Redrawing the solar power global map with regional supply chains

The demand for solar power is rising globally. The supply of key components for it, however, is mostly concentrated in one region, leading to potential shortages or political actions that could stifle that demand. If it is to lead the fight against climate change, the solar power world must diversify its supply chain so that it no longer relies on one primary source.

For much of the solar power supply chain, the concentration of raw materials and production resides within China. A supply chain analysis by the US Department of Energy (DOE) found that China’s global share of manufacturing capacity among key components is predominant in the following areas: polysilicon (72%), ingots (98%), wafers (97%), cells (81%), modules (77%) and inverters (66%). Some 75% of silicon solar cells used in modules installed in the US are produced by “Chinese subsidiaries operating in three Southeast Asian countries: Vietnam, Malaysia and Thailand,” the DOE reported.

A parallel energy security problem is the historically entrenched reliance by Europe on natural gas supplies from Russia. The invasion of Ukraine by Russia sent European countries scrambling for alternatives, sparking a steep spike in natural gas prices.

The solar energy industry is similarly vulnerable. When the US launched an investigation into whether China is circumventing import duties by moving products through Southeast Asian companies before they are shipped to the US, the solar power industry in the US fell into a temporary tailspin. The slew of project cancellations and disruptions led President Biden to issue an emergency declaration in June 2022 to provide a two-year reprieve on duties for solar cells and modules from Southeast Asia to avoid disruptions to the electric power system.

In August 2022, the tide rapidly changed with the passing of the US Inflation Reduction Act. This includes extensions and the expansion of tax credits to incentivise solar and wind power projects. Solar power generation was already poised for growth, but the enhanced tax credits are forecast by Rystad Energy to lift US capacity by an additional 70 gigawatts (GW) above a base case scenario for a total of 270 GW by 2030. Contrast that with the 61 GW of current utility-scale solar generation in the US.

The US manufacturing base for solar components, including modules, is expected to grow in the next few years, especially for domestic supply. As for solar trackers, there is already a wider geographic spread. Array fully expects the broader solar energy manufacturing industry to become more geographically diversified, akin to the solar tracker sub-sector's reach. It’s simply imperative.

By reducing reliance on one country for photovoltaic modules, the broader industry can confidently expand the base of renewable, reliable and cost-effective, emissions-free power generation in regions around the world. Diversifying the supply chain also ensures energy independence for many countries. The Russian invasion of Ukraine and its impact on global energy and commodities markets has shown that energy independence is now a matter of national security for so many countries.

Finding alternatives is challenging and it’s a race against the clock. In short, this will not be easy. The energy transition requires immense amounts of capital, especially to develop new sources of crucial commodities, including aluminium, copper, polysilicon and critical minerals. The demand for battery storage and electric vehicles, for example, is already spurring significant investments in new mining and battery production.

For solar, we are optimistic that emerging technologies will advance deployment and lower costs, making solar more attainable to more regions around the world and giving it an even bigger share of total energy generation in established markets. For capital to shift to any potential new module technologies, industry will need confidence in their return on investment. This must be prioritised to expand the base of solar module supplies.

Solar power can solve the energy trilemma of energy security, affordability and sustainability. But first, it must take action to build out a broader industry charter, with suppliers stepping up to create secure and diversified supply chains and ensuring fair labour conditions, all while maintaining a declining cost curve. None of this is easy, but if the past is a guide, the solar power industry can innovate yet again to cement its place as the leading renewable power source.