Made in Australia: The Solar Challenge

While Australia is seeking to support a domestic solar industry through the recently introduced Future Made in Australia Bill and the Federal Government’s $1 billion Sunshot program, one constant question is how Australia can hope to compete with China?  

Australia currently manufactures around one per cent of the solar panels installed across the country. Recent reports and analysis highlight the scale of the challenge in trying to develop homegrown solar manufacturing, as does the example of the US, which has been looking to support its own capabilities while introducing measures to also restrict Chinese imports. We take a look.

Early Adopter

Australia has been an early developer of solar technology and more recently a world leader in adopting rooftop solar.

Globally, solar continues to grow strongly and to such an extent that the rate of growth has consistently surpassed forecasts (see figure 1) for solar installations.

Figure 1 Actual vs Projected growth in solar globally

Source: The Economist

According to BloombergNEF the photovoltaic industry added about 444GW of new capacity last year, or 76 per cent growth on 2022. Prices of solar modules are at record lows – estimated to be US 9-11 cents per watt. End-user markets are booming while manufacturers struggle to make a profit. BloombergNEF forecasts that installations this year will top 520GW.

In this global adoption of solar, China has become the dominant player. The scale and growth of China’s production is shown in figure 2 below. Last year China’s solar exports hit a new record. Exports were dominated by modules which reached a new high of 227GW, while solar cells had the most rapid growth at 61.6 per cent to 38GW.  At the same time export revenue dropped 5.6 per cent to US$49 billion[i], reflecting the significant drop in prices, driven by Chinese oversupply.

China is expected to have more than 80 per cent of the world’s polysilicon, wafer, cell, and module manufacturing capacity between 2023 to 2026, according to a recent report by Wood Mackenzie.  It can now manufacture an estimated 1TW (1000GW) of solar capacity annually with Chinese manufacturers continuing to plan for increased capacity. Only now is this being addressed. This week the Chinese Government released a draft regulation to limit expansions given the glut in supply.  The regulation would require manufacturers to refrain from establishing new PV production capacity and instead focus on technological innovation, product quality and reducing reduction costs.

Figure 2: Global solar module production 2015-2022 (GW)

Source: CSIS

With 99 per cent of Australia’s solar panels imported, there is only one manufacturer – Tindo Solar, an Adelaide-based company that assembles solar panels using imported silicon cells.

The Federal Government is keen to increase the capacity of local manufacturing to capture a bigger market share. It is attempting to achieve that  through its Future Made in Australia policy, which will support renewables development locally, and the $1 Sunshot program (more of this below). The challenge for Australia, like the US and elsewhere, is how to find a niche in a market dominated by the Chinese. The Australian Government is clear that it is not trying to replace all the solar panels that we import from China but wants to have local manufacturing capture around 20 per cent. But it is still a significant leap to make. The question is: Would we be better off just piggy backing off what others are doing - if the aim is to diversity supply, instead of risking taxpayer funds? The American Story

The US experience to date may be instructive.  Our Future Made in Australia is a modest attempt to support local industry in the way that the US major support mechanism, the Inflation Reduction Act (IRA), is doing, however on a far greater scale.

The IRA is just the latest attempt to support US solar manufacturing. Over the last 15 years there have been tariffs, trade policy and other credits and support mechanisms put in place. Leading US think tank the Center for Strategic and International Studies (CSIS) lists these support mechanisms:

• 2009 Obama Administration stimulus package with a 48C Qualifying Advanced Energy Project Credit.
• $500 million loan guarantee from the Department of Energy’s Loan Programs Office for a thin-film solar cell company
• The 2011 SunShot Initiative[ii] from the Department of Energy - aimed at reducing solar energy system costs by 75 per cent by 2020.
• In 2021 the Department of Energy committed to halving solar electricity costs by 2030[iii] and lifting US manufacturing capacity to 1 GW a year.
• 2021 and 2022 the Infrastructure Investment and Jobs Act (IIJA) and the IRA aimed to support research and development and manufacturing of solar panels.

The IIJA and IRA are expected to make US manufacture modules 25-40 per cent cheaper for domestic products than Asian imports while increasing US solar capacity by 30-40 per cent by 2030 through their domestic manufacturing credits, extended Investment Tax Credits (ITCs) and Production Tax Credits (PTCs) incentives, according to Boston Consulting[iv].

Yet it still lags behind China’s solar industry, who’s panels are still estimated to be 44 per cent cheaper than US manufactured panels, emphasising how far the US still has to go.[v] Wood Mackenzie estimates Chinese solar modules cost 9-11 cents per watt compared to 27-33 cents for those produced in the US. The IRA has managed to spur on an estimated 49 new solar manufacturing projects in two years (including some supported by Chinese companies) but US manufacturing capacity is estimated to be 26GW versus the 1000GW in China.

The US has also used various tariffs and restrictions under the US’s Uyghur Forced Labor Prevention Act (UFLPA). Under the US Section 201, the Trump Administration imposed tariffs starting at 30 per cent on imported solar cells and modules in 2018, but excluded bifacial panels (which then became the main solar import, accounting for 98 per cent of US imports). In June 2022 the Biden Administration extended the tariffs but allowed imports for two years (ended in May) from Cambodia, Malaysia, Thailand, and Vietnam. As a result, Chinese companies were able to manufacture in those countries and export panels to the US.

Figure 3 US Imports Q1 2024

Source: S&P Global Market Intelligence

In May, the US Government increased tariffs on Chinese solar cell imports to 50 per cent. Stating: “The tariff increase will protect against China’s policy-driven overcapacity that depresses prices and inhibits the development of solar capacity outside of China. China has used unfair practices to dominate upwards of 80 to 90% of certain parts of the global solar supply chain, and is trying to maintain that status quo. Chinese policies and nonmarket practices are flooding global markets with artificially cheap solar modules and panels, undermining investment in solar manufacturing outside of China.”

It also introduced duties on solar cells from Cambodia, Malaysia, Thailand and Vietnam[vi]. Last month the US International Trade Commission opted to proceed with an investigation into whether solar panels from Southeast Asia are stifling US manufacturing.

S&P Global Market Intelligence reported in the first quarter of this year, solar panel imports to the US “remained robust”, and were up nearly 14 per cent on the previous year and just shy of the record of 15GW. Cambodia, Malaysia, Thailand and Vietnam accounted for around 87.5 per cent of the imports.

The US is not alone in introducing local content requirements as can be seen in figure 4.

Figure 4:

LCR = Local content requirements

Source: Wood Mackenzie

Back Home

Back to Australia. Aside from its Future Made in Australia policy, the Australian Government has announced $1 billion in support to the domestic production of solar panels through the Sunshot program.

The program aims to support innovative manufacturing facilities in Australia across the solar PV supply chain. The solar PV supply chain includes polysilicon production, production of ingots, wafers, solar PV cells, and solar module assembly.  Detailed work on the Sunshot program is currently underway under the auspices of ARENA with round one to be launched in August and applications for support due in November.

ARENA aims to make Round One funding decisions before the end of December 2024. ARENA has already been supporting solar developments.

Energy Minister Chris Bowen argues there is a pressing economic need for a local solar industry and told the ABC: "I'm not suggesting we can make all the solar panels we need in Australia, but we can build a greater sovereign capability. And we should."

He believes Australian manufacturing can meet around 20 per cent of Australia’s needs with the right policy settings.

ARENA’s CEO Darren Miller argues Australia shouldn’t aim to be the world’s top PV manufacturer, but we should seek to make our supply chain less vulnerable to external shocks.

“The scale at which solar needs to be deployed to meet our climate targets and deliver on the renewable energy superpower vision means that we cannot rely solely on importing cheap solar panels from overseas,” he wrote in an Australian Financial Review opinion piece.

Australia is seeking to carve out its own niche, but given the ongoing growth on Chinese capacity, as well as moves by the US and Europe, that will not be easy.

Productivity Commissioner Danielle Wood has voiced significant concerns about the idea, arguing there is "nothing wrong" with buying cheap solar panels from China. And the former Australian Competition and Consumer Commission chair, Rod Sims (who now chairs the Superpower Institute) also argues Australia could piggyback on overseas efforts to diversify supply and that we should be aiming to get the cheapest panels we can to support the energy transition.

The government’s ambitions for local manufacturing will likely run into the reality faced by most other countries – the sheer scale and experience of the Chinese solar manufacturing sector. Chinese panels are well made and very competitive. And as the US has found, simply trying to catch up and diversify is difficult, expensive and requires years of sustained effort.

[i] Wood Mackenzie analysis

[ii] While not having the same objectives the Federal Government’s major solar support initiative is also called the Sunshot program

[iii] See Goals of the Solar Energy Technologies Office | Department of Energy

[iv] PowerPoint Presentation (breakthroughenergy.org)

[v] Assessing the United States’ Solar Power Play, Center for Strategic and International Studies, July 2024

[vi] 4 Key Takeaways | Solar Industry & Chinese Tariff Update (ktslaw.com)