Over the last decade, solar panel manufacturing capacity has increasingly shifted to China from Europe, Japan and the US, according to the IEA report released Thursday. China now holds a market share in excess of 80% for all manufacturing stages of solar panels, more than double its share of global demand, it said.
The roots of that dominance are to be found in the country’s industrial policy, which deems solar panel production a strategic sector and focuses on increasing domestic demand, the report said.
China’s exports of solar photovoltaic (PV) materials and devices, which convert sunlight into electricity, totalled more than US$30 billion in 2021, accounting for almost 7% of its trade surplus over the last five years, according to the report.
The total value of global solar PV-related trade increased by more than 70% from the previous year to more than US$40 billion.
And while the IEA praised China’s expansion of panel markets as helping to boost global solar power uptake, it also issued a warning: The world will “almost completely rely on China” for the supply of solar panel manufacturing through 2025.
In early stages of the manufacturing process, the IEA said China’s global share will soon reach almost 95%. In the case of polysilicon manufacturing, meanwhile, the nation’s northwestern Xinjiang region alone accounts for 40% of the global supply.
“This level of concentration in any global supply chain would represent a considerable vulnerability; solar PV is no exception,” the report said.
This has thus led to what the report describes as supply-demand imbalances, causing global capacity for manufacturing of some parts to exceed demand by at least 100%, while also creating a supply chain bottleneck for polysilicon, another key material. Combined with high commodity prices, solar panel prices rose by about 20% over the last year, the report said.
The IEA also said that as the world moves toward net zero emissions by 2050, the solar PV industry’s demand for minerals will likely expand significantly. Such rapid growth could result in more supply-demand mismatches, leading to cost increases and supply shortages.
“Solar PV’s global supply chains will need to be scaled up in a way that ensures they are resilient, affordable and sustainable,” IEA Executive Director Fatih Birol said in a statement on Thursday.
The report encourages governments to move solar panel supply chain diversification up the policy agenda as “an integral part” of advancing clean energy transitions, and to facilitate needed investments through measures such as finance and tax policies.
A key challenge is overcoming China’s cost-competitiveness as a manufacturer. Costs there to produce all components in the solar panel supply chain are 10% lower than in India, and beat the US by 20% and Europe by 35%, the report says.
As manufacturing requires electricity, lowering the cost of power is essential. In the case of polysilicon, electricity accounts for 40% of the production cost. In China, where 80% of electricity used in polysilicon production is consumed, electricity prices average US$75 per megawatt-hour, almost 30% below the global average.
Countries “need to ensure that their transition towards a sustainable energy system is built on secure foundations”, Birol said.