The United States Needs a Solar Manufacturing Strategy
Solar energy is growing faster than any other energy technology, and it is increasingly the cheapest way to generate electricity around the world. If countries take bolder action to lower their greenhouse gas emissions, solar output could grow sixfold by 2030 and sixteenfold by 2040. This is a problem for the United States. Over the past decade, China has built a commanding position in solar, both at home and overseas in Southeast Asia. This dominance has made it difficult to punish China for using forced labor in Xinjiang and it has created an uneasy sense of dependence on China, which in turn is being used as a political argument against deploying more solar energy. The United States needs a way out.
Today’s solar predicament has been building for a decade. The United States developed the first solar photovoltaic cell and remained a major manufacturer in the 1990s and early 2000s. But the industry soon moved to China. U.S. policymakers tried to stop this shift, which they saw as a product of anti-competitive state action, imposing tariffs on solar cells from China in 2011, 2014, and 2018 (the 2018 tariffs targeted all countries but allowed a certain volume of solar cells to be imported tariff-free). These measures did not stop the Chinese. In fact, retaliatory tariffs from China crushed U.S. polysilicon production, the first step in developing solar cells. Despite support from the American Recovery and Reinvestment Act, many U.S. manufacturers shut their doors. The United States lost the battle for solar.
The United States does have a solar strategy—several, actually. The federal government provides a tax credit for solar investment, and many states have targets or policies to promote solar deployment. In March 2021, the Department of Energy said it wanted to reduce the cost of solar by 60 percent by 2030 by investing in technologies beyond crystalline silicon, which is the value chain that China controls. Tariffs on imports remain and have been supplemented by Customs and Border Protection action against the Chinese company Hoshine, which is accused of using forced labor. And there are various research and development grants and loan guarantees that do not target solar in particular but could aid solar.
There is also no shortage of emerging ideas to support the industry. Some programs, like the extension of the 48C manufacturing tax credit, support any number of industries. The White House has proposed allowing the Export-Import Bank of the United States to support investments in domestic manufacturing geared toward exports, an idea that could help solar. Senator Ossoff has proposed a credit specifically for solar manufacturing, rewarding companies for building large-scale capacity domestically (the proposal rewards scale because the credit is based on throughput).
But these policies are often disconnected from each other. For instance, restricting imports that rely on forced labor could easily lead to a mere reshuffling of trade flows, where U.S. imports are free of forced labor, but such products are sent to other markets. Or, Chinese manufacturers might shift production from Xinjiang to other parts of China, alleviating concerns about forced labor but not concerns about an undue U.S. dependence on China. This is more or less what happened in the 2010s: U.S. tariffs prompted China to build a parallel industry in Southeast Asia; the benefits to domestic manufacturing were minimal. Singular interventions devoid of a strategic purpose are unlikely to achieve the desired result.
The objectives of a national solar strategy are clear enough. Above all is deployment: the United States needs to remain a major market for solar, and it needs to convey a clear signal to private industry that demand will be strong. But U.S. demand for solar has been robust for a decade without translating into domestic manufacturing capacity at scale. Ongoing support from the federal government and even a targeted initiative in 2011 by the Department of Energy were not sufficient to increase domestic manufacturing capacity.
That is because general efforts to create demand say little about which technology is used, where it is manufactured, or how much of the benefits accrue to U.S. workers. To achieve those objectives the United States needs to target its interventions more carefully, focusing on supply chain gaps, cleaner alternatives, and new technologies.
The major problem in global supply chains for solar is that China controls the global capacity in ingots and wafers, the middle part of the chain that takes polysilicon and converts it into solar cells. Even today, any domestic polysilicon needs to go to China for the next step in the process—and China, meanwhile, maintains punitive tariffs on U.S. polysilicon. This is why it is so important for manufacturing credits and other support systems to target both ingots and wafers. (The production of cells and modules is easier to scale.) Scarce dollars should be devoted to where they are most needed.
Another tool for affecting supply chains is to look at how much carbon is emitted during the production process and to favor manufacturers with a low-carbon footprint. Chinese manufacturers rely heavily on coal, and one study found that the carbon intensity of Chinese cells was twice as high as that of other producers. Given how much solar the world will make in the next two decades, there is a tremendous opportunity to lower emissions. The Ultra Low-Carbon Solar Alliance, for example, is promoting standards for production and is encouraging businesses and the government to commit to low-carbon solar. Such initiatives should be encouraged and coordinated across borders. The Biden administration could also include embedded emissions in its “Buy America” provisions to create further demand for low-carbon solar at home.
The United States should also devote resources to technological substitutes for the crystalline silicon panels that make up about 95 percent of today’s global market. This would not only reduce its dependence on China but build a domestic solar industry that is internationally competitive and one day, a significant source of export revenue. Thin-film solar, concentrated solar power, and, one day, perovskites could help diversify supply chains and offer fresh opportunities for U.S. manufacturers to compete.
Thin-film solar is already the United States’ most manufactured solar technology thanks to FirstSolar, which has two U.S. factories and recently announced it will open a third. Thin-film is highly efficient compared to crystalline silicon, and it is cost competitive too; it also has a totally different supply chain to polysilicon-based panels, shielding it from human rights concerns and other risks associated with the existing supply chain.
Concentrated solar power is another promising alternative, even generating the high heat needed for applications where existing decarbonization options are not available. One start-up, Heliogen, announced a $2 billion merger last month targeting these harder applications. Concentrated solar relies on relatively abundant materials, many of which are manufactured in the United States. It is also, however, substantially more expensive than existing technologies, and will thus require additional support to become commercial.
Another technology seeing growing interest among venture capital and research laboratories is the use of perovskites, a family of materials with a specific crystal structure that have the potential for all sorts of novel use cases. For example, The National Renewable Energy Laboratory has developed a prototype technology for turning windows into solar panels, both reducing the amount of energy required to heat or cool a building and producing a source of electricity that does not need a heavy glass and steel frame. Laboratory tests show that perovskites can reach much higher efficiencies—the amount of sunlight turned into electricity—than crystalline silicon panels.
The administration’s support for these alternatives is mostly limited to research and development, divorced from its broader supply chain and clean energy strategy. There are opportunities to do more. The renewable tax credits, for example, now delineate energy sources by broad categories like wind and solar. Maybe it could offer higher incentives for alternatives like thin-film, concentrated solar or, eventually, perovskites. The manufacturing tax credit could also focus on these alternatives with an eye to encouraging regional clusters. Both of these measures would encourage technological diversification.
But the United States cannot rearrange global supply chains on its own. It needs allies and partners. Institutions like the Export-Import Bank or the Development Finance Corporation could target new technologies to help lower costs and boost diverse supply chains. In the 2010s, in response to U.S. tariffs, China built a new supply chain for solar in Southeast Asia. The United States could have done this instead. The new solar supply chain can be spread across many countries. The point is not a senseless reshoring but reasonable diversification across geographies and technologies.
These programs and initiatives will need the usual safeguards, of course, to avoid graft and inefficiency. Reshoring should not be taken too far—it is important to concentrate on areas where the United States has competitive advantages. But the federal government is already engaged in these actions. Very little is genuinely new. The point is to chase after a clearer endgame: to ensure that solar supply chains are diverse, resilient, low carbon, and free of human rights abuses. Solar is too important a technology to cede to China. The United States needs to do better. It can.
Nikos Tsafos is interim director and a senior fellow in the Energy Security and Climate Change Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Lachlan Carey is an associate fellow in the CSIS Energy Security and Climate Change Program.
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