An entirely U.S.-based solar manufacturing supply chain, touted as a key pillar of the country’s Inflation Reduction Act (IRA), cannot flourish amidst an oversupply of both components and finished products from China, warns a recent white paper by the Solar Energy Manufacturers for America (SEMA) coalition.

According to SEMA, the subsidized overseas manufacturers from China and Southeast Asia are using questionable trade tactics to undermine the billions of dollars in investment released after the passage of IRA for developing a domestic supply chain for solar module manufacturing.

The industry coalition said that the recent factory announcements would likely not come to fruition without a U.S. policy response to the current influx of imports.

Imports of solar modules into the U.S. doubled in 2023, reaching a total of 50 GW. Southeast Asia was responsible for 78% of the country’s PV module imports.

The report, titled “Inflection Point: The State of U.S. PV Solar Manufacturing & What’s Next,” sheds light on the overreliance of the U.S. solar industry on imported materials and components.

While the U.S. market for solar electricity remains strong, accounting for nearly half of all new utility-scale power additions, the country faces a “glaring gap” in its ability to produce ingots, wafers, and solar cells domestically. Currently, the U.S. has negligible production capacity in these crucial segments of the solar manufacturing process.

The report noted that over 90% of global solar-grade polysilicon production is controlled by China-based firms.

Domestic Content Requirements

The coalition calls for policymakers to set robust domestic content standards for solar tax credits and federal procurement. To qualify, solar panels and all components must be truly domestic, including polysilicon, wafers, and cells. This means that in addition to solar modules being assembled domestically, the components must also be produced in the country.

However, simply instituting policies is not enough, the report argues. Enforcement methods need to be regularly updated to ensure manufacturing processes adhere to the required standards, along with implementing processes for verification and establishing suitable penalties for any violations.

According to another report, major foreign suppliers are shifting shipments from China to Vietnam after U.S. regulations aimed at preventing imports of goods linked to forced labor in Xinjiang came into force.

To avoid the regulations, big China-based solar module suppliers have already opened wafer plants in Vietnam and are sourcing polysilicon from non-Chinese suppliers. Manufacturing wafers outside China makes it easier for companies to show the U.S. Customs and Border Protection agency that polysilicon from Xinjiang has not entered the supply chain of modules destined for the U.S.

The coalition says that domestic production would insulate the U.S. from disruptive global events and geopolitical conflicts affecting the supply chain, strengthening the nation’s energy security. It would also reduce the risk of market concentration and potential price manipulation by a few large overseas producers.

At the same time, it argues that onshoring solar manufacturing could create over 900,000 jobs by 2035 across the supply chain.

Limited Consumer Impact

Residential solar PV costs fell from $9/W in 2010 to slightly above $3/W in 2018, while utility-scale solar PV costs decreased from about $6.50/W to $1.35/W during the same timeframe. This was in part because China’s massive industrial capacity helped bring down the cost of manufacturing, which made solar energy more attractive.

The report says that any potential increase in module costs from domestic manufacturing would have a minimal impact on overall consumer adoption, as module prices represent a shrinking portion of total system costs.

Potential cost reductions in other areas of solar deployment, like permitting, installation, overhead, and balance-of-system operations, will likely have a larger impact on market growth.