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24 June 2021

Senate bill introduced for US solar manufacturing tax credit

Senator Jon Ossof has introduced a bill called the Solar Energy Manufacturing for America Act, which would create an advanced solar manufacturing tax credit for domestic solar manufacturers covering every part of the supply chain.

Specifically, the bill proposes a tax credit of $0.11 per Watt for integrated modules, $0.07 per Watt for non-integrated modules, $0.04 per Watt for cells, $12 per square meter for wafers, and $3 per kilogram for polysilicon. As proposed, this Tax Credit would run unabated until 2028, with a reduction to 70% in 2029, 35% in 2030, and 0% thereafter.

Following the introduction of Ossof’s bill, the Solar Energy Industries Association (SEIA) expressed its support, voicing its opinion that US solar manufacturing capacity should be increased ten times over – to 50 GW in 2030. Ossof claims that based on NREL analysis, his proposal would add 10,000 jobs.

These noises about US manufacturing come as 100 renewable energy industry organizations have petitioned the Biden Administration to enact a 10-year extension of the Investment Tax Credit (ITC), and to include a direct-pay option. The solar subsidy has already been extended by three years.

Ossof is one of two Democrats whose election in the January run-off in Georgia gave Democrats tie-breaker control of the Senate. He has a background in journalism, foreign policy, and national security – so he must reflect establishment Democrat Party views quite closely, especially as time goes on as he is the youngest Senator. His bill was co-sponsored by Senators Warnock, Bennet, and Stabenow. Ossof remarked that Georgia holds the largest single solar factory in the West, namely Hanwha Q Cells’ 1.7 GW facility in Dalton, and Warnock is the other Georgia Senator.

As we’ve remarked before, there would be practical concerns about developing an American solar manufacturing industry that runs on silicon photovoltaics, because of the polysilicon supply. Polysilicon accounts for around 40% of the CapEx needed in a solar supply chain, but just 5% of the jobs.

Banning polysilicon from the Chinese province of Xinjiang is harder than banning tomatoes or cotton, as the US did in February. The Chinese have risen to 80% of global market share for the energy-intensive substance, which is made with cheap electricity from subsidized coal plants in China’s north. That looming dominance overshadows much smaller capacities online right now in Malaysia, Vietnam, South Korea, and the United States.

The US has just today announced a ban on polysilicon imports from a variety of polysilicon makers in Xinjiang, which holds perhaps 45% of global capacity. It remains to be seen if this specific ban, justified by accusations of forced labour – which are questionable because polysilicon is machinery-intensive, not manpower-intensive – will be extended to Chinese cells or modules made with Xinjiang polysilicon, or to polysilicon made in Inner Mongolia or other Chinese provinces with smaller Uyghur populations.

Together with Ossof’s bill, it now seems possible that even this furthest upstream part of the supply chain may come to be domestically produced. This article was going to remark that allegations of forced labor in the Chinese solar supply chain have not led to any new government policy in either the US or the EU, but as of today this is no longer true, and perhaps the various European efforts at supply chain tracking will also lead to a ban there.

Though the polysilicon price has quintupled in the past twelve months, stabilizing at $32 per kilogram during the past two weeks, the price will fall dramatically in 2022. The current situation of high prices has occurred only because all Chinese downstream manufacturing – ingots, wafers, cells and modules – rapidly increased their production capacity when the scale of future solar demand became obvious. Polysilicon was slower to react, being a harder-to-enter sector with slower-to-build facilities and – at the time – a greater fear of overcapacity and low margins. But since prices began rising in mid-2020, fully 1,800,000 tons of new production capacity has been announced in China.

As this comes online it will leave any Western polysilicon makers, at least those not protected by bans or heavy import duties, no better off than they were in 2020, when Wacker’s CEO bemoaned Chinese overcapacity amidst the lowest prices ever.

The US is admittedly one of the few countries outside of China that still houses polysilicon production, courtesy of Wacker. But Wacker has shifted its emphasis to semiconductors and Coronavirus vaccines. The US has 30 GW worth of polysilicon production capacity, but this mostly lies unused and will be old and less advanced compared to plants built nowadays. Either way it would not be able to produce at the same low prices seen in China, where the industry profits from cheap coal and hydropower.

A new polysilicon factory can be built in 18 months in China, but in the US it would take at least two, maybe three years. That adds to the timeframe needed to turn a profit, making investments more vulnerable to any future policy change on the trade barriers to exclude cheap Chinese imports and on subsidies to avoid driving up solar panel prices. A political turn against proposals like Ossof’s could come as early as 2022 if Republicans retake the Senate due to retirements and the mid-term elections.

The US can certainly create its own solar industry if it eants to. Moderate import tariffs on solar cells and modules are already in place, with a 2.5 GW quota for tariff-free cells, and most US solar imports come from Vietnam and Malaysia. The Section 201 solar tariff, which expires on February 6th 2022, was introduced by the Trump Administration, and fostered only a modest development in domestic manufacturing. It still remains to be seen if the Biden Administration wants to mess with solar development by raising or maintaining tariffs compared to present levels, when it could be cutting them.

The easy route would be non-silicon photovoltaics. In the future that can mean perovskites or even more futuristic substances, but right now it means Cadmium Telluride-based modules from Arizona-headquartered First Solar. Already the largest solar manufacturer left outside China, First Solar announced earlier this month a $680 million, 3.3 GW factory to be built in Ohio, its third in the state, which will bring its total US-sited manufacturing to 6 GW – the company also has facilities in Malaysia and Vietnam.

Besides benefiting from the Biden Administration’s renewables-boosting policies, First Solar’s new plant also boasts a lower capital expenditure than would be required for a vertically-integrated silicon photovoltaic factory. In contrast to First Solar’s advance, in January SunPower announced it would close its solar factory in Oregon.