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If we cut a significant portion of our module supply, we risk once again making a short-sighted policy decision that will erode the U.S. solar industry and slow our progress toward meeting our climate commitments.
I get it. I get it. As stewards of American taxpayer dollars, I understand the impetus behind a bipartisan group of senators introducing the American Tax Dollars for American Solar Manufacturing Act.
Senators Jon Ossoff, Sherrod Brown, Bill Cassidy and Rick Scott — the former Democrats, the latter Republicans — introduced the bipartisan legislation to prevent “foreign interest entity” companies from using U.S. tax credits designed to speed up American solar manufacturing. On its face, it makes perfect sense. Why should American taxpayers subsidize non-American companies in their quest to take advantage of U.S. solar market opportunities?
Heres the problem: As with most such laws, it could have unintended consequences for the growth of the U.S. solar industry. As we try to stabilize the sector and energy costs for consumers, communities, municipalities, schools and businesses across the country, some of those consequences could be precisely the opposite of what its proponents envision.
For example, the Solar Energy Industry Association (SEIA) announced in June that a record 11 GW of new solar module manufacturing capacity had been added in the United States in the first quarter. It was, according to SEIA, the largest quarter of solar manufacturing growth in U.S. history – a massive 71% increase in module manufacturing capacity.
This growth represents a tremendous expansion since the passage of the Inflation Reduction Act (IRA) of 2022. I applaud all efforts to expand solar manufacturing in the United States and support offshoring as much of the solar supply chain as possible. It is crucial not only to the growth of the industry, but also to the economic imperative of safeguarding our energy supply from potential fluctuations caused by global events beyond our control. Without a secure domestic supply chain, the sector will never be able to reach its full potential.
The problem facing most developers is that we do not yet have the manufacturing infrastructure necessary to completely insulate ourselves from Chinese module producers. Unfortunately, the US government has only recently recognized their potential to significantly contribute to the development of our solar module infrastructure. The decision by the US Department of Energy (DOE) to grant Qcells a $1.4 billion loan guarantee to build its end-to-end factory system in Georgia reflects this change in attitude. However, the majority of companies building US factories are of Chinese origin, which is where the senators’ well-intentioned legislation begins to falter.
Although the companies building many of these factories are Chinese in origin, they are hiring real-world American workers, and in large numbers. Not only are they employing construction workers, electricians, and other skilled professionals to build the factories, but they will also need American workers to staff the factories once they are operational. Good-paying jobs stabilize communities and improve conditions for other workers in the area. In addition, communities also benefit by increasing their tax base for schools and other public works.
Many communities where these factories are being built have missed job opportunities like these. Preventing these U.S.-based subsidiaries from building these factories and employing American citizens would be an inadvertent case of cutting off ones nose to ruin ones face.
It will also significantly increase module prices. According to the Center on Global Energy Policy at Columbia University, solar module costs are already two to three times higher in the United States than in Europe. A recent study published in Nature estimates that cutting China out of supply chains increases solar module prices by 20 to 30 percent compared to a scenario with globalized supply chains. If prices rise too high, many ambitious solar projects could be halted and some developers could be forced out of business. That is something the American energy transition cannot afford.
China currently controls 80% of polysilicon production, which means we cant cut China out of our value chain. We simply dont have the polysilicon supplies they do. Now, we can alleviate some of this dependency by using cadmium telluride modules, but we have to get used to buying our raw materials from another country, like we do with other consumer goods. Otherwise, vital solar deployment in the United States is going to stall. Heres what I mean:
Suppose the proposed legislation becomes law, and we dramatically reduce the Chinese companies remaining in the US market by restricting their access to IRA incentives as well as the ever-present tariffs on modules. Where does that leave US module suppliers? According to the solar manufacturing map from the US Department of Energys (USDOE) Solar Energy Technologies Office, module production capacity in the US is about 40 GW. Admittedly, this is a different number than what other organizations report, but it is the DOE data set I have chosen to use. Of that total, only 25 GW is produced by non-Chinese companies. Strictly US companies are currently producing only about 11 GW.
The U.S. Energy Information Administration (EIA) projects that the share of U.S. electric capacity coming from solar will increase from 46% in 2022 to 63% this year and 71% next year. That means we will need about 66 GW of additional capacity by the end of next year. Since, again, according to DOE data, we only produce about 11 GW from U.S. companies, that means we will be short 55 GW if we limit ourselves to just U.S. companies. That is going to significantly hamper our ability to deploy solar effectively in the United States.
I am all for solar manufacturing in the United States, but who will bear the cost? The costs will be many: fewer jobs for American workers, higher electricity prices, and slower solar development, to name just a few. The question before us is how to bridge the gap between our current capability and where we need to go. Let’s use the carrot of investing in U.S.-based and -owned companies rather than waving a stick that says, “No one else (well, really only China as a foreign entity of interest) can enter our market.”
The proposed law is simply another way to impose tariffs on Chinese companies without going through the formal tariff-imposing process. Like tariffs, the unintended consequences of this law will slow overall solar deployment in the United States. In fact, it is even worse than that: It will not only restrict supply, but it will remove the incentive for foreign companies to invest heavily in the United States. Is it okay to tell laborers, electricians, and other solar workers who are building panels that their livelihoods must be put on hold because we simply don’t have the modules? I think not.
I feel sorry for the senators in question. In a vacuum, where the economic imperative wasn’t so important to rebuilding an industry virtually from scratch, I might even be willing to cut a deal with them. Unfortunately, we’re all undoing the short-sighted US policy of decades ago, which allowed almost all solar production capacity to be offshored (it’s often easy to forget, but America invented solar cells). This huge backsliding means we need to focus on a “yes, and” approach.
Yes, we currently need more modules than US producers can make, and yes, the IRA is working well as we see additional US-based investment from US companies like First Solar. The IRA incentives are working and investment in replacement capacity is on the way. If we cut off a significant portion of our module supply, we risk once again making a short-sighted policy decision that will erode the US solar industry and slow our progress toward meeting our climate commitments. Let’s not have to rebuild our industry again.
Scott Buckley is President of Green Lantern Solar, a company that has led the development, construction and operation of over 125 community solar projects and commercial solar solutions for municipal, educational, healthcare and government entities since 2011. Green Lantern works with landowners to revitalize and redevelop low-value sites such as brownfields, landfills, quarries/excavations/extractions and other distressed real estate. |
