US solar industry faces 'reality check' amid panel glut, materials gap

A solar manufacturing renaissance in the US, sparked by the Inflation Reduction Act, risks leaving large holes in upstream segments of the supply chain amid a potentially vast surplus of panel production capacity, according to industry representatives.

The landmark climate law enacted in August 2022 has set the domestic photovoltaic industry on a path to become "a very downstream-heavy manufacturing space" that will "continue to rely on foreign partners [and] imports to bring that polysilicon, ingot, wafer and much of the cell [capacity] into the US," MJ Shiao, vice president of supply chain and manufacturing at the American Clean Power Association, said Oct. 12 during an online panel discussion hosted by PV Magazine.

"I think the takeaway here is that the work isn't done," Shiao said. After first boosting an already strong US solar appetite and establishing a "core set of competitive, stable [module] manufacturers," the PV industry and policymakers must then address "how we can spur more of that upstream part of the supply chain."

The shortage of made-in-America feedstock materials and components contrasts sharply with a growing glut of solar panels further down the supply pipeline, fueled by a massive wave of imports from Southeast Asia and an emerging fleet of domestic module factories, Mike Carr, executive director of Solar Energy Manufacturers for America, said during an Oct. 10 media briefing.

Although the Inflation Reduction Act (IRA) is generating "a significant amount of momentum for solar manufacturing in the United States ... I think it is worth a little bit of a reality check as to what's going on right now," Carr said. "While there have been a number of announcements as a result of [the IRA's manufacturing incentives], we are seeing a real deterioration in market conditions."

Those conditions are reflected in a precipitous drop in spot market prices for panels over the course of 2023, including a roughly 40% fall for "premium-grade" modules, according to Carr.

"You can imagine what that does to the investment environment as people are considering right now, based on these policies, multibillion-dollar investments in order to open up factories in the United States," Carr said.

'Potential stockpiling situation'

The Solar Energy Manufacturers for America Coalition represents the most ambitious PV manufacturers in the US, including thin-film specialist First Solar Inc. and crystalline-silicon solar company Hanwha Q CELLS USA Inc., an affiliate of South Korea's Hanwha Solutions Corp., both of which are building new large-scale vertically integrated production hubs.

Those manufacturing complexes are arising, however, amid "an overcapacity situation where it is hard to see how this overcapacity gets used up in a timely manner," Carr said. "I think it is fair to say we are looking at a potential stockpiling situation and something that needs to be carefully thought through."

Toward that end, Carr pointed to the IRA's initial guidance on qualifying for a 10% bonus tax incentive for using specified amounts of domestic content as a policy that should be clarified and strengthened to "fully incentivize these investments, particularly at the upper parts of the supply chain, the capital intensive parts."

A US Treasury Department official said in September that the agency is focused on issuing new guidance on key IRA market and manufacturing incentives in coming months.

In addition, Carr suggested exploring "stronger trade tools," including enhanced enforcement of the Uyghur Forced Labor Protection Act (UFLPA), a 2021 US law that banned imports linked to China's Xinjiang region unless the importer can prove that goods were made in the absence of forced labor.

China has consistently denied allegations of forced labor.

Trina Solar Co. Ltd., one of the world's largest PV manufacturers, based in China, is taking a multifront approach to the US market, navigating around trade complications by announcing a major new panel factory in Texas to be supplied by wafers and cells from another new complex in Vietnam, along with polysilicon from the US and Europe.

"We're on track to import over 4 GW into the US this year," John Shaw, sales manager for utility-scale PV modules at subsidiary Trina Solar (U.S.) Inc., said in a presentation at the PV Magazine event. "For the US market, we have our own supply chain, we have our own factories, we currently source all of our polysilicon from outside of China."

Fuzzy market signals

This year's surge of PV imports comes ahead of the scheduled expiration in June 2024 of a US waiver on certain import duties. The US Commerce Department in August issued a final determination that some of the largest PV exporters to the US with factories in Cambodia, Malaysia, Thailand and Vietnam were sidestepping long-existing antidumping and anticircumvention tariffs on manufacturers in China.

Those four countries accounted for 76% of the 28.2 GW of US panel imports in the first seven months of 2023, more than all imports in 2022, according to a September report from S&P Global Commodity Insights.

"These import levels don't necessarily track with either a full implementation of ... UFLPA [or] a market where there isn't dumping or some kind of market manipulation going on," Carr said.

But it is unclear how severe the module overhang could become and how it may impact financing of projects, Carr added.

"We're awaiting some more market signals to really know that," Carr said. "What we've seen in the marketplace, or seen among our members, [are] some temporary pauses being put on supplemental phases of their production."

Morris Greenberg, S&P Global Commodity Insights senior manager for North American power analytics, anticipates the solar industry can work out the kinks.

"Assuming [the duties] are imposed, imports will drop, and prices will recover," Greenberg said Oct. 10. "Meanwhile, by working off inventory, installations can remain relatively high until domestic manufacturing picks up. Near-term installations probably won't increase much as the industry is already dealing with downstream bottlenecks."

S&P Global Commodity Insights reporter Mark Watson produces content for distribution on Platts Connect. S&P Global Commodity Insights is a division of S&P Global Inc.

S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.