For solar photovoltaic (PV) manufacturing capacity in the US, India and Asean countries to rival China, new investment worth $30bn would be required, according to a new report from the International Energy Agency (IEA).
“Policies and planned PV manufacturing capacity in India, the US and the Asean region will increase production capabilities outside of China, especially for polysilicon, wafer and ingot manufacturing,” reads ‘Renewables 2022’, published on December 6.
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According to the report’s forecasts, wafer manufacturing capacity in these countries is slated to increase almost fivefold in the next five years, and polysilicon and solar cell manufacturing could double by 2027.
But the IEA warns that “achieving this level of growth will require almost $30bn of new investment, close to three times more than these countries committed in the previous five years”.
Achieving this level of growth will require almost $30bn of new investment, close to three times more than these countries committed in the previous five years.
As it stands, the combination of economies of scale, supply chain integration, relatively low energy costs and labour productivity make China the most competitive solar module manufacturer worldwide, the report argues.
“Higher investment costs in India are the primary reason for the cost differential with China, while higher overhead and labour costs makes US PV manufacturing not as competitive,” the report says.
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Higher investment costs in India are the primary reason for the cost differential with China.
Meanwhile, in Europe “rising energy prices following Russia’s invasion of Ukraine widened the cost gap with China”, making EU industrial energy prices more than treble those of China, India and the US.
Both the US and India have moved to promote domestic solar manufacturing. In the US, the Inflation Reduction Act provides tax credits to solar producers of up to 30% if they comply with certain wage and labour requirements and up to 40% if they buy US-made equipment. In India, the Production Linked Incentive (PLI) scheme offers subsidies for the costs of setting up a plant.
According to estimates, India’s PLI support scheme closes nearly 80% of the investment cost gap between India and the lowest-cost manufacturers in China, the IEA says.
“However, the one-time subsidy means that manufacturing efficiencies will need to be achieved through economies of scale to maintain long-term competitiveness. Meanwhile, fully monetising manufacturing tax credits in the US could bring all the country’s segments of solar PV manufacturing to cost parity with the lowest-cost manufacturers,” the report continues.
This is set within a historic context for the growth of the renewable energy sector, as global renewable power capacity is now expected to grow by 2400 gigawatts between 2022 and 2027.
“The world is set to add as much renewable power in the next five years as it did in the previous 20 years,” said Fatih Birol, the IEA’s executive director, in a statement. “This is a clear example of how the current energy crisis can be a historic turning point towards a cleaner and more secure future world energy system.”
The world is set to add as much renewable power in the next five years as it did in the previous 20 years.
Within the acceleration of renewables, global solar PV capacity is set to almost treble over the 2022-27 period, surpassing coal and becoming the largest source of power capacity in the world, according to the IEA, while global wind capacity is set to double over the same period.
Renewables have already dethroned fossil fuels as the biggest magnet for global FDI in 2019, according to fDi Intelligence’s Switch Report 2022, published in May this year.
FDI into renewables continued in this vein, with $96.7bn in 2020 and $90.8bn in 2021, while FDI into coal, oil and gas plummeted to $47.5bn in 2020 only to touch a new record low at $16.2bn in 2021.
Earlier this year, US president Joe Biden’s green ambitions were derailed owing to a probe into Chinese solar imports, which has had a knock-on effect on solar capacity brought online this year.
“Despite the introduction of new incentives, however, US renewable capacity additions are forecast to decrease over 20% in 2022 compared with last year,” said the IEA report.
“Overall, utility-scale solar PV and wind projects have been delayed by supply chain challenges and rising costs. In addition to supply chain interruptions, several measures impacting imports have also impeded solar PV project development.”