China’s US Solar Outposts Undermine Homegrown Firms, Report Says

(Bloomberg) -- A surge of US investment by Chinese solar-panel makers threatens to enhance Beijing’s dominance of the sector, rather than weaning the world’s biggest economy off of it, according to an analysis released Friday.

The report by the geopolitical and supply-chain consultancy Horizon Advisory comes amid increasing scrutiny of Chinese investment in US-based manufacturing of the solar components, batteries and other tech key to the transition away from fossil fuels. At least 24 gigawatts of new US solar-panel production has been announced by various joint ventures and subsidiaries of Chinese companies — enough to meet more than half of American demand.

The analysis also provides a sobering assessment of how provisions in the Inflation Reduction Act that sought to reduce US dependence on foreign panel makers may be undermining that goal.

“America stands at the precipice of a once-in-a-generation opportunity,” Horizon wrote in its report. “But all risks being wasted if a short-term tradeoff is made to allow Chinese state-backed players to continue to exploit US industrial policy while eroding America’s solar foundation.”

There are big benefits for Chinese companies investing in US solar manufacturing outposts. US-assembled panels can largely avoid tariffs slapped on imports while qualifying for an IRA tax credit worth 7 cents a watt. For a 5-gigawatt solar factory — like new facilities in Texas and Ohio — that amounts to as much as $350 million a year.

Such projects align with Beijing’s commitment to dominate clean-tech supply chains, said report co-author Nathan Picarsic. Chinese manufacturers that localize production in the US can neuter the threat from competitors, while gaining preferential domestic market treatment in the form of tax credits and support from local politicians, he added.

Biden administration officials have argued that excess Chinese panel capacity and record exports of green technology are distorting the global economy. President Joe Biden is already hiking tariffs on electric vehicles, solar cells and semiconductors imported from the Asian nation. And some US solar manufacturers are seeking new duties to counter cell and panel imports they argue are heavily subsidized and discounted. 

Chinese officials have argued accusations of overcapacity are a “false narrative” meant to hamstring the country’s economy. And they’ve warned that efforts by the US and European Union to stem China’s reach risk slowing the fight against climate change.  

In its report, Horizon recommends US policy changes that include expanding government reviews of national security risks of planned foreign investments. Federal procurement requirements favoring US-made goods could be extended further up supply chains to factor component sources. 

And, Horizon recommends, the government should limit tax incentives, taking in “the reality of China’s approach.” Legislation that would bar Chinese-backed entities from claiming IRA credits was left out of a package of legislation advanced in the House of Representatives this week. 

“China’s ability to exploit IRA tax credits at the expense of American taxpayers, while tightening its grip on both US and global solar markets, poses a serious threat to US manufacturers who have invested billions to expand production and create American jobs,” said Nick Iacovella, a senior vice president with the advocacy group Coalition for a Prosperous America. “The stark irony is that the IRA was designed to strengthen US supply chains and domestic manufacturing in renewable energy, yet it’s giving China the advantage, allowing them to establish operations here and out-compete American companies.”

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