DFC Deal to Boost U.S. Solar Industry and Strengthen Clean Energy Supply Chains
December 10, 2021
A constant refrain in Washington is that the United States must compete with China in third countries by offering a more compelling alternative than China, especially in infrastructure. This kind of statement gets repeated often in Washington. It could easily be mistaken as a strategy, which it is not. But until now there have been few good case studies of the kind of thing that the United States should be doing. No more. A recent deal for building a solar manufacturing facility in India shows what is possible in terms of competing with China and building resilient supply chains for clean energy. And it provides a blueprint for further action.
On December 7, 2021, the U.S. International Development Finance Corporation (DFC) said it would lend up to $500 million to First Solar to build a solar manufacturing facility in India. First Solar’s cadmium telluride (CdTe) thin-film technology is an alternative to crystalline silicon, an industry now dominated by China. First Solar is based in Arizona, with manufacturing facilities in Ohio, Malaysia, and Vietnam, and planned facilities for Ohio and India. In other words, First Solar is a technological and regional counterweight to China: it has a differentiated technology, and its manufacturing footprint goes from the Midwest to Southeast Asia, a key battleground in the geopolitical rivalry between the United States and China.
The deal itself has several elements worth understanding and, eventually, replicating. First, supply chain resilience is not just about building capacity in the United States. It would be foolish and counterproductive to turn away from international trade in a drive to reshore at all costs. Locating manufacturing facilities in partner countries is a necessary part of any sensible U.S. international economic strategy. This is exactly what China did in response to U.S. tariffs on solar: it established a solar manufacturing industry in Southeast Asia, so much so that by 2020, U.S. solar imports come mostly from Thailand, Vietnam, and Malaysia (but from Chinese firms). Seeing the United States replicate this strategy is refreshing.
Second, the DFC deal supports technological diversification in a space that needs it. China dominates the crystalline silicon supply chain, and this presents major challenges due to human rights abuses in the early stages of the value chain, the production of polysilicon in Xinjiang. The short-term options available to U.S. policymakers have been limited given China’s commanding position in this market. But a medium-term strategy could lessen China’s market share. Some of that shift will come from policies that encourage domestic manufacturing. But part of that strategy should also involve technological diversification—something that the U.S. Department of Energy is focused on.
Technological diversification is an important element in supply chain resilience. In hydrocarbon markets, the United States become the world’s top oil and gas producer not by competing with the Middle East and Russia in conventional oil and gas but by investing in new extraction techniques like hydraulic fracturing and horizontal drilling that unlocked a resource that the United States has in abundance. In the auto sector, China has leaned into electric vehicles to offset its relatively weaker position in the incumbent internal combustion market. Technological diversification is a necessary part of technological leadership—and the U.S. solar industry needs it.
Third, the DFC deal shows how broadly economic statecraft can be deployed in the energy transition. The DFC has supported a number of projects in clean energy, but mostly in terms of deploying renewable energy rather than in manufacturing. The Export-Import Bank of the United States has also supported solar in India in the past with loans issued in 2011 for thin film and in 2012 for concentrated solar power. As both organizations advance their new climate mandates, they should help domestic firms with world-leading technologies export or invest in capacity overseas. Manufacturing, not just deployment, should be elevated as important in its own right.
Reducing emissions by relying on Chinese technologies is not good enough and it is unacceptable politically in Washington (and Brussels and Berlin and many other places). But neither can the United States pursue autarky or self-sufficiency. Building manufacturing capacity in partner countries could support U.S. firms with leading technologies and could create new trade routes that bypass or lessen China’s dominance in clean energy. What the DFC did with First Solar in India is an incredible first step. The United States needs more deals like it.
Nikos Tsafos is the James R. Schlesinger Chair for Energy and Geopolitics with the Energy Security and Climate Change Program at the Center for Strategic and International Studies in Washington, D.C.
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