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26 August 2021

US ban on Xinjiang polysilicon has 2.1 GW project impact

US Customs and Border Protection has begun enforcing Withhold Release Orders (WROs) on imported Chinese solar goods from the Xinjiang region of China, with analyst Philip Shen of Roth Capital Partners estimating that 2.1 GW has been affected. The solar projects which were going to use these modules will have to find a new supply, but the modules are not confiscated – they can be re-exported to other destinations.

These actions are the enforcement of the June 24th announcement by the US that it would impose Withhold Release Orders on any Chinese solar modules which it suspects of having been made with polysilicon sourced from Hoshine Solar and its subsidiaries. The Xinjiang polysilicon industry allegedly relies on forced labor in the early raw materials stage of crushing silicon prior to further refining.

Because Xinjiang holds 45% of global polysilicon production with another 35% in China, mostly in adjacent provinces, and because there is no supply chain clarity to determine which modules are made using which polysilicon – why would the Chinese comply with such tracking? –  these sanctions have the potential to grow to encompass the whole Chinese solar industry. Philip Shen has also reported that JinkoSolar cannot ship from Malaysia to the US, and has had 100 MW of its modules seized, while Canadian Solar and Trina Solar have also had modules seized.

Perhaps some of the US allies will follow it on this issue. Losing the US as an export destination for solar is not the end of the world for the Chinese, but losing the EU, which has been making noises about forced labor and solar supply chains, would hurt. Perhaps it is with this in mind that JinkoSolar signed a five-year 70,000-ton – enough for 20 GW – polysilicon supply deal with Wacker, the main surviving Western polysilicon maker. Such long-duration deals have become commonplace in the past year, motivated by polysilicon price rises, but this one stands out for its international character.

Besides the forced labor actions, the Biden Administration is also maintaining import tariffs. Earlier this month Auxin and Suniva, two small and struggling US manufacturers, formally requested a four-year extension to the Section 201 Solar Tariff of 30% on solar modules, which has a four-year duration and was brought into force in 2018. The Solar Energy Industries Association of America opposed the move with a statement calling for federal investment rather than import tariffs. While the Section 201 Tariff was brought in by the Trump Administration, the Biden Administration has shown its support for the policy by, among other things, asking a judge to dismiss a complaint against the removal of the tariff exemption which bifacial modules had enjoyed until last October.

The US Department of Energy published a memo this week saying that solar could generate 40% of all electricity in the US by 2035, up from 3%, which would be easier to attempt without import barriers. While American manufacturers support tariffs and sanctions on foreign solar, developers lobby for their removal.

Last week saw the filing of petitions by American Solar Manufacturers Against Chinese Circumvention(A-SMACC) with the US Department of Commerce to investigate Chinese manufacturers for circumventing US antidumping and countervailing duties on Chinese solar products by trading them from Malaysia, Vietnam and Thailand. The petition names most of the top ten Chinese manufacturers, observing that they all export to the US from such countries despite still having most of their manufacturing and R&D in China.

This week saw utility and renewable energy developer NextEra Energy respond to the A-SMACC petition by asking the Department of Commerce to either reveal the membership of the new alliance, or to reject the petition. As things stand however, it would appear that hostility to China is winning out in the halls of power, and that WROs and other measures will continue to prevail. The Solar Energy Industries Association’s target of 50 GW of domestic manufacturing capability thus becomes more likely – although it so happens that the SEIA is one of those groups which is opposed to the protectionist measures.

In 2019, only 400 MW of solar was imported by Chinese manufacturers to the US, but this grew dramatically in 2020, with 490 MW imported in just the first quarter. Overall solar module imports, which were worth $5.1 billion in 2017, fell to $2.8 billion in 2018, but then rose to $7.7 billion in 2020. This apparent failure is not because the tariffs aren’t an impediment – it’s because American demand far outstripped growth in American production, and because manufacturing costs fell.