IEA calls for greater diversification of China-dominated solar PV supply chain

The world will almost completely rely on China for the supply of key building blocks for solar panel production through 2025, raising energy security concerns and the need for more diversification strategies for renewable energy companies and governments, the International Energy Agency said in a report July 7.

China's current market share through all the manufacturing stages of solar panels exceeds 80%, from polysilicon and ingots, to wafers, cells and modules, IEA said in its report on the global solar photovoltaic supply chain.

The Paris-based energy watchdog highlighted China's share of global polysilicon, ingot and wafer production will soon reach almost 95%, adding that China's Xinjiang province alone now accounts for 40% of global polysilicon supplies.

"As countries accelerate their efforts to reduce emissions, they need to ensure that their transition towards a sustainable energy system is built on secure foundations," IEA executive director Fatih Birol said in a statement published along with the report.

"This level of concentration in any global supply chain would represent a considerable vulnerability. Solar PV is no exception," the agency said.

The IEA pointed out the COVID-19 crisis, record-high commodity prices and the Russia-Ukraine conflict have all intensified concerns over countries being heavily reliant on imports, especially energy, raw materials and manufacturing goods that are key to a nation's supply security.

It called for countries to diversify raw material and PV import routes to reduce supply chain vulnerabilities, noting the need for appropriate industrial policies while defending the principle of open and transparent markets and avoiding barriers to trade.

China's cost-competitiveness hard to match

The IEA said the cost-competitiveness of existing solar PV manufacturing was a key challenge to diversifying supply chains, with China being the most cost-competitive location to manufacture all components through the solar PV supply chain.

According to IEA data, overall manufacturing costs in China are 10% lower than in India, 20% lower than in the US, and 35% lower than in Europe.

"China has been instrumental in bringing down costs worldwide for solar PV, with multiple benefits for clean energy transitions," Birol said.

The IEA noted that China has driven the realization of economies of scale in the solar PV sector and supported innovations throughout the supply chain, contributing to bringing costs down by more than 80% and helping solar PV to become the most affordable electricity generation technology in many parts of the world.

In addition, Chinese investments in Malaysia and Vietnam have helped these countries become major exporters of PV products.

To be on track with the IEA's Roadmap to Net Zero Emissions by 2050, annual solar PV capacity additions need to more than quadruple to 630 GW by 2030.

"Accelerating clean energy transitions around the world will put further strain on these supply chains to meet growing demand, but this also offers opportunities for other countries and regions to help diversify production and make it more resilient," Birol said.