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How China Became The Saudi Arabia Of Renewables

China solar

Ultimately, energy independence in today's world is an illusion in the era of globalization because the hyper-connectedness of the market makes it impossible. Still, it's a never ending battle cry that ends up being an argument of semantics, the outcome of which depends on how you define "independence".   

America's shale boom briefly reignited the debate about something that the nation had long come to consider a far-off dream: energy independence.  

But that was before Covid-19 struck, and with it a fully-fledged flight to renewable energy.

The notion that the country could become self-sufficient by producing enough energy to sustain the entirety of its population and industries was first floated by Nixon when he declared war on foreign oil during the oil crisis of the 1970s. But with the ongoing shift to low-carbon energy, America might not be any closer to achieving this energy utopia than it was four decades ago.

In fact, the energy transition might simply mean that America's energy dependence now shifts from the OPEC powerhouse, Saudi Arabia, to the biggest manufacturer of renewable energy equipment and the biggest importer of Saudi oil: China.

And that's because China has, in the space of a decade, become the most dominant manufacturer of the equipment that produces renewable energy, particularly solar power. Related: Mexico’s Pemex Boasts Billion-Barrel Oil Discovery

In fact, 7 of the top 10 solar manufacturers globally are Chinese companies, with just First Solar Inc. (NASDAQ:FSLR) and SunPower Inc. (NASDAQ:SPWR) representing the United States.

The Biden Administration has pledged to have at least 500 million solar panels installed nationwide and spend $1.7 trillion in federal spending on renewable energy infrastructure in a bid to make the United States a net-zero emitter of carbon pollution by 2050. 

But it's very likely that the vast majority of those investment dollars will end up in the coffers of the Middle Kingdom--and with it, our dreams of energy independence.

Biden's solar wall

The solar sector has emerged as the best-performing corner of the clean energy universe during the pandemic and has continued to shine after Biden was declared president-elect.

Unfortunately, the current year has been anything but kind to the solar sector, with the Invesco Solar ETF (TAN) down 6.6% vs. 5.3% YTD gain by the S&P 500.

The selloff can mostly be pinned on concerns of overvaluation, but also on growing concerns about China's chokehold on the sector.

The irony of it all is that China might end up extending its dominance during Biden's term in office.

In January 2018, the Trump administration implemented Section 201 solar tariffs on imported cells and modules at the height of the trade war with China. A presidential proclamation released back in October seeks to increase those tariffs and eliminate an exemption for two-sided solar panels. Related: Another Investment Bank Is Betting On $100 Oil

Though the evidence is mixed regarding their effectiveness, the cons seem to outweigh the pros. On the one hand, the 2.5-gigawatt solar cell import cap did provide some support for the domestic solar module manufacturing industry and also helped to level the playing field.

But the harm done is by no means negligible. According to The Hill, the 2018 solar tariffs have significantly harmed the U.S. solar sector by destroying more than 62,000 jobs and nearly $19 billion in new private sector investments. The tariffs, which began at 30% in 2018, made some imported panels more expensive, with the price of high-efficiency PERC (Passivated Emitter Rear Cell) modules nearly doubling in the United States compared to prices in other markets as the modules leave factories in China and Southeast Asia. Indeed, Greentech Media estimates that when purchased in multi-megawatt quantities, such modules now cost 32 cents to 35 cents per watt in the U.S. compared to only 17 to 19 cents per watt when manufactured. The lion's share of those extra costs can be directly chalked up to the Trump tariffs since shipping costs clock in at a much lower 1.5 cents to 2 cents per watt.

That the U.S. solar sector has continued to thrive in spite of--not because of--the tariffs is a true testament of how strong the solar momentum has grown. Indeed, module imports from China have been on a growth path since January 2019. That's despite a combination of Section 201 tariffs, countervailing duties, and anti-dumping laws. Biden is expected to order the International Trade Commission to evaluate these tariffs and possibly repeal them considering the damage they have wrought to the downstream solar industry in this country. Even partly eliminating those punitive tariffs on solar modules and inverters is expected to have positive effects on solar development.

But when it comes to boosting U.S. production of solar parts and modules, the administration faces an uphill battle.

Most critics say Trump's protectionist trade policies, such as tariffs, have backfired, only serving to hamper domestic solar deployment and increase costs while doing nothing to stop China.


According to Jeff Ferry, chief economist for the Coalition for a Prosperous America (CPA) in Washington:

"Our evidence documents the China chokehold on solar manufacturing. China is seeking global dominance of this industry because they recognize the importance of renewable energy and if they achieve their dominance in solar energy this will give them a huge advantage in winning support and loyalty from many other countries around the world. In the game of global geopolitics, control of energy supply is a vital weapon and advantage. In a hyper-competitive business world, being number one in energy production is much more important than being number one in stock market listings or basketball sneakers."

Nearly 80% of the solar panels installed in the United States are sourced from Chinese companies. China currently controls 64% of polysilicon material worldwide vs. 10% market share by the United States as well as nearly 100% of solar ingots and solar wafers.

The CPA says the U.S. needs to implement a mixture of tax credits, incentives, and favorable government procurement policies for solar installations on government property in order to secure the long-term future of an end-to-end U.S. solar supply chain. Otherwise, we can kiss our energy independence dreams goodbye.

By Alex Kimani for Oilprice.com

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