Increasing wafer import tariffs alone will not help bring more capacity to the US

The short-term answer is no [not a great deal], as it has been nearly seven years since the US had any domestic cell manufacturing capacity, as pointed out by an industry observer to PV Tech.

“We didn’t have any cell manufacturing since 2016-17, since the last US cell plant shut down. Maybe there were some wafers imported for electronics, but there weren’t any wafers imported for solar, because there was no need for them,” added the industry observer.

At the same time, the proposed increased tariffs on polysilicon and wafers will not necessarily help improve the situation in the US by attracting new capacity announcements for ingots and wafers, which is a major concern at the moment due to the imbalance between capacity announcements for module manufacturing and the rest of the supply chain.

Lack of ingots/wafer capacity versus cells and modules

However, as the solar manufacturing industry is ramping up its capacity, especially since the Inflation Reduction Act (IRA) became law two years ago, in the next 12 months the country could have a little bit over 6.3GW of solar cell capacity operational, compared to nearly 50GW of module capacity, according to the industry observer.

Moving higher up the manufacturing value chain, the mismatch is even higher with Korean-owned solar manufacturer Hanwha Qcells’ 3.3GW vertically integrated plant under construction in Georgia currently the only facility in the pipeline offering ingots and wafers.

Earlier this year, Norwegian manufacturer NorSun unveiled its plan to build a 5GW ingot and wafer manufacturing plant in the US state of Oklahoma. However, capacity from that facility will not be expected to be operational until 2026.

All in all, when these solar cell plants reach commercial operations in the coming months, they will be faced with a lack of supply of wafers and will have no other option than to procure them outside of the US. “At the end of the day, ingot and wafer in the US will lag cell production,” explains the industry observer, adding that the companies will probably end up paying the proposed 50% tariff on wafers.

“The other option is if these companies have ingot and wafers in Southeast Asia can bring it that way. But most of the companies that are doing cells in the US are not doing ingots and wafers in Southeast Asia.”

Although this might not significantly impact solar cell manufacturers, it will still inadvertently make it more costly to build US-made products, somewhat undermining arguments in favour of onshoring solar manufacturing.

Last week, during RE+ in Anaheim, California, trade association the Solar Energy Industries Association (SEIA) and analysts Wood Mackenzie published a report that said solar manufacturing capacity nearly quadrupled since the IRA, with solar manufacturing capacity in the US standing at over 31GW, with over 10GW added in Q2 2024 alone.

Updating domestic content guidance

“The announcement proposing 301 tariffs on silicon wafers is another indication that the US government is serious about building up the domestic wafer industry. With the current over-supply in the solar supply chain, we are seeing extraordinarily low pricing, with imports sometimes falling below production cost,” says Davor Sutija, CEO at German-based wafer manufacturer NexWafe.

In a guest blog for PV Tech earlier this year, Sutija was among the voices in the industry making a case for the US to include domestically produced wafers in domestic content incentives. The US Solar Energy Manufacturers for America (SEMA) coalition made a similar call to US secretary of Treasury, Janet L. Yellen, to include solar wafers in the domestic content bonus.

“While updating the 301 tariffs was an important step in aligning US industrial policy and the goals of the IRA with US trade policy to protect solar manufacturing workers, the administration must update the domestic content guidance to effectively reshore the solar supply chain,” the SEMA Coalition told PV Tech.

It is impossible to deny that the incentives in the IRA have been a boom for the solar industry, both at the upstream and downstream levels. However, it has created a disparity in manufacturing, with only a select few companies announcing capacity for ingots and wafers. As much as tariffs might level the playing field with Chinese or Southeast Asian products, it will not be enough to attract new capacity in the US and will force solar cell manufacturers to procure capacity outside of the US for the time being.

Overcapacity

Looking at the bigger picture, it is worth mentioning that the solar industry is facing an overcapacity of PV manufacturing. Growth of PV additions continues to increase, year on year, with BloombergNEF forecasting nearly 600GW in 2024. Yet this represents only half of the global annual nameplate capacity for modules.

In a recent post for PV Tech titled ‘PV manufacturing downturn to extend into 2026’, Finlay Colville, head of research at PV Tech, highlighted the abundance of wafers and solar cells capacity that some companies are selling at a loss.

“I have noted on many occasions: making wafers and cells is a zero-sum game. Even a 50GW Chinese pure-play cell maker cannot exist in the sector long-term and will inevitably get squeezed during periods when module market pricing is low,” wrote Colville.

Middle East: a new player in town

Regarding polysilicon, increasing the tariffs to 50% would only have a complementary effect on other US trade measures, according to Johannes Bernreuter, head of market analyst firm Bernreuter Research.

“Chinese integrated manufacturers of solar modules have already evaded with new wafer production capacities to Southeast Asia because of the anti-circumvention decision of the US Department of Commerce (DoC, now additionally undertaking an anti-dumping investigation against the plants in Southeast Asia) and have used non-Chinese polysilicon because of the Uyghur Forced Labor Prevention Act (UFLPA),” explains Bernreuter.

If the direct import of polysilicon from China is more than unlikely due to the UFLPA, the issue is directed towards another region that is not Southeast Asia. Several Chinese solar manufacturers have either announced new plants or are looking to build facilities in the Middle East. And this is not just for polysilicon, but across the entire value chain, with announcement for ingots and wafers, cells and modules.

In the past few months there have been two major polysilicon announcements in the Middle East. One is the construction of a 100,000 ton polysilicon plant in Oman by Chinese investors (United Solar Polysilicon), while the other is GCL Technology’s 120,000 ton plant for granular polysilicon in the United Arab Emirates, highlights Bernreuter.

“Together, these two plants would have a capacity equivalent to 110GW of wafers. This will likely be the focus of new trade disputes,” adds Bernreuter.

Despite an increased focus on China with new trade tariffs or policies implemented and Southeast Asia with the latest AD/CVD investigation still ongoing, the Middle East could potentially be a new threat to the growth of US domestic manufacturing, especially higher upstream with polysilicon, ingots and wafers.

Even more so when the top Chinese polysilicon manufacturers have registered net losses in the first half of 2024. Three of the four top manufacturers – GCL Technology, Daqo New Energy, and Xinte Energy – have reduced the operational rates of their plants in the third quarter, since the end of June. The only exception is Tongwei.

With the polysilicon price remaining historically low, at less than US$6/kg since May this year (see chart below), and an expected production capacity of 900GW for this year, versus 600GW of installed solar globally, overcapacity will remain an issue.

It is very unlikely that these proposed tariffs on wafers and polysilicon will have a major impact on the domestic solar manufacturing industry on its own. This needs to be implemented with other solutions that have been voiced in the past few months by several industry players.

Finally, the upcoming election in the US raises even more uncertainty as to whether the industry can expect more from the government to support a domestic solar manufacturing industry with the onshoring of not just solar cells and modules, but also ingots and wafers.