production will soon reach almost 95%. Indeed, China’s Xinjiang province accounts for 40% global polysilicon manufacturing. Moreover, one out of every seven panels produced worldwide is manufactured by a single facility. This level of concentration in any global supply chain, the report warns, represents a considerable vulnerability.

This reflects China’s cost advantages as a location to manufacture all components of the solar PV supply chain. Costs in China are 10% lower than in India, 20% lower than in the United States and 35% lower than in Europe.

But with high commodity prices and supply chain bottlenecks leading to an increase of around 20% in solar panel prices over the last year and delays to solar panel deliveries across the globe, the need for a more diversified and secure supply chain is clear.

How to diversify and secure supply chains

The IEA report proposes a number of actions needed to achieve a diverse supply chain. These include diversifying manufacturing and raw materials, fostering innovation and improving recycling of old panels and materials.

The report suggests that countries should consider integrating solar PV manufacturing facilities in industrial clusters, near traditional energy-intensive plants or other larger renewable electricity consumers. It also suggests working to diversify raw material and PV import routes to reduce supply chain vulnerabilities.

On innovation, the IEA calls for an expansion of research and development funds to further improve solar cell conversion efficiency and reduce raw material needs, as well as promoting technology innovation in manufacturing processes that reduce material intensity, especially for critical minerals such as silver and copper.

And with systematic collection of end-of-life panels, the report suggests that recycling could achieve 20% of the aluminium, copper, glass and silicon needs for the industry, and almost 70% of its silver needs after 2040. So the report proposes comprehensive regulations to establish collection and recycling norms.

Click here to download the IEA’s Special Report on Solar PV Global Supply Chains.