The U.S. Solar Industry Strategy
December 1, 2021
This commentary is part of Energy Rewired, a project from the CSIS Energy Security and Climate Change Program studying the industrial strategies of major economies for the energy transition. The project examines countries’ big bets on emerging energy technologies and how these will rewire the world’s energy map.
- The United States has successfully deployed solar energy, but its solar manufacturing has struggled against Chinese imports and an inability to coordinate investments and integration across the entire solar supply chain.
- While the federal government does not have a dedicated solar strategy, the Biden administration has made clean energy manufacturing a priority and is investing heavily in solar research & development (R&D).
- The Biden administration sees solar as a priority for meeting its ambitious climate targets and is supporting efforts at technological diversification, especially in thin-film solar, in part to counter Chinese manufacturing dominance.
- The administration’s Build Back Better agenda includes a raft of policies that will likely provide a significant demand-side signal for local solar manufacturing, as well as some dedicated tax incentives and public financing initiatives that could lead to more investment in the domestic manufacturing supply chain.
- The government has no specific geographic initiatives with respect to solar manufacturing; however, the national laboratory system and existing manufacturing facilities have created emerging hubs that are well placed to take advantage of burgeoning interest in local solar manufacturing.
The United States does not have a dedicated industrial strategy for its solar industry. Under the Biden administration, however, the federal government has a series of related policies and goals that together form the broad contours of such a strategy. This includes its target of a “carbon pollution-free power sector” by 2035 and a net-zero emissions economy by 2050. According to a recent Department of Energy (DOE) study, this implies solar power will meet about 37–42 percent of electricity demand by 2035 and 44–45 percent by 2050—up from 3 percent today. Depending on their chosen scenario, this implies a cumulative deployment of 760–1,000 gigawatts (GW) of solar by 2035, up from just 80 GW in 2020.
The Biden administration has also laid out pieces of what it calls a “twenty-first-century industrial strategy . . . to strengthen our supply chains [and] rebuild our industrial base across sectors, technologies, and regions.” This strategy is as much a geopolitical approach as it is an economic one, focusing primarily on countering Chinese industrial dominance in strategically important sectors. The administration, for example, has retained tariffs on Chinese-made solar modules, first introduced by the Obama White House, and cracked down on solar components manufactured in the Xinjiang Province, where human rights concerns have dogged the industry.
Specific to the solar industry, the DOE’s Solar Energy Technologies Office (SETO) aims to increase new U.S. photovoltaic (PV) manufacturing capacity by 1 GW per year and installed solar hardware to contain at least 40 percent domestic value. The United States has lost roughly 80 percent of its global market share in the production of components of the solar supply chain over the last decade. Solar panel shipments in the United States grew 33 percent in 2020, 89 percent of which were imported, mostly from Southeast Asian factories owned by Chinese companies. Solar developers plan to install 15.4 GW of new capacity in 2021, whereas total U.S. solar manufacturing capacity is just 2.2 GW per year, growing to as much as 9.6 GW if all announced expansions come to fruition.
Though solar manufacturing is not an explicit focus of the administration’s supply chain strategy, as outlined in the 100-day supply chain review, the complementary industries of semiconductors and energy storage are targeted for enhanced resilience and strengthening measures. Further, the full PV supply chain looks set to receive a significant boost under the Build Back Better Act (BBBA).
The most developed piece of the administration’s solar strategy is its approach to technological innovation. In March 2021, the DOE announced new initiatives to cut the cost of solar energy by 60 percent within the next 10 years, from $46.5 per megawatt-hour (MWh) to $20/MWh. These initiatives are notable not only for pushing solar prices down but for attempting to diversify away from crystalline silicon technology, which currently represents over 90 percent of the global market, and toward thin-film or concentrating solar power technologies, where the United States has a greater comparative advantage over foreign manufacturers and has fewer supply chain concerns.
The United States’ approach to developing its solar industry has traditionally relied primarily on demand-pull measures first, while encouraging a supply-push through innovation policy. Its innovation policy has mostly concentrated on basic research with relatively little coordinated support for commercialization of the vertical supply chain. The Obama administration introduced tariffs in an attempt to protect the nascent industry with little effect, and the sprinkling of tax credits and public financing for manufacturers has seen only marginal expansions in local capacity. The Biden administration is investing more in supply chain resilience, and the BBBA includes significant provisions to support the industry.
The U.S. federal government largely favors “carrots” over “sticks” when encouraging clean energy deployment, including solar, preferring to encourage private investment rather than mandate specific targets. For reasons of political expediency, the United States uses tax credits more than many other countries to encourage the investment in and production of clean energy. Both the investment and production clean energy tax credits are set to be extended and expanded under the BBBA, and for the first time, solar developers will be able to choose between the two. According to one study, this flexibility would double the emissions-reduction impact of clean energy tax credits.
The BBBA also offers a series of tax incentives for complementary technologies, including energy storage and electricity transmission, which should help solar deployment accelerate further. The tax credits would also increase with a certain share of domestic content production, incentivizing local solar manufacturing directly, as well as the indirect signal of stronger demand.
The federal government also provides some low-cost and low-risk public financing options for clean energy, improving access to capital for nascent markets and crowding in private investment. This includes the Loans Program Office (LPO), which is set to receive a significant boost under the BBBA and historically has made solar a priority. Of the LPO’s $32 billion in active and repaid loans and guarantees, nearly two-thirds went to solar projects. The LPO guaranteed loans for the first five utility-scale solar projects in the United States, helping to kick-start the industry. The BBBA also includes $29 billion for a Greenhouse Gas Reduction Fund, which would help capitalize and incubate green banks around the country. Depending on the investment priorities of these local green banks, this funding could go toward accelerating deployment or solar manufacturing investments.
Like deployment, the United States has also used a combination of tax credits and loan guarantees to encourage investment in solar manufacturing. However, where the solar installation industry has grown by orders of magnitude since 2010, the share of U.S.-manufactured solar panels in global shipments has fallen from 13 percent in 2004 to less than 1 percent by 2021, suggesting such “carrots” have proved insufficient in the past. The United States produces just 5 percent of global polysilicon supply, practically 0 percent of wafers, 1 percent of solar cells, and only 6 percent of solar modules.
Included in the 2009 stimulus package, for example, was the 48C Advanced Manufacturing Tax Credit which originally provided a 30 percent investment tax credit to 183 domestic clean energy manufacturing facilities valued at $2.3 billion, approximately half of which went to solar component manufacturers. The 48C tax credit is revived in the BBBA, with $5 billion in credits available per year from 2022 to 2023 and $1.875 billion for each year from 2024 to 2031. The LPO’s success in promoting solar deployment has not extended to manufacturing and is best known for its $500 million loan to the thin-film manufacturer, Solyndra, which went bankrupt in 2010 and failed to repay its loan, which prompted congressional enquiries and a public outcry, chastening the new office.
The clearest indication that solar manufacturing is a priority of Congress is a new Advanced Manufacturing Tax Credit, included in the House version of the BBBA, that provides differential production tax credits based on which component of the solar supply chain is being manufactured. This tax credit may succeed where others have failed by promoting vertical coordination and integration in domestic solar manufacturing. Chinese solar manufacturers, for example, incentivized through tax credits, subsidized land, and preferential lending to co-locate in regions where they can share resources, minimize transport costs, and maintain close collaborative relationships. This has not typically been true of U.S. policy, and while tax credits fall short of this sort of vertical coordination, they could represent an important incentive for industry and regional coordination in solar supply chain production.
Over the last 10 years, the United States’ primary means of supporting its solar manufacturing industry has been a series of tariffs on Chinese module production, which has helped its largest manufacturer, FirstSolar, but has been insufficient to stem the overall decline of the industry. The United States placed tariffs on Chinese cells and modules in 2012 in an attempt to protect its local manufacturers. In the years since, China has relocated some of its manufacturing capacity to Southeast Asia to avoid the tariffs, expanding its market share, while U.S. producers have continued to struggle. In 2014, it imposed antidumping tariffs and countervailing duties on U.S. polysilicon producers, leading U.S. production to fall by half between 2014 and 2018. China now dominates global polysilicon production, growing from effectively zero production in 2010 to a commanding position by 2020.
Much of China’s polysilicon production is located in the Xinjiang Province due to its cheap electricity and, reportedly, low labor costs amid serious human rights concerns, which the United States now calls “genocide and crimes against humanity.” Tension over the issue continues to simmer between the two countries, with Biden reportedly considering a “diplomatic boycott” of the upcoming Winter Olympics as a show of condemnation. In July, the U.S. Senate passed a bill to ban the import of all products produced in Xinjiang; however, it has not passed through the House.
Polysilicon production is being promoted through a range of new policies under the Biden administration. Its 100-day supply chain review, for example, highlights the risks of low U.S. production in the context of the semiconductor industry, recommending a series of recommendations for bolstering local polysilicon production, including fully funding the CHIPS for America Act. Included as part of the broader United States Innovation and Competition Act—so far passed in the Senate but not the House—the $52 billion act would significantly increase domestic demand for locally produced polysilicon, potentially providing positive spillovers for the solar supply chain as well.
Finally, the U.S. government provides significant support for R&D of new and improved solar technologies. In 2012, the Obama administration launched its SunShot initiative, which aimed to reduce the costs of solar energy by 75 percent between 2010 and 2020, a goal it reached in 2017. Since 2007, the DOE has distributed $2.2 billion in grants for solar research to nearly 1,400 projects. Just 15 percent of these grants have been for “manufacturing and competitiveness” research, however, with the majority going to PV research or concentrating solar power innovation. The national laboratory system plays an outsized role in clean energy innovation—the National Renewable Energy Laboratory, for example, has received about a fifth of all DOE solar funding since 2007, and 41 percent has gone to National Labs.
More recently, the White House has requested a 43 percent increase in funding for the DOE’s R&D programs in the FY 2022 budget, including a 38 percent increase in solar R&D and a 64 percent increase in the Advanced Research Projects Agency-Energy (ARPA-E) budget. The bipartisan Infrastructure Investment and Jobs Act, signed into law in November 2021, also includes $80 million in solar R&D initiatives, including reauthorizing the DOE’s commercial application program—though technically this funding authorizes appropriations for the Energy Act of 2020, which passed under the Trump administration.
The DOE SETO has also made concentrated solar power (CSP) and thin-film solar technologies, such as cadmium telluride (CdTe) and perovskites, a priority for R&D funding. These technologies are relatively underdeveloped in comparison to crystalline silicon (c-Si) modules, but are potentially an important source of supply chain diversification and resiliency for the United States.
Since 2007, 22 percent of R&D grants have gone to CSP projects. Despite falling out of favor in recent years and having only 2 GW installed nationwide, CSP offers the promise of decarbonizing hard-to-abate sectors like heavy industry and producing zero-carbon fuels like green hydrogen. The supply chain for CSP is primarily composed of plentiful commodity materials such as steel, aluminum, and glass, which are produced in relative abundance in the domestic market, unlike key components of the c-Si supply chain. Both the infrastructure and reconciliation bills likely to pass the Congress this year also contain measures to increase demand for zero-carbon industrial processes, which could raise the prospects of CSP production and manufacturing in the United States over the course of the next decade.
While global solar manufacturing is dominated by c-Si modules, a relatively high share of U.S. production is in thin-film modules, especially CdTe technology—37 percent as of July 2019, and as much as 54 percent in coming years as new capacity comes online. To further promote U.S. specialization in thin-film, the DOE has made thin-film a research priority, especially the development of perovskites. These efforts include research grants, prizes, and the development of both CdTe and perovskite consortia for relevant industry actors. These industry groups will allow greater coordination, the development of shared roadmaps, and supply chain assessments. To date, there are no demand-side measures to encourage specific solar technologies.
The federal government has no dedicated place-based strategies for the development of geographic solar hubs; however, concentrations of solar industries have emerged in response to federal research institutions, state-level incentives, and business investment decisions.
The National Laboratories, which are federally funded institutions, play an important role in the geographic dispersion of innovation funding and subsequent emergence of solar start-ups and complementary industries. The two most developed solar hubs in the United States are in the Bay Area, California, which is home to the Berkeley National Laboratory, and the Denver Metro Area, where the National Renewable Energy Laboratory is located. The Bay Area has received 13 percent of all federal solar R&D funding since 2007 and the Denver Metro Area around a quarter. Approximately 17 percent of all solar industry jobs in the country are based in the Bay Area, which continues to be the home of solar energy startups and venture capital funding. In an attempt to encourage more solar manufacturing in the area, the U.S. DOE in 2011 launched the Bay Area Photovoltaic Consortium, an initiative involving the DOE, area universities, and area solar firms, but the effort slowly dismantled and today there is little to no manufacturing in the area.
The most significant solar manufacturers in the country are located in areas with complementary manufacturing industries, such as Ohio and Georgia. Otherwise, jobs and investment in the solar industry tend to correlate with state-level incentives for solar production, such as renewable portfolio standards, net metering, and other demand-pull policies.
Lachlan Carey is an associate fellow with the Energy Security and Climate Change Program at the Center of Strategic and International Studies in Washington, D.C.
This commentary is made possible by support from the Hewlett Foundation.
Commentary is produced by the Center for Strategic and International Studies (CSIS), a private tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
© 2021 by the Center for Strategic and International Studies. All rights reserved.