Averting climate change could turn on whether the industry can become less dependent on Xinjiang and still keep up supply of a vital raw material.
One of the longest-running deflationary trends is grinding to a halt. The consequences could have profound effects on the global ability to avert climate change.
The slumping cost of semiconductor chips since the 1950s transformed our world, turning computers from a costly piece of industrial plant to an ubiquitous presence in our smartphones, watches, cars and refrigerators. Something similar has happened over the past decade to that other critical semiconductor, solar-power cells.
Panel modules that cost $1,870 per kilowatt in 2010 were changing hands for $163 per kW last year, turning photovoltaic, or PV, power from an expensive curiosity into a technology that’s remaking the energy system.
For two-thirds of the global population, solar along with wind represent the cheapest way to deliver new electricity supplies, according to BloombergNEF. Nearly 60% of the power generation installed over the five years through 2025 will be solar, the International Energy Agency said last year.
Sunny Side Up
Though prices are still a fraction of what they were 10 years ago, the increase in costs for solar modules this quarter is the biggest in more than a decade
That trend has come juddering to a halt in recent months. The price of panel modules is up nearly 15% so far this quarter. If that continues, it would represent only the seventh quarter out of the past 45 when prices have failed to decline.
An industry whose growth model is predicated on continually falling costs is having to cope with its first bout of inflation.
Raw materials are to blame. Prices for polysilicon, the shiny, semi-metallic substance from which both solar panels and computer chips are made, have been surging as stepped-up plans for renewable installations crash into the supply chain problems of a global economy awakening from Covid-19. At $29.41 a kilogram, PV-grade polysilicon is now as expensive as it’s been since 2012, and costs nearly three times its $10.57/kilogram price at the end of last year.
That’s concerning. Persistent prices as high as $450/kg for polysilicon during the 2000s, before a wave of new Chinese manufacturers entered the market and undercut the incumbents, are one reason that prospects of competitive solar power seemed so dim at the time.
Should the same pattern repeat itself, predictions about a future of rock-bottom PV prices driving rapid decarbonization of the power system may have to be revisited.
A tight polysilicon market in 2021 is likely to ease in the coming few years as new supply comes on stream.
The good news is that a vast amount of polysilicon capacity is due to hit the market over the coming years. Supply by Chinese manufacturers will increase by about 76% through 2023, according to BloombergNEF analyst Yali Jiang.
Such a build-out will outstrip even the heady pace of solar demand growth, pushing polysilicon prices back to pre-Covid levels by the end of 2022 before heading lower as a glut builds the following year.
There’s one problem with that rosy prospect. About a third of the new capacity will be in Xinjiang, China’s vast western region where the Uyghurs and other Muslim minority groups have been victimized by policies the U.S. government characterizes as crimes against humanity, and possibly genocide.
Already, about 45% of the world’s solar-grade polysilicon comes from four Xinjiang-based manufacturers, according to analyst Johannes Bernreuter. Even those of that group, like Daqo New Energy Corp., which have thrown open their doors to say they’re not involved in alleged forced-labor programs, must contend with the fact that their presence in Xinjiang is dictated by some of the world’s cheapest coal-fired power.
As the world pays more attention to what’s happening to China’s minority groups, that poses a threat to the solar supply chain that would put current problems in the shade.
A bill currently working its way through the U.S. House of Representatives would ban the import of all Chinese goods linked to forced labor. A House committee Thursday requested U.S. customs officials “take strong action” against such products.
Public opinion and ESG mandates may force the same moves in Europe and other regions. Such actions have the power to tear the global solar industry up by the roots, at precisely the time when it most needs vigorous growth.
Prices for solar-grade polysilicon are the highest they’ve been in nearly a decade.
One option canvassed by Bernreuter would be to certify a share of production as “Xinjiang-free”, allowing exports to continue while products of murkier origin serve China’s own burgeoning domestic market.
The Solar Energy Industries Association, a trade group, released guidelines this year to ensure traceability along the supply chain. Even so, it depends on solar manufacturers’ willingness to separate and audit the streams of Xinjiang and non-Xinjiang polysilicon. Such a move may smack of disloyalty in China’s current political climate.
Something has to give, though, to keep one of the most potent engines of decarbonization switched on. Xinjiang is crucial, not just because of its own low costs, but because it’s plugged into China’s broader solar industry accounting for more than 70% of the world’s panel production.
Attempts to set up non-China supply chains, whether in India, the U.S., or Saudi Arabia, have done little except raise the cost of photovoltaic installations and put off the moment when fossil fuels are driven out of business.
Like the fashion trade, aluminum sector and cryptocurrency mining, the solar industry has become deeply entangled with Xinjiang. If it’s unable to credibly separate its supply chain from claims of human rights abuse, the consequences will be dire — both for China and the world.