Bringing the Solar Industry Back Home

June 28, 2021

Like so many technologies, solar energy was invented in the US, but we allowed other nations to take the lead in deploying and manufacturing it.
One company is trying to reverse the tide.

Wall Street Journal:

WALBRIDGE, Ohio—Solar panels are part of any formula for fighting climate change, yet the U.S. makes few of them, since subsidized manufacturers in China dominate the market.

First Solar Inc. is trying to change that. It has just committed to building a new $680 million panel factory in Ohio. A key reason is the company’s confidence that Washington will have its back.

After years of decline, the fragile American solar industry is hoping for a turnabout bolstered by President Biden’s plans to make the U.S. electric grid carbon-free by 2035, and his insistence on a made-in-America transition that would create jobs and bolster industries deemed critical.

In seeking to “reshore” manufacturing that has moved offshore, the Biden administration is initially focusing on four industries to bolster with tax breaks or other government support. One is pharmaceuticals, whose importance the pandemic shows. The other three—semiconductors, advanced batteries and minerals crucial for electronics—are important for next-generation renewable energy. Many of the plans would require congressional approval.

Solar power isn’t named as an administration priority so far, but it is lobbying for tariff or tax-law support on grounds it, too, is critical to America’s future. The Biden administration already supports extending tax credits for solar-panel purchases and is weighing whether to back tax credits that would give domestic panel makers a lift and disadvantage imports. The administration also plans to require federal contractors to purchase many solar panels from U.S. suppliers. Changes in the tax code require Congress to sign on; administrative actions don’t.

In talking to administration officials, said Mark Widmar, First Solar’s chief executive, “We’ll have conversations [at the cabinet level] and they’ll say, ‘You guys are pushing an open door. We’re all in.’ ”

A White House spokeswoman wouldn’t comment on conversations but said the administration “will make investments to diversify our domestic energy sources, including solar.”

The situation of the solar-panel business illustrates some of the challenges the broader reshoring ambitions face, including divisions and conflicting interests within industries.

Solar-power manufacturers that want to build from scratch in the U.S., such as First Solar, support tariffs to fight low-priced goods from abroad. But the upward pressure that tariffs put on panel prices tends to slow the adoption of solar technology and the employment of panel installers, so that many others in the industry, including solar-panel importers and companies that install panels, oppose tariffs. The different factions support different types of tax changes, too.

Tariffs “have had a detrimental impact on the solar market,” said Abigail Ross Hopper, president of the Solar Energy Industries Association, a trade group whose membership includes many importers and installers. “You can look at our membership all day long but the evidence shows [tariffs] haven’t worked.”

Reshoring the solar industry is likely to be an expensive proposition. It would require a combination of hefty subsidies through tax breaks and tariffs to burden low-price imports, according to economists and industry specialists, who say even then it’s a long shot. 

“China heavily subsidizes whatever strategic industry it chooses to focus on. How does any American company ever compete?” said First Solar’s Mr. Widmar.

It would be very hard for the U.S. to be cost competitive with the Chinese, said Kelly Sims Gallagher, an energy professor at Tufts University’s Fletcher School who has studied China’s renewable energy policy. Still, she added: “Surely we have a fighting chance. There’s a gigantic global market.”

Some economists argue that the government shouldn’t be in the business of backing commercial industries. One reason is that the effort is bound to lead to a lobbying blitz by companies hunting for government backing.

Already the textile industry (protective gear) and the bicycle industry (clean transportation) are arguing that they, too, make critical goods and deserve government help.

“Once you show a lot of openness to satisfy demand for subsidies, it leads to a lot of demands that aren’t worth the government’s money,” said Pol Antras, a Harvard economist.

Some of the first practical cells to turn sunlight into electricity were invented in Bell Labs in New Jersey in 1954 and used to power satellites. Uses grew, and by 2000 Japan and Germany vied for leadership of a global industry. China was a small outlier.

Then, local Chinese governments began backing local solar entrepreneurs with inexpensive financing and other support, competing to cash in on a growing industry. As Chinese manufacturers multiplied, prices fell sharply as a result of oversupply. Chinese companies exported excess output at prices non-Chinese panel makers couldn’t match.

China’s central government eventually stepped in to sort out the mess. It forced some solar companies into bankruptcy but kept many others alive through state financing and other subsidies. By 2011, Chinese manufacturers dominated the solar-panel industry, with about 60% of global sales, which resulted in the U.S. later imposing tariffs to block further Chinese advances.

The price decline boosted the adoption of the technology. Solar was twice as expensive as natural gas for generating electricity in 2012, but the two were comparable by 2020.

U.S. solar installations of all kinds are up 20-fold in a decade, to 19.2 gigawatts last year, according to research and consulting firm Wood Mackenzie. That is enough to power 3.7 million homes and provide 4.3% of the nation’s power needs.

More growth is projected. But few U.S. makers are left to benefit.

About half of the companies world-wide that made solar panels had left the business by 2015 as pricing pressure mounted, according to researchers at the University of Pennsylvania’s Wharton School and the Insead business school in France.

Despite a tripling of domestic solar-panel production since a 2018 imposition of broad tariffs, imports make up 85% of U.S. sales, according to Wood Mackenzie. Even First Solar now manufactures domestically 40% of the panels it sells in the U.S. but plans to raise that level to 60% with the new factory and reach a higher percentage in the future.

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