Building a green, fair and resilient solar supply chain (EU & UK)
Executive summary
The global solar PV supply chain is deeply dependent on the People’s Republic of China (PRC): The PRC’s global market share across the whole solar PV supply chain exceeds 80%, and stretches to over 97% at the silicon wafers stage of production.
Dependence on PRC solar undermines energy security and puts Net Zero targets at risk: The PRC has a track record of weaponizing its dominance of critical supply chains to achieve geopolitical goals. This threatens the UK’s target to ramp up solar capacity fivefold by 2035, and puts at risk a major component of the UK’s future energy supply.
PRC solar sanctions could impose major costs on energy bills: Our modelling shows that PRC bans on solar exports, for example, precipitated by geopolitical fallout following a conflict across the Taiwan Strait, could inflict huge costs to household energy bills in the EU and the UK:
In the EU, such sanctions could cost the EU €46.18 billion by 2030 in increased energy bills, or €103 per capita. In particular, Spain and Germany are among the countries most severely impacted, with solar sanctions costing them €15.86 billion (€335 per capita) and €13.17 billion (€158 per capita) respectively.
In the UK, such sanctions could cost the UK £4.40 billion by 2035 in increased energy bills, or £155 per household.
Such disruptions would provide a major setback to the climate ambitions of the UK and the EU, with new solar installations falling far behind planned targets.
Recommendations for the EU
The EU needs a robust solar strategy: Building alternative solar PV supply chains outside of the PRC is challenging due to high capital costs, energy-intensive production and extended lead times on new production facilities. This paper proposes an EU solar strategy based on three core principles:
De-risking new solar installations: The EU should incentivise energy providers to diversify their supply chains by introducing minimum standards of supply chain resilience as a precondition for government support. Standards should ensure that EU providers are not overly reliant on the PRC’s supply chain and have effective contingency plans in the event of supply chain disruption.
Scaling up EU solar production: The EU has scalable capacity at most stages of the solar PV supply chain. Raising ESG and supply chain resilience requirements for new solar installations, as well as guaranteeing EU-wide funds for new solar manufacturing projects, will help derisk the EU’s solar PV supply.
Diversifying the global supply chain: Countries in Latin America and South-East Asia are better placed than Europe to compete with the PRC’s economies of scale and low energy costs – particularly at the earlier stages of the solar PV supply chain. The EU should use the Global Gateway and the G7’s Partnership for Global Infrastructure and Investment to raise the necessary capital investments at key stages of the supply chain.
Recommendations for the UK
The UK needs a new solar strategy: The UK finds itself in a precarious position when it comes to securing the solar PV supply chain. Unlike the US and EU, the UK has no major solar manufacturing capacity to scale up. This paper proposes a UK solar strategy based on three priorities:
De-risking new solar installations: The UK should incentivise its energy providers to diversify their supply chains by introducing minimum standards of supply chain resilience as a precondition for government support, including for new bids under the Contracts for Difference scheme. Standards should ensure that UK providers are not overly reliant on the PRC’s supply chain and have effective contingency plans for supply chain disruptions.
Diversifying the global supply chain: Vietnam, Malaysia, and other countries in Southeast Asia are best placed to compete with the PRC’s economies of scale and low energy costs – particularly at the earlier stages of the solar PV supply chain. The UK should press for the G7’s Partnership for Global Infrastructure and Investment to raise US $5bn for large-scale capacity building at the strategically important polysilicon and wafers stages of production.
Investing in leading-edge technologies: Perovskite solar cells have emerged as a promising alternative to traditional crystalline silicon panels, being both more efficient and less dependent on the PRC’s polysilicon supply chain. UK firms and universities lead the world in the research and development of PSCs, an advantage that can be cemented with further government support.
Errata
Some typographical errors were made in a previous edition of the EU version of the report. They have been corrected:
“UK’s dependency” -> “EU’s dependency” (section heading)
“€96.12 billion by 2035, or €215 per household.” -> “€46.18 billion by 2030, or €103 per capita.” (paragraph 2)
“Table 1 | Projected cumulative increased energy costs in the EU by 2035 in PRC solar export ban scenarios” -> “Table 1 | Projected cumulative increased energy costs in the EU by 2030 in PRC solar export ban scenarios” (table heading)