China unleashed the full power of its solar industry last year. It installed more solar panels than the United States has in its history. It has cut the wholesale price of the panels it sells by almost half. And exports of fully assembled solar panels increased by 38%, while exports of basic components almost doubled.
Get ready for an even bigger demonstration of China’s solar power dominance.
While the United States and Europe are scrambling to revive renewable energy production and help companies stave off bankruptcy, China is running far ahead.
At the annual session of China’s parliament this week, Premier Li Qiang, the country’s second-highest official after Xi Jinping, announced that the country would speed up the construction of solar panel parks, as well as wind and hydroelectric projects.
With China’s economy faltering, increased spending on renewable energy, mainly solar, is the cornerstone of a big bet on emerging technologies. China’s leaders say a “new triad” of industries – solar panels, electric cars and lithium batteries – has replaced an “old triad” of clothing, furniture and appliances.
The aim is to help offset a sharp downturn in China’s housing construction sector. China hopes to tap emerging industries such as solar power, which Mr Xi likes to describe as “new productive forces”, to revive an economy that has slowed for more than a decade.
The emphasis on solar energy is the latest installment in a two-decade program to make China less dependent on energy imports.
China’s solar exports have already received urgent responses. In the United States, the Biden administration introduced subsidies that cover much of the cost of building solar panels and part of their much higher installation costs.
The alarm in Europe is especially great. Officials are bitter that a dozen years ago, China subsidized its factories to make solar panels, while European governments offered subsidies to buy panels made anywhere. This led to a burst of consumer purchases from China that hit Europe’s solar industry.
A wave of bankruptcies swept through European industry, leaving the continent heavily dependent on Chinese goods.
“We have not forgotten how China’s unfair trade practices have affected our solar industry – many new businesses have been pushed out by heavily subsidized Chinese competitors,” Ursula von der Leyen, president of the European Commission, said in her State of the Union address last year September.
The remnants of the European solar industry are now disappearing. Norwegian Crystals, a major European producer of raw materials for solar panels, filed for bankruptcy last summer. Meyer Burger, a Swiss company, announced on February 23 that it will stop production in the first half of March at its factory in Freiberg, Germany, and try to raise money to complete factories in Colorado and Arizona.
The company’s U.S. projects could take advantage of renewable energy production subsidies provided by President Biden’s inflation-reduction law.
China’s cost advantage is formidable. A European Commission research unit estimated in a report in January that Chinese companies could make solar panels for 16 to 18.9 cents per watt of capacity. Instead, it cost European companies 24.3 to 30 cents per watt and American companies about 28 cents.
The difference partly reflects lower wages in China. Chinese cities have also provided land for solar panel factories at a fraction of market prices. State-owned banks have lent heavily at low interest rates, even as solar companies lost money and some went bankrupt. And Chinese companies have figured out how to build and equip factories at low cost.
China’s low electricity prices make a big difference.
Manufacturing the main raw material for solar panels, polysilicon, requires enormous amounts of energy. Solar panels typically need to generate electricity for at least seven months to recoup the electricity needed to build them.
Coal provides two-thirds of China’s electricity at low cost. However, Chinese companies are further reducing costs by installing solar farms in the deserts of western China, where public land is essentially free. Companies then use the electricity from these farms to produce more polysilicon.
In contrast, Europe has expensive electricity, particularly after it stopped buying gas from Russia during the war in Ukraine. Land used in Europe for solar parks is expensive. In the Southwestern United States, environmental concerns have slowed the installation of solar farms, while zoning issues have blocked permits for renewable energy transmission.
China’s carbon consumption has made it the world’s largest annual contributor to greenhouse gas emissions. But the country’s pioneering role in making solar panels less expensive has slowed emissions growth.
“If Chinese manufacturers hadn’t reduced the cost of panels by more than 95 percent, we wouldn’t have seen so many installations around the world,” said Kevin Tu, a Beijing-based energy expert and non-resident at the Center for Global Energy Policy. at Columbia University.
Annual solar panel installations have nearly quadrupled worldwide since 2018.
Some of the new solar farms generating electricity for polysilicon production are located in two southwestern Chinese provinces, Qinghai and Yunnan. But much of the polysilicon is made in northwest China’s Xinjiang region. The United States bans imports made with materials or parts made with forced labor in Xinjiang, where China has oppressed predominantly Muslim minorities such as the Uyghurs.
This has led the United States to block some shipments of solar panels from China, while the European Union is considering similar action.
Chinese companies increasingly carry out the initial, high-value stages of solar panel manufacturing in China and then ship the components to overseas factories for final assembly. That allows shipments to avoid trade barriers, such as tariffs imposed on many Chinese imports by President Donald J. Trump. Several of China’s largest solar panel makers are building final assembly plants in the United States to take advantage of subsidies offered as part of the anti-inflation law.
The law includes extensive subsidies to revive the U.S. solar panel industry, which nearly collapsed a decade ago in the face of low-cost imports from China. But building an industry that can stand on its own will be difficult.
China produces nearly all of the world’s solar panel manufacturing equipment and nearly all of the supply of every solar panel component, from wafers to specialty glasses.
“There’s expertise in this, and it’s all in China,” said Ocean Yuan, chief executive of Grape Solar, a company in Eugene, Ore., that works with Chinese solar companies to set up assembly operations in the United States.
This know-how previously existed in the United States. As recently as 2010, Chinese solar panel producers relied mostly on imported equipment and faced long and costly delays if something broke.
“It took days or weeks to get parts and engineers,” said Frank Haugwitz, a longtime solar consultant who specializes in the Chinese industry.
In 2010, Applied Materials, a Silicon Valley company, built two sprawling laboratories in Xi’an, the city in western China known for its terracotta warriors. Each lab was the size of two football fields. They intended to make final tests of robotic assembly lines that could produce solar panels with virtually no human labor.
But within several years, Chinese companies had figured out how to do it themselves. Applied Materials significantly scaled back production of solar panel tools and focused on making similar equipment that makes semiconductors.
Today, anyone trying to build solar panels outside of China faces potential delays in installing or securing equipment.
As Europe considers whether to follow the United States’ lead with its own subsidies and import restrictions on solar products, Mr. Haugwitz said, “It will remain a challenge for the Europeans to compete.”
Joy Dong and Li You contributed to the research.
