China Is West’s Go-To Solar Supplier — Why That’s Worrying
Plenty of attention is being paid to the disruption of Russia’s Old Energy supplies, thanks to soaring gas and oil prices. Not enough attention is focused on the potentially disastrous impacts a similarly severe disruption of trade with China would wreak on New Energy in the West, especially solar and batteries.
China supplies 60%-75% of the world’s solar generating equipment, depending on whose numbers you use — including a staggering 92% or more of silicon wafers, a vital component in all solar panels. That dwarfs the world’s roughly 10% reliance on Russia for oil. What’s more, China’s solar dominance is growing, according to everybody’s numbers.
The Biden administration recently extended Trump-originated tariffs, now at around 15% on most imported solar equipment, even though the tariffs have had “limited success in boosting domestic manufacturing,” to quote a Bloomberg New Energy study. The same study notes: “Most US solar installations today use modules manufactured at plants located in Vietnam, Malaysia and Thailand that are owned by Chinese firms.” More and more solar panels are being installed in the US, but fewer and fewer of them are made here.
China is also a much heftier supplier of EV and utility-scale electricity storage batteries than Russia is of oil. A single Chinese company, CATL, makes 30% of the world’s EV batteries, including many for Tesla. BYD ranks close behind as a China-based battery maker, and some of the biggest South Korean and other battery manufacturers have factories in China.
Several automakers and battery manufacturers are building or plan to build battery factories in the US, and the government is working to alleviate problems in component supply chains. The EU has a plan to boost domestic battery manufacturing, too, with roughly $7.5 billion in government spending muscle behind it. As a result, Western dependence on China might fall in five years or so. But in the climate-crisis, that’s five years we can’t afford to waste.
So what happens now if moves to isolate Russia from the West progress to the stage that sanctions are extended to third-country banks and companies that trade with Russia — as was done with Iran? And if the Chinese continue to side with Russia as they have so far? And the US and Europe react with punitive measures against China, disrupting the flow of solar equipment and EV batteries?
Hopefully this won’t happen, but in the emotionally charged atmosphere of the moment, it can’t be ruled out. In any case, it should be focussing our minds on a genuinely worrying situation, not one of those “fake” problems.
Climate Won’t Wait
Besides energy savings, the two main hopes for the very quick, very big progress in slashing emissions are renewable electricity — where solar with battery backup is the top contender — and EVs. We can’t afford to stop the clock for five years or more while domestic factories are built, before beginning the 10-15 year process of making and installing the solar equipment and EV batteries the US and Europe need to comfortably abandon fossil fuel transportation and electricity generation.
Many climate-conscious Westerners fuss that the results of a split with China could be to slow the pace of China’s shift off fossil fuels and onto renewables and EVs. This gets the world backwards.
The Chinese don’t need us to motivate them to get off fossil fuels. Not when they dominate the world’s solar equipment manufacturing and are leading battery makers, while they import most of their oil and natural gas, and a not-inconsiderable amount of coal, on top of huge domestic production. Nor would an even closer alliance with fossil fuel giant Russia change that imperative for Beijing. China might be able to turn the Russians into a convenient, more subservient supplier of relatively cheap fossil fuels. But from a Chinese perspective, it’s still better to make it yourself, as they do in the New Energy realm.
The scary question isn’t whether the Chinese will continue on their energy transition without us, it’s whether the West can proceed on its conversion to renewables and EVs without China. What can we do about the fact that the Chinese control the solar generating equipment that is vital to the energy transition?
In the near-term, very little. We could slap truly prohibitive 100%, 200% or larger tariffs on Chinese solar modules and components. But if we don’t keep buying solar equipment from China as fast as we can, we’re not going to save the climate. The simple fact is that we couldn’t stand up to Beijing — over Taiwan, over Russia, over anything important to Beijing — without a New Energy crisis much, much worse in its implications than the turmoil involving Russia’s Old Energy.
Private Companies Won’t Move
Don’t misunderstand me. I’m not blaming the Chinese. On the contrary, by implementing a strategy that made solar panels and their components plentiful and affordable, China has done the world a great service. They didn’t keep their plans a secret. We knew what they were doing, and we could have done the same thing at the same time or — better still — earlier.
The US didn’t do so because of our lingering conviction that planning is bad, government planning is worse, and everything will turn out alright if the free market is left to freely do its mysterious will.
At this stage in the transition, changing the situation will not be simple, if it’s possible at all. Western companies have demonstrated that they won’t build big solar equipment factories as long as we’re importing modules from China. But as noted, we can’t cut off imports from China without losing years in the climate struggle. Years we don’t have to lose.
What’s more, if private companies don’t build such factories in the West soon, they may refuse to build them at all. A problem for solar and wind equipment manufacturers is that we’re looking at a huge bulge in demand while the world dumps fossil fuels in favor of renewables, followed by an abrupt drop in purchasing once we only need enough new solar panels and windmills for replacement, repairs and any modest growth we may see in electricity use beyond that point.
The target date for making electricity generation 100% renewable is 2035 in a growing number of places, including the US. That’s just 13 years from now. If you begin planning and permitting for a new factory today and can start operating it in three years — an unrealistically short timeframe, but we’ll suspend disbelief — you are likely to be able to run it at full-tilt for only around 10 years.
That’s way less than is typically assumed for profitable manufacturing operations, and even that is a window that is narrowing perceptibly every year we wait. It’s not the capitalist way of investment. Which means it may be time to find another way. Maybe even try a bit of that planning stuff that worked so well for the Chinese./
