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Will new PV manufacturing policies in the United States, India and the European Union create global PV supply diversification?

Part of Renewables 2022

This report forms a component of Chapter 4 of Renewables 2022 and addresses a key question in renewable energy markets.

The high level of geographical concentration in the global PV supply chain has led the European Union, India and the United States to introduce policy incentives to support domestic PV production. This could result in an unprecedented expansion of PV manufacturing outside of China in the next five years. However, diversifying manufacturing will be possible only if production costs fall to ensure competitiveness with the lowest-cost producers (e.g. in China and ASEAN countries) in both the short and long term.


In the past year, rising global commodity prices have led to higher material costs for solar PV manufacturing. Today, China and ASEAN countries (Viet Nam, Thailand and Malaysia) have the lowest solar PV module manufacturing costs for all segments of the supply chain. Economies of scale, supply chain integration, relatively low energy costs and labour productivity make China the most competitive solar module manufacturer worldwide. Higher investment costs in India are the primary reason for the cost differential with China, while higher overhead and labour costs makes US PV manufacturing not as competitive. In Europe, rising energy prices following Russia’s invasion of Ukraine widened the cost gap with China. Today, EU industrial energy prices are more than triple those of China, India and the United States.

Total manufacturing costs for mono PERC c-Si solar components by input, 2022

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Recent policy actions in India and the United States aim to increase the competitiveness of domestic manufacturing through subsidies and tax rebates, while the European Union is considering similar steps. India’s PLI scheme and the US IRA offer manufacturers support in different ways. While the PLI furnishes a subsidy to reduce plant investment costs through payments linked with achieved production, the IRA provides a PTCs for the manufacturing of certain equipment, including solar PV modules, cells, wafers and polysilicon through 2032.1

According to estimates, PLI support closes nearly 80% of the investment cost gap between India and the lowest-cost manufacturers in China. However, the one-time subsidy means that manufacturing efficiencies will need to be achieved through economies of scale to maintain long-term competitiveness. Meanwhile, fully monetising manufacturing tax credits in the United States could bring all the country’s segments of solar PV manufacturing to cost parity with the lowest-cost manufacturers.

United States c-Si manufacturing costs with and without the IRA Manufacturing Production Credit incentives, compared to China and ASEAN

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India PLI subsidies and investment cost difference with lowest cost manufacturing

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Favourable solar PV manufacturing policies in India and the United States have spurred multiple new project announcements. In the first phase of India’s PLI programme, almost 9 GW of integrated manufacturing capacity were contracted, and in the second phase the government is expecting to subsidise another 65 GW. In the United States, expansion already planned includes the manufacturing of roughly 9 GW of integrated crystalline silicon (c-Si) modules and 6 GW of thin-film panels. 

Planned solar PV component manufacturing expansion in the United States and India in 2022

Country

Company

Component

New capacity

United States

First Solar

Thin-film modules

3.5 GW

United States

Q Cells

Integrated c-Si modules

9.0 GW

United States

SPI Energy

Wafers/ingots

1.5 GW

United States

REC Silicon

Polysilicon

20 000 MT

United States

Fuyao Group

Glass

-

United States

Toledo Solar

Thin-film modules

2.7 GW

United States

Meyer Burger

Modules

1.5 GW

United States

PV Hardware

Trackers

6.0 GW

United States

Endurans Solar

Backsheets

-

United States

Q Cells

Modules

1.4 GW

United States

GameChange Solar

Trackers

6.0 GW

United States

Mission Solar

Modules

700 MW

United States

3Sun (Enel)

Modules/cells

3.0 GW

India

Reliance New Energy

Integrated PV

4.0 GW

India

Adani Infrastructure

Integrated PV

737 MW

India

Shirdi Sai

Integrated PV

4.0 GW


In addition to manufacturing subsidies, tariffs on imported PV equipment and local-content premiums encourage project developers to purchase domestically manufactured products. In India, import duties were increased from 15% to 40% for PV modules and to 25% for cells, making local manufacturers significantly more cost-competitive. In addition, all PV modules used in projects subsidised under national support programmes must be manufactured by companies named in the government-maintained list, which currently has only Indian manufacturers.

In the United States, the IRA offers an additional investment or PTCs bonus for the use of domestically produced content. These types of policies significantly boost local manufacturers’ confidence about demand for their products, resulting in more ambitious expansion plans.


Policies and planned PV manufacturing capacity in India, the United States and the ASEAN region will increase production capabilities outside of China, especially for polysilicon, wafer and ingot manufacturing. In fact, wafer manufacturing capacity in these countries is forecast to increase almost fivefold in the next five years, and polysilicon and solar cell manufacturing could double by 2027. However, achieving this level of growth will require almost USD 30 billion of new investment, close to three times more than these countries committed in the previous five years. 

Solar PV manufacturing capacity outside China and total investment in 5-years periods, 2017-2027

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As a result, China’s share of manufacturing capacity could decrease slightly, from 80‑95% to 75-90% depending on the segment. Furthermore, if countries maintain trade policies that limit imports and favour domestically produced PV products, greater geographical distribution in the global solar PV supply chain could result in China’s share in production shrinking from 75-90% to 60-75% by 2027.

However, China plans to expand manufacturing throughout the entire supply chain much more quickly than India, the United States and other countries do. This is expected to cause a major glut by 2027, with supply significantly exceeding expected global PV demand in most optimistic forecasts. The result would be plant utilisation factors of as low as 25-30% in China for all manufacturing segments, about half of today’s level. This supply glut could also create fierce price competition and cause investors to cancel many announced manufacturing expansion projects both within and outside of China.

Solar PV manufacturing capacity and production by country and region, 2021-2027

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References
  1. The IRA provides tax credits for a range of products, including but not limited to solar PV equipment and inverters and wind turbines.

Analysis