The introduction of solar energy dates back to the 1950s when a lab in America announced the birth of the world’s first photovoltaic cell. Few people then could have imagined that 70 years later, China would be making and supplying over 80% of the world’s photovoltaic panels. In catching up with the world’s leading photovoltaic technology, China demonstrated the enduring power of its political, economic and societal systems. But the race is just beginning. It is estimated that with support in the right direction, the highly-anticipated perovskite technology, which promises to revolutionize solar cells and completely transform the current solar cell market landscape, can be mature enough to graduate from the lab in just five years.
No economist or government can predict the best formula for facilitating innovation, and time is ticking for all players in this race – China, Europe, Japan and the United States. To further understand the issue, we are pleased to present the following article by 地球知识局 , a widely-read content provider on Chinese social media known for its dedication to science education.
20 Years of Development, China Leads the World in Photovoltaics
From Zero to Number One Globally for Ten Consecutive Years
Photovoltaics — a technology that converts solar energy into electrical energy.
In the 1950s, three Americans—Daryl Chapin, Calvin Fuller, and Gerald Pearson—at the famed Bell Labs invented the silicon photovoltaic cell, intended to power the emerging satellites and spacecraft of the time.
At that time, The New York Times lauded the technology as the beginning of a new era. But over the long years, the United States abandoned what was called the manufacturing end (not just in photovoltaics) and, with it, lost the early mover advantage.
China’s photovoltaic industry also sprouted in the last century and began to take shape at the turn of this one.
In the late 1960s, to assist with the launch of artificial satellites, China started the research and development of photovoltaic cells.
These successfully developed and produced photovoltaic cells were later applied to China’s second artificial satellite, ‘Practice-1’, which, equipped with photovoltaic cell panels, ultimately operated in orbit for 8 years.
In the 1980s, China’s photovoltaic industry transitioned from ‘sky’ to ‘earth,’ several state-owned photovoltaic cell factories were established in succession. The country’s first 10 kW civilian photovoltaic power station was built in 1983 in Yuzhong, Gansu. Decades later, this power station, which uses monocrystalline modules, still maintains a power output of about 7 kW.
By the turn of the century, the international clean energy industry was burgeoning. In 1997, the ‘Kyoto Protocol’ under the United Nations Framework Convention on Climate Change was adopted by 183 countries. Following this, European countries, led by Germany, enacted their versions of the ‘Renewable Energy Act,’ providing subsidies for the photovoltaic industry.
The first prominent Chinese photovoltaic companies also emerged during this time and soon caught the fast train of China’s accession to the WTO. Leveraging low-cost, efficient labor, they squeezed into the global photovoltaic industry chain.
In 2004, the global photovoltaic industry entered a phase of comprehensive explosion, and Chinese photovoltaic companies reached their first peak moment. During this period, companies that secured a large number of orders overseas went public in the United States, creating a wave of new wealth among Chinese concept stocks.
However, the Chinese photovoltaic industry in the first decade of the century resembled a dumbbell with a slender waist. The markets and raw materials were external, lacking upstream and downstream support. What remained in the country was a fragile and price-taking manufacturing and processing segment.
In 2009, due to capital speculation, international speculators, and the cyclical curse, the first generation of Chinese photovoltaic star enterprises began to close down one after another. In that year, more than 300 photovoltaic companies went bankrupt, which could be called the darkest hour of the Chinese photovoltaic industry.
In the following time, China’s photovoltaic sector made forward-looking policy deployments, continued to evolve technologically, made collective industrial progress, and balanced both domestic and foreign markets. It gradually achieved leapfrog development from nothing to something, from strength to strength, establishing a complete market and supporting environment.
Currently, the photovoltaic industry has become one of the few strategic emerging industries in China that can participate in international competition and reach a leading international level. It also serves as a fresh calling card for China’s industrial economic development and a crucial engine driving its energy transformation.
According to data from the International Energy Agency (IEA), Chinese enterprises now control about 80% of the global photovoltaic manufacturing capacity and produce nearly half of the equipment needed for manufacturing solar panels and their components.
Based on data from the National Energy Administration, in 2022, China’s photovoltaic electricity generation added an installation capacity of 84.71 million kilowatts, an increase of about 60.3% year-on-year; the cumulative installed capacity reached 393 million kilowatts, a year-on-year increase of 28.1%. The scale of new installations has been the largest worldwide for ten consecutive years, and the cumulative installed capacity has been the largest worldwide for seven consecutive years.
After over 20 years of ups and downs, Chinese photovoltaics now stand at the pinnacle of the world.
How does the United States support the development of its domestic photovoltaic industry?
Financial incentives, management policies, fiscal subsidies, and domestic trade protection.
As the global energy situation becomes more pressing, transitioning from traditional to renewable, sustainable new energy sources has become the inevitable path for countries to achieve their carbon neutrality goals. Consequently, the photovoltaic industry has become a hotbed of rapid development.
In photovoltaics, the United States had an early lead but failed to maintain its advantage, resulting in a current reliance on imported photovoltaic manufacturing products.
According to the U.S. Energy Information Administration (EIA), in 2021, the United States had an available shipment volume of photovoltaic modules amounting to 30.45 GW, of which imported modules were 22.97 GW, accounting for approximately 75%. Domestic production was only 4.23 GW, less than 14%.
Among the import sources, mainland China, Taiwan, Singapore, and Vietnam contributed 49.2% of the modules. The Chinese photovoltaic industry chain, with its significant technological and cost advantages, has taken a dominant position.
In response, the United States has formulated a series of policies and regulations to encourage the development of its photovoltaic industry.
The current support policies for photovoltaics in the United States can broadly be categorized into four types: financial incentives, management policies, fiscal subsidies, and domestic trade protection. These policies are continuously adjusted and refined in response to changes in the international market.
Firstly, regarding financial incentives, to promote the development of renewable energy, the United States has implemented several fiscal incentive policies centered around tax benefits and exemptions. These include the Investment Tax Credit (ITC), as well as sales & property tax exemptions. Tax credits have become an important force in driving the rapid development of the U.S. photovoltaic industry.
The ITC is a federal tax credit policy in the United States that allows homeowners and businesses to deduct a portion of their photovoltaic installation costs from their federal taxes. It has been a core driver of the rapid development of the U.S. photovoltaic industry in the past.
The ‘Inflation Reduction Act’ enacted in August 2022, proposed to extend the ITC policy for another 10 years until 2032.
In addition to the ITC credit policy, there are also sales & property tax incentive policies, mainly proposed by state governments in the U.S. or authorized for implementation by local governments.
Most U.S. states support the complete exemption of property and sales taxes and provide subsidies for eligible photovoltaic systems in different regions and electric companies, effectively reducing the purchase and ownership costs for businesses and individuals.
Secondly, the management policies for the U.S. photovoltaic industry generally refer to state governments stimulating demand growth through laws, regulations, various standards, or binding targets. This includes quota systems, net metering policies, and power purchase agreements, among other main modes.
Among these, the net metering policy is the most widely implemented across U.S. states, where the government encourages residents to use the electricity they generate themselves, with the excess being sold to power companies.
Stimulated by the net metering policy, it not only saves costs for large-scale photovoltaic power system construction but also effectively solves grid connection and consumption issues, enhancing the utilization rate of photovoltaic power generation.
Thirdly, the rapid development of the U.S. photovoltaic industry cannot be separated from the important push of fiscal subsidies. In recent years, U.S. financial subsidy policies for new energy have mainly focused on the new energy vehicle and storage industries.
Lastly, over the past decade, the United States has implemented several trade restriction measures on imported photovoltaic products. Behind the United States’ efforts to protect domestic trade is the ambition to vigorously develop its own manufacturing sector and to move away from ‘Made in China.’
The United States has supported and protected the development of its domestic photovoltaic industry by restricting exports from producing countries and imposing multiple rounds of tariffs. However, due to labor costs, technological barriers, and uneven development of the industry chain, its photovoltaic manufacturing is still not competitive.
Nevertheless, with the urgent need for new energy, U.S. White House officials have recently confirmed that the United States has started to allow photovoltaic components to be imported from China.
The intensity of these industrial support policies clearly shows the United States’ determination to vigorously support the development of its domestic photovoltaic industry.
With the continuous enhancement of domestic policies and the drive for high economic returns, the U.S. photovoltaic market may be on the brink of a major boom.
On the path to energy independence, Europe is pushing for the localization of photovoltaic manufacturing by enacting multiple trade measures.
The main types of electricity generation in Europe include fossil energy, nuclear power, and renewable energy. In 2022, these three types of energy contributed 38.7%, 23.6%, and 37.7% to the EU’s electricity generation, respectively.
Europe has a high dependency on imported fossil fuels. In 2021, 27 European countries had a fossil energy import dependency rate of 55.6%, with oil and gas import dependency rates reaching 92% and 83%, respectively. Renewable energy has always been a vigorously developed and promoted energy substitution strategy in Europe.
The pricing mechanism in most European power markets is currently based on the supply and demand relationship of energy; that is, electricity prices are set by marginal cost pricing. Therefore, real-time electricity prices are often determined by the highest-cost fossil fuel energy prices during that period.
The outbreak of the Russia-Ukraine conflict in 2022 led to a severe imbalance in the supply and demand of energy in Europe, with the tension in natural gas supplies causing electricity prices to soar. As a result, the lower-cost renewable energy sector achieved high profits, which in the short term sparked a surge in enthusiasm for photovoltaic installations.
In the long term, catalyzed by geopolitical events, Europe’s need for energy independence has become more urgent, with multiple factors jointly driving an increase of over 50% in new photovoltaic installations in Europe in 2022.
On the policy front, the European Commission launched the ‘REPowerEU’ plan in March 2022 to accelerate the clean energy transition and enhance Europe’s energy independence.
The proposal plans to raise the overall target for renewable energy by 2030 from 40% to 45%, with cumulative photovoltaic installations expected to reach 320 GW by 2025 and 600 GW by 2030.
The EU’s solar energy strategy also specifically sets out the implementation framework for the ‘rooftop solar plan’:
By 2026, all new public and commercial buildings with a usable area greater than 250 square meters are to be equipped with rooftop solar;
By 2027, all existing public and commercial buildings with a usable area greater than 250 square meters are to install rooftop solar;
And by 2029, all new residential buildings are to have rooftop solar.
On March 16, 2023, local time, the European Commission in Brussels released the ‘Net-Zero Industry Act.’ This legislation aims for the EU’s net-zero technology manufacturing capacity to meet at least 40% of the organization’s needs by 2030.
These plans are designed to enhance the competitiveness of the EU’s domestic clean energy manufacturing industry and reduce reliance on other economies.
On the same day, the EU also issued another critical piece of legislation on raw materials to increase the supply capacity of critical raw materials domestically.
The Critical Raw Materials Act proposes that at least 10% of critical raw materials extraction, 40% of their processing, and 15% of their recycling should come from within the EU annually. It also stipulates that consumption of strategic raw materials from a single third-party country should not exceed 65%.
According to PV InfoLink data, in 2022, Europe imported 86.6 GW of photovoltaic components from China, a 112% increase from the full year of 2021 at 40.9 GW, accounting for 56% of China’s total component exports in 2022, making China’s most significant export market at present.
The robust market demand has made the European market the largest source of overseas business income for many domestic photovoltaic enterprises in recent years.
However, the frequent emergence of trade barriers has also brought great uncertainty to Chinese photovoltaic enterprises in expanding their overseas markets.
Market opinions generally believe that the current legislation is still in the draft stage, and it will have to go through a lengthy voting and review process, as well as obtain the consent of all member states before it can be established. Thus, its short-term impact is considered to be minimal. Moreover, there is significant uncertainty within the EU itself, as there are concerns that the act may violate international trade rules.
Challenges are looming: China’s photovoltaic industry development enters ‘deep waters.’ Be vigilant against new technologies taking shortcuts.
Over the past decade, through the concerted efforts of the entire industry chain, China’s photovoltaic industry has achieved leapfrog development, with the cost of electricity generation dropping by more than 90%. The industry has adopted a dual approach of distributed and centralized generation, driven by market forces and policy incentives.
As analyzed above, the restrictions of trade barriers and the nurturing of local manufacturing through financial support have become the ‘one-two punch’ strategy for foreign countries to vigorously develop their domestic photovoltaic manufacturing industries.
The general market view is that currently, only in China can a photovoltaic component factory be built and put into operation within 90 days. Western countries lack the foundation for developing the photovoltaic manufacturing industry to such an extent.
However, another perspective is that considering their long-term economic and security interests, Western developed countries will still invest heavily to construct component factories, even if they face longer construction periods and high financial costs, to cultivate their photovoltaic manufacturing industry chains.
The current situation, where China holds 80% of global photovoltaic manufacturing capacity, is likely to change.
In addition to the pressure from national policies, as the Chinese photovoltaic industry continues to dominate global market supply, international competition around photovoltaic manufacturing technology is also intensifying.
Forced by the unshakable advantages of Chinese enterprises in mainstream tracks, foreign enterprises are attempting to overtake with new technologies.
The U.S. Department of Energy has established the ‘Cadmium Telluride Development Alliance’ to expand domestic production of cadmium telluride photovoltaic materials and components;
Europe has restarted the ‘Solar Photovoltaic Innovation Platform,’ which will promote the renewal of solar photovoltaic technology in Europe;
Japanese domestic companies view perovskite products as strong candidates for the next generation of photovoltaic cells and strive to make a comeback in the photovoltaic product market.
The next-generation technology in the photovoltaic industry is essentially locked in the perovskite field. Perovskite requires higher processing precision than the current prevalent crystalline silicon system and poses greater technical difficulties. However, the long-term cost projected after theoretical calculation is also expected to be lower.
According to market expectations, perovskite technology will mature in about 5 years, and other countries can completely overtake the current technology through perovskite. For Chinese photovoltaic enterprises, it is crucial to actively plan for the next 5 to 10 years of development.
Currently, leading domestic crystalline silicon component manufacturers, including LONGi Green Energy Technology, Trina Solar, JA Solar Technology, and JinkoSolar, are all actively researching and developing perovskite cells.
In photovoltaic manufacturing, the core for a company to become a leader lies in the correct direction and lower costs. Once a company falls behind or bets in the wrong direction, it is likely to ‘fall from the top of the pyramid.’
Chinese photovoltaic enterprises are accustomed to overseas restrictions. Ultimately, to cope with these risks, they must insist on technological innovation and avoid reliance on a single market.
It is worth noting that as external competition intensifies, a new round of expansion fever launched by the domestic photovoltaic industry has also escalated competition throughout the entire industry chain.
According to incomplete statistics, from the beginning of 2021 to November 2022, China planned more than 480 photovoltaic expansion projects, some of which are to be constructed in phases. Market changes will determine the start of these projects.
The intense competition in the domestic market poses challenges, mainly due to the risk of redundant low-level construction within the industry and the possibility of excess capacity in certain links.