Assessing the United States’ Solar Power Play

Commentary by Quill RobinsonandRyan Featherston

Published July 1, 2024

Introduction

Solar photovoltaic (PV) systems will play a crucial role in meeting the United States' climate and energy goals. Their affordability, ease of installation, and versatility have made them the fastest-growing source of power generation in the United States. The dramatic cost reduction of solar panels in recent decades is tied to China's growing solar industry. To avoid reliance on its strategic adversary for a key technology, the United States has imposed various trade measures since 2012 to limit Chinese panels' access to the market and protect domestic solar industries. However, tariff circumvention and global Chinese oversupply now threaten the emerging U.S. solar manufacturing industry, despite Chinese panels comprising less than 1 percent of U.S. solar panel imports. The Biden administration is committed to strengthening U.S. solar manufacturing, but the United States needs clearer objectives for its solar industrial strategy to avoid wasting taxpayer money and jeopardizing its climate goals.

Rebuilding the American Solar Industry

In the late 1990s, the United States was the world's leading producer of solar panels. However, the U.S. solar industry was overtaken by Japan's, which was then surpassed by Germany's, which was finally edged out by China in 2008. By that time, the average solar panel cost $4.40 per watt. Today, China dominates global solar manufacturing with over 80 percent market share, producing panels that cost as little as $0.10 per watt (see Figure 1).

Although the United States lacks a consistent, long-term solar industrial policy like China's, the combination of tariffs, goals, and incentives established by the U.S. government over the last 15 years increasingly resembles a strategy. President Obama's 2009 stimulus package established the 48C Qualifying Advanced Energy Project Credit,roughly half of which was allocated to solar energy manufacturing facilities. It also provided capital for the Department of Energy's Loan Programs Office, which ignominiously lost $500 million on a loan guarantee for thin-film solar cell company Solyndra. In 2011, the Department of Energy launched the SunShot Initiative, which sought to reduce the cost of solar energy systems by 75 percent by 2020. Ultimately, these measures failed to catalyze a domestic solar manufacturing industry, and it was, in fact, the growth of the Chinese solar industry that drove the massive price reductions for solar panels during this period.

A decade later, the Biden administration began a solar industrial strategy in earnest, with the Department of Energy committing to halving solar electricity costs by 2030, increasing manufacturing capacity by 1 gigawatt annually, and ensuring that 40 percent of the value of installed solar hardware would be generated domestically. The Infrastructure Investment and Jobs Act (IIJA) and Inflation Reduction Act's (IRA) solar research and development investments and manufacturing tax credits (48C and 45X) are making large-scale U.S. solar panel manufacturing economically viable. Since the passage of the IRA in 2022, 49 new solar manufacturing projects have been announced across the value chain, including some investments by Chinese companies like Longi, Trina, and Jinko Solar (see Figure 2). A 2023 Boston Consulting Group report estimated that the IRA's solar provisions could make U.S. modules 25-40 percent cheaper than imports.

Despite these efforts, the U.S. solar industry lags behind China's. In 2023, the cost of Chinese solar panels fell by 42 percent due to a combination of state support, real innovation, and overproduction, making them 44 percent cheaper than U.S.-made panels. Additionally, Chinese manufacturers are at the cutting edge of solar panel innovation, with firms like JinkoSolar and Longi frequently setting new cell efficiency records. Today, U.S. manufacturing capacity is 26 gigawatts, compared to China's over 1 terawatt (1,000 gigawatts) capacity. Nevertheless, the Biden administration continues to implement protective measures to support the U.S. manufacturing base against Chinese competition.

Reducing Reliance on China

While "de-risking" only recently entered U.S. policymakers' lexicon, efforts to reduce reliance on Chinese solar supply chains have more than a decade of precedent. Currently, solar panels from China face several trade barriers: antidumping or countervailing duty tariffs, Section 201 and 301 tariffs, and restrictions under the Uyghur Forced Labor Prevention Act (UFLPA).

In 2012, the Obama administration's antidumping investigation led to tariffs that reduced Chinese solar imports from 50 percent to 15 percent by 2018 (see Figure 3). Chinese manufacturers then shifted production to Southeast Asia as a consequence, focusing initially on module assembly and more recently on making investments in wafer and cell production. It was only in 2023, by which time nearly 80 percent of solar imports were from Southeast Asia, that the Department of Commerce released its determination that the majority of the value-add in panels produced in Southeast Asia by some firms was Chinese, and therefore subject to existing antidumping duties.

In 2018, the Trump administration launched a new tranche of tariffs utilizing the Section 201 mechanism, which provides temporary relief to allow domestic industry to adjust to surging imports. Unlike the previous antidumping tariffs, the Section 201 tariffs were global. However, the administration allowed an exclusion for bifacial solar panels, which later became the majority of U.S. imports.

The Biden administration extended these tariffs while also placing a 24-month "bridge" to allow imports from Southeast Asia deemed necessary for solar deployment in the United States, underscoring just how central imports from those countries had become for domestic installers, which had lobbied for exemptions. During this period, imports from Cambodia, Malaysia, Thailand, and Vietnam were shielded from both antidumping and Section 201 tariffs. In May of this year, the bridge period officially came to an end, exposing the vast majority of U.S. cell and panel imports to a tariff rate of 14.25 percent.

The 2021 UFLPA further restricted Chinese solar panels due to the concentration of polysilicon production in the Xinjiang Uyghur Autonomous Region. Several silicon producers, such as Hoshine, Daqo, and GCL, are listed on the UFLPA Entity List. Since China is the preeminent producer of polysilicon wafers globally, panels imported from Southeast Asia have also faced scrutiny. In fact, according to U.S. Customs and Border Patrol, the majority of shipments denied for entry under the UFLPA came from Southeast Asia, mainly Malaysia, Vietnam, and Thailand.

The Biden administration also included solar cells and modules in its recently announced Section 301 tariffs, citing the need to protect domestic investments under the IRA. Collectively, these measures have effectively eliminated the direct import of Chinese panels into the United States and, more recently, have significantly curtailed the access of Chinese firms exporting through Southeast Asia to the U.S. market.

Key Considerations

Regardless of the outcome of the presidential election in November, U.S. tariffs on Chinese solar panels will likely remain in place. President Biden's national climate advisor, Ali Zaidi, justified the administration's punitive trade measures on Chinese clean energy technologies, stating "supply chain risk is climate risk." After the Biden administration announced new Section 301 tariffs, President Trump remarked that Biden should have placed higher tariffs covering more goods. The future of subsidies for U.S. solar industrial policy is less certain, particularly those subsidies established by the IRA. Nevertheless, as the United States continues to de-risk its solar supply chain from China and grow its solar industry, it is crucial to consider the ramifications of these tariffs and subsidies.

The Costs of Tariffs and Subsidies

Solar PV, made affordable by the Chinese solar industry, is now one of the cheapest and fastest-growing sources of power generation in the United States and globally. The tariffs established by the last three administrations and the IIJA and IRA subsidies may shrink the 44 percent price gap between U.S. and Chinese solar panels (See Figure 4). However, these mechanisms are costly and will ultimately be borne by the U.S. taxpayer. Moreover, changes in solar industrial policies between administrations will create economic drag by stranding capital and potentially deterring investment in the sector.

Slower Decarbonization

The global spread of low-cost, high-quality Chinese solar panels has aided climate change mitigation efforts. Yet, recognizing the economic security and human rights risks associated with the Chinese solar supply chain, U.S. policymakers have virtually eliminated direct imports from China and established high barriers for imports from Southeast Asian nations. Last year, the United States imported eight times the modules it manufactured, with nearly 80 percent coming from Southeast Asian nations. It will take time for domestic production and tariff-compliant foreign production to ramp up to meet U.S. demand, which is double that of two years ago. While the United States justifies its solar industrial strategy with human rights and economic security concerns, it is clear that utilizing Chinese solar panels would offer a quicker and cheaper route to decarbonizing the U.S. economy.

What Is the Ultimate Goal of the United States' Solar Industrial Policy?

The Biden administration has set a target for decarbonizing the U.S. power sector as well as goals for domestic solar manufacturing capacity. It is unlikely that the United States will ever rival China as a solar producer, considering China's solar manufacturing capacity grew from198 gigawatts at the beginning of 2022 to well over a terawatt today. However, given that the United States has effectively eliminated the direct import of Chinese panels, the more pressing question facing U.S. policymakers concerns the import of panels from Southeast Asian nations with Chinese origins. This begs the question: Can foreign solar panel manufacturers that have reduced their exposure to Chinese supply chains play a role in meeting U.S. solar demand?

U.S. policymakers should articulate the goals and principles of solar industrial policy. For instance, is the primary purpose of the U.S. solar industry to meet domestic demand? Are partnerships between U.S. and Chinese firms to manufacture solar panels on U.S. soil compatible with this economic security-driven vision? Is the Department of Energy's goal that installed solar hardware has at least 40 percent domestic value measured across all installed panels or within the panel value chain?

Conclusion

The Biden administration is wagering that protectionist trade measures against Chinese solar panels and significant subsidies for the domestic solar industry will help the United States meet its climate goals while protecting its economic security. To improve this strategy's odds of success, U.S. policymakers should first acknowledge that while climate and economic security are ultimately mutually reinforcing, there are real trade-offs in the near term. Deploying clean energy is a national priority, but economic security is a necessary condition. Policymakers will also need to be ready to make adjustments. Under what conditions would the United States ratchet back its solar industrial policies or escalate them further? By better articulating the goals of solar policy and being ready to learn what works and what does not, the United States can pursue, rather than hinder, its strategic goals.

Quill Robinson is a senior program manager and associate fellow with the Energy Security and Climate Change Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Ryan Featherston is a research associate with the Trustee Chair in Chinese Business and Economics at CSIS.

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