The charm offensive in May by at least one major China solar player has failed.
Customs and Border Protection (CBP) has decided to go after four polysilicon manufacturers, a key starting ingredient in making the solar cells that go into solar panels. China dominates this market, including in the U.S. At first blush, the one company ban is not enough. The three others on the Entity List make it harder for Americans to do business with them. In short, all of this is a headache for the solar supply chain, a lot of it centered in China. The solar industry there is now tainted by charges of forced labor.
On Thursday, the White House said that CBP issued a Withhold Release Order on Hoshine Silicon’s polysilicon. Although Hoshine is not a meaningful supplier of polysilicon to the U.S. solar industry, Hoshine’s poly is used by other players in the industry to make solar cells that are exported here. As a result of this WRO, personnel at all U.S. ports of entry have been instructed to “immediately begin detaining shipments that contain polysilicon-based products made by Hoshine or materials and goods derived from or produced using those polysilicon-based products.”
In effect, while not perfect, this is a ban on solar cells using the Hoshine supply chain.
In May, Daqo New Energy, which is listed on the NYSE, started inviting journalists to its subsidiary in Xinjiang to show that it was not using forced labor (as if anyone who was not being paid, or was working against their will, would be allowed to say so).
That Daqo subsidiary, known as Xinjiang Daqo New Energy, was added today to the Commerce Department’s “Entity List”, meaning U.S. companies are required to get permission from Washington if importing anything from Daqo.
Xinjiang East Hope Nonferrous Metals and Xinjiang GCL New Energy Material Technology were also added for participating in the practice of, accepting, or utilizing forced labor in Xinjiang and contributing to human rights abuses against Uyghurs and other minority groups in Xinjiang.
This action follows the 48 Chinese entities previously added to the Entity List for connections to human rights abuses beginning during the Trump administration.
A Shot Across the Bow of the Green OPEC
Of the top 10 global solar panel manufacturers in the world today, 8 of them are Chinese multinationals.
After listening to Brussels and Washington talk about climate change for 20 years, China has made moves to become their main supplier of green tech. No other industry comes close to near full-spectrum dominance as the solar industry.
And while polysilicon is just a small part of the supply chain, it is the main “ingredient” in most traditional solar technology. Only U.S. First Solar does not use polysilicon in making its solar panels.
Analyst estimates report that China has about a 75% share of the worldwide polysilicon production. The rest they buy from Germany, South Korea, and Malaysia. They used to buy from the U.S, but in retaliation to Trump’s tariffs on China, they put a 57% tariff on American-made polysilicon, though tariffs can be a bit lower depending on the company.
This tariff could be enough justification for our ban of Xinjiang sourced polysilicon.
In addition to the tariffs, there appears to have been arm-twisting by the Chinese government not to buy any U.S. poly, because exports from U.S. to China went to zero. China did the same with soybeans, shifting demand to Brazil. As a result of this solar battle, one domestic manufacturer, REC Silicon in Washington, was forced to shut its plant and lay off 40% of its workers. Large parts of the U.S. poly industry are on life support now.
Since tariffs against China solar went into effect in 2018, Chinese solar module manufacturers have taken steps to circumvent the tariff by setting up operations outside China, especially in Southeast Asia. This forced the U.S. to tariff all solar modules and all solar cells above a 2.5 gigawatt limit, not just those from mainland China.
Importers, and many in the market who want to invest in solar and have only one place to go – China, like to say that tariffs and other restrictions make solar in the U.S. more expensive. This hurts Biden’s plan to reduce carbon emissions from the power grid.
They also argue that imports are necessary because the U.S. does not make these product lines.
CPA believes this is largely a false narrative and published data in a White Paper in March to show solar module prices continued to fall and demand for solar continued to rise after the 2018 Trump tariff. Indeed, this year looks like solar’s best-ever year in the US, with 24 gigawatts projected, up 24% from last year.
Such restrictions and tariffs should be used as an opportunity to invest in increased supply domestically as the price variables even out due to tariffs, import restrictions, and further considerations of geopolitical risk.
That solar is being potentially made with forced labor goes against the do-gooder mindset of the new corporate push for investing in things that are environmentally and socially sound, and have good governance, known in Wall Street lingo as ESG.
If Hoshine is being accused of human rights abuses, as this order suggests, Washington should consider adding them to the recent capital markets ban of Chinese defense contractors. Vanguard is the biggest known U.S. investor in Hoshine. BlackRock, Invesco, State Street, and Goldman Sachs are some of the biggest investors in Daqo, whose subsidiary in Xinjiang was blacklisted today.
The vast majority of solar panels sold globally rely on production dominated by China, the WSJ noted on Thursday. The process starts with metallurgical-grade silicon, which is often mined and processed into polysilicon in Xinjiang. Through several additional steps that China dominates even more so, those raw materials get turned into solar cells and assembled into the solar panels Americans have on their rooftops.
“We must keep the spotlight on the forced labor and other abuses in the China solar supply chain. For example, China is building more coal-fired power plants to power Xinjiang polysilicon producers. But equally important, we must develop and execute a strategy to rebuild the domestic solar supply chain so we are not dependent on China for anything in renewable energy,” says Jeff Ferry, CPA chief economist. “I’m really pleased that we see growing interest in this strategic objective in both parties in Congress. The U.S. needs to think strategically about critical industries like renewable energy. China thinks strategically, in a totalitarian fashion. We can think strategically democratically,” Ferry says.
Yesterday, CPA applauded legislation introduced by U.S. Senator Jon Ossoff (D-GA) that seeks to boost U.S. domestic solar manufacturing, accelerate the transition to clean energy, and support American energy independence. Specifically, the Solar Energy Manufacturing for America Act would provide tax credits for multiple stages of the solar supply chain, including modules, photovoltaic cells, and solar-grade polysilicon. Senators Reverend Raphael Warnock (D-GA), Michael Bennett (D-CO), and Debbie Stabenow (D-MI) joined Ossoff in introducing the bill.
Earlier this year, CPA released a white paper that documents the current state of the U.S. solar manufacturing industry and how China dominates the global solar supply chain.
Currently, China has 64% of the polysilicon market, seen rising to 75% by 2023. It also has a chokehold on ingot and solar wafer production, with 99% of the market share.
The white paper also provided key recommendations for policymakers on how to counter Chinese dominance over the global supply chain that threatens U.S. energy independence and U.S. technology leadership in this critical industry of the future.