Though the diversification of the solar PV supply chain could end dependency on China, it will increase the cost of decarbonisation of the energy sector
The production of inverters that convert direct current (DC) output to alternating current (AC) as well as aluminium and steel frames that are used to mount solar panels are also concentrated in China.
The Ministry of Science and Technology (MOST) of the government of China supported the solar PV R&D activities and assisted enterprises to realise government targets articulated in its five-year plans. China’s 10th five-year plan (2000-05) identified renewable energy as a significant choice to optimise the Chinese energy basket. The 11th five-year plan (2006-10) provided US$ 6 million as annual funding for solar PV R&D and the 12th five-year plan (2011-15) increased it 12-fold to US$75 million to cover all segments of the value chain. In addition, the “national basic research program of China” (973 programmes) and the “national high technology research and development program of China” (863 programmes) and the “plan for national science and technology” facilitated the development of renewable energy technologies, particularly solar PV technology. From 2004, solar PV production in China also benefited from assistance offered through the “catalogue of Chinese high technology products for export” programme that included tax rebates, free land for factories, and low-interest government loans. China’s 13th five-year plan (2016-20) contained specific goals for solar PV technology innovation including the commercialisation of monocrystalline silicon cells with an efficiency of at least 23 percent and multi-crystalline silicon cells with an efficiency of 20 percent. Globally, between 1980 and 2012, solar module costs fell by about 97 percent. According to a detailed analysis of factors behind the cost reduction, policies that stimulated market growth accounted for 60 percent of the overall cost decline in solar modules and government-funded R&D for the remaining 40 percent. R&D in advanced economies was important in the early years but the exponential cost decrease in the last decade was on account of economies of scale in manufacturing, for which China must be given credit.
China had a small solar PV manufacturing sector accounting for about 3 percent of global manufacturing capacity catering to demand from rural households in China that were not connected to the grid.
In 1990, the spot price of polysilicon was US$ 57/kilogram (kg) and stayed around that level until the late 2000s. In 2008, the spot price of polysilicon touched a high of US$ 362/kg because of the increase in capacity for the manufacture of ingots, wafers, and cells in China and the resultant increase in demand for polysilicon. By 2012, the price of polysilicon fell to US$ 22/kg as a result of anti-dumping duties imposed on Chinese producers by western countries. Over-capacity in low-cost polysilicon production in China sent prices down to less than US$ 10/kg in 2019. Since 2020, the price of polysilicon has demonstrated an upward trend touching US$ 40/kg in September 2022 on account of demand recovery after the pandemic. The increase in the price of polysilicon and other critical minerals and metals that go into the production of solar PV modules will necessarily mean an increase in the cost of decarbonising the energy sector. Investments in domestic solar PV manufacturing capacity towards the goal of achieving supply chain sovereignty will add to those costs. Developments in India are a case in point. Low solar electricity tariff has been driving solar installations in India. Since 2010, solar electricity tariff has fallen by 82 percent primarily because of low-cost solar PV modules imported from China. Since January 2021, solar electricity tariff in India has increased by 25 percent because of basic customs duty (BCD) of 25 percent on solar cell imports from April 2022 and BCD of 40 percent on import of solar PV modules to protect the nascent domestic PV manufacturing industry. The 40-percent increase in imported solar modules driven by the increase in polysilicon prices adds to the cost of tariff barriers. The overall increase in the cost of using solar PV systems will slow down the decarbonisation of energy systems, especially in developing countries that are cost sensitive. The resurgence of economic nationalism and supply chain sovereignty suggests that trade and security concerns continue to override climate change concerns. In the future, climate science may illustrate with a vengeance that it disagrees.
The increase in the price of polysilicon and other critical minerals and metals that go into the production of solar PV modules will necessarily mean an increase in the cost of decarbonising the energy sector.
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Ms Powell has been with the ORF Centre for Resources Management for over eight years working on policy issues in Energy and Climate Change. Her ...Read More +