A globalized supply chain is key to cutting costs in solar module manufacturing

The world is deploying renewable energy at an unprecedented speed in an attempt to reduce carbon emissions that are driving climate change. According to a recent report from Bloomberg New Energy Finance, total global solar deployment is approaching 1 TW installed and on track to install an estimated 250 GW of solar capacity this year alone.

Solar will likely play a crucial role in achieving a sustainable, low-carbon energy future, especially if the price of production continues to decline as it has over the last 40 years. A new study published in Nature supports this concept. Findings from the paper reveal that the globalized supply chain of solar saved countries $67 billion in solar module production costs. The study also found that if domestic policies limit the free flow of goods, talent and capital, solar module costs will be much higher by 2030.

Nature reports that this is the first study to quantify the cost savings of a globalized value chain for the solar industry, and it comes at a time when many countries have introduced policies that would nationalize renewable energy supply chains in a bid to benefit local manufacturers. One example are the tariffs imposed in 2019 under the Trump administration when the U.S. Trade Representative (USTR) announced increases on tariffs imposed on Chinese goods, including an increase from 25% to 30% on $250 billion worth of Chinese imports.  The study found that such policies could complicate efforts to accelerate deployment of renewables like solar by raising the cost of production. In June of this year the Biden administration announced a 24-month tariff exemption on solar modules manufactured in Cambodia, Malaysia, Thailand and Vietnam

“Our research shows international collaboration is key to address global climate change,” said Gang He, PhD, assistant professor in the Department of Technology and Society in the College of Engineering and Applied Sciences at Stony Brook University and the paper’s corresponding author. “Nationalistic policies hurt every country and risk missing pressing climate targets. International climate policy benefits from a globalized low-carbon value chain, however, it is important to introduce complementary policies to mitigate welfare distribution effects and potential impacts on technological crowding-out.”

According to the team’s findings, He said that unit solar module prices in 2030 would be approximately as much as 25% higher in each country if relying on domestic manufacturing, compared to a future with globalized supply chains.

The study looked at historically installed capacities as well as input material and sales price data for solar module deployment in the U.S., Germany and China, the three largest solar exporters. The research team estimated that a globalized solar supply chain saved the countries a combined $67 billion: $24 billion for the U.S., $7 billion for Germany, and $36 billion for China from 2008 to 2020. Had each of the three countries adopted strong nationalistic trade policies that limited cross-border learning over the same time period, solar panel prices in 2020 would have been significantly higher: an estimated 107% higher in the U.S., 83% higher in Germany, and 54% higher in China. According to He, cross border learning, which is the free flow of information, capital, and talents that contribute to the “learning-by-researching” and “learning-by-doing” of manufacturing a product, in this case, PV. “The result is that the more we produce, the more efficient it gets, and the cheaper it becomes,” said He.

He told pv magazine that if we were to rely on a national market, “then we can only learn from a domestic scale of production, which is much less than a global scale of production, and therefore delayed our learning and cost reduction”.

“What this study tells us is if we’re serious about fighting climate change, policymakers need to implement policies that promote collaboration across global value chains with regard to scaling up low-carbon energy technologies,” said John Helveston, lead author of the study and assistant professor of engineering management and systems engineering at the George Washington University. “While this study focuses on one industry—solar—the effects we describe here are applicable to other renewable energy industries, such as wind energy and electric vehicles.”