The U.S. solar industry has a complicated relationship with China. The silicon solar cell may have been invented in America seventy years ago, but manufacturing dominance has since shifted to China and Southeast Asia. The manufacturing tax credits included in the Inflation Reduction Act of 2022 have achieved the goal of reviving domestic solar energy production across the country, but most new U.S. factories opening their doors have Chinese tyres. More solar panels are being made in America than ever, but it is unclear whether they are really American and whether anyone can do anything about it.
Chinese companies are setting up production in the United States
According to World of solar energy According to the data of the US solar panel factories opened specifically thanks to IRA credits, 60% have clear Chinese investors. These include companies such as Canadian Solar – which despite its name largely does business in China – and LONGi. Both companies now operate the largest single-site silicon panel assembly operations in the United States: 5 GW for Canadian Solar in Texas and 5 GW for LONGi in Ohio (albeit through the new entity Illuminate USA).
Employees at the Illuminate USA manufacturing facility in Ohio celebrate the production of 1 million solar panels powered by LONGi.
Both Canadian Solar and LONGi are encouraging domestic solar production and employing hundreds of American workers – but should they get tax breaks for their efforts? Some U.S. lawmakers and solar manufacturers are saying absolutely not.
The US Senate has spoken out about outside forces affecting domestic solar energy production. Sens. Sherrod Brown of Ohio and Jon Ossoff of Georgia introduced legislation asking the Treasury Department for help in “disrupting” China’s dominance of the solar supply chain. Their calls echo those of First Solar and Qcells in various rate surveys that shaped the U.S. solar industry — two companies with large manufacturing footprints in both Brown and Ossoff states.
In July, the two senators introduced the American Tax Dollars for American Solar Manufacturing Act to prevent taxpayer money, including IRA funds, from going to Chinese-controlled companies. The legislation would ensure that only U.S. manufacturers with a “true domestic supply chain” benefit from tax breaks and prevent any company tied to a “foreign entity” from receiving the 45x Advanced Manufacturing Tax Credit, which provides incentives to those who use solar produce. components in the United States.
“We cannot allow American taxpayer dollars to go to Chinese companies that cheat and undermine American solar energy production. Our bipartisan bill will ensure that only American businesses are supported by taxpayer dollars and support the creation of manufacturing jobs throughout the solar supply chain across Ohio,” Senator Brown said when the legislation was announced. “We will not allow the Chinese government to take down the American solar industry.”
Production lines at one of First Solar’s manufacturing facilities in Ohio.
The problem with the bill’s language is that no one has a true domestic supply chain — which senators previously argued should start at the wafer stage — except, of course, First Solar (which produces thin-film modules) and Qcells (which is the only manufacturer of silicon solar panels in the United States, which has its own domestic wafer supply). Furthermore, any Chinese manufacturer of solar products in the United States already has no access to tax breaks unless it works through an American company. Canadian Solar is leaning on its long-standing US subsidiary for its panel business in Texas, and LONGi – which produces in Senator Brown’s state of Ohio – has invested in Illuminate USA alongside US developer Invenergy.
Keith Martin, partner at law firm Norton Rose Fulbrightsaid this bill could never work as written.
“The most recent bill is not properly drafted. It denies 45x credits for components “produced by a foreign entity of concern.” Companies claiming 45X credits are American companies,” he said.
Another piece of legislation, the Protecting Advanced American Manufacturing Act, introduced by Florida Sen. Marco Rubio in 2023, contains more ambiguous language that could gain traction. This bill, also introduced in House Rep. Carol Miller of West Virginia, would deny tax credits to companies incorporated or headquartered in China or directly or indirectly owned, controlled, or materially influenced by the Chinese government .
“This bill would deny any disqualified entity the opportunity to claim these tax credits,” Martin said. “It’s such a broad statement that it’s a little difficult to know exactly what would be excluded.”
Bills like these must be included in a larger tax bill to pass. No tax legislation has been developed by 2024 to allow these manufacturing-specific components of solar to make any real progress.
Preventing external influences on American sun products
Even if we take China out of the discussion, it’s difficult to find a purely American solar manufacturing company in this maturing sector. Qcells has Korean support, Silfab and Heliene are from Canada, Elin Energy/Sirius PV is from Turkey and Meyer Burger is Swiss. First Solar may be the most “American,” but that’s thanks to the fact that it started in Ohio at the dawn of advances in solar panel technology.
A new crop of American solar companies could emerge if the United States wins the race to commercialize perovskites, but for now the domestic solar industry is led by multinational companies.
Preventing one country from participating in domestic production and obtaining IRA credits is a complex political issue that is beginning to resemble a trade war, says Eli Hinckley, partner of Baker Botts.
Vice President Kamala Harris speaks at the Qcells factory in Dalton, Georgia. Credit: Jenn Finch, Zorzi Creative
“If we want to limit the amount of economic value flowing back to China through the IRA, it will be a challenge,” he said. “Can you make laws that say if you use Chinese-made equipment, you don’t get credit for it? That’s hard because some of the [equipment] you can’t get anywhere else. I understand: you don’t want dollars flowing from the IRA to China. But if you want to accelerate the growth of the clean energy economy and create jobs, the fastest way to do that is to bring the cheapest solutions to the market, and those are Chinese solutions.”
Mike Carr, executive director of the Solar Energy Manufacturers for America Coalition (SEMA), said the group’s members do not want to hinder the incredible opportunities offered by the IRA by limiting who can participate, but they recognize it is not a fair game. SEMA was created to resupply the entire solar panel supply chain in the United States, and its membership determined that Chinese dominance in silicon wafer manufacturing would hinder any attempt to develop a truly American product .
Carr said it’s great that Chinese panel manufacturers in particular want to set up manufacturing efforts in the United States and hire American workers, but “they still fundamentally benefit from the supply chain monopoly, and that still means there’s an uneven playing field . Head-to-head, we’re happy to compete. But until that dominance in the supply chain, which gives that extra leverage, until that is wiped out, we cannot move forward.”
Reshoring should be looked at in phases, Carr said. Before the United States can make its own wafers, there must be enough panel assemblers demanding domestic wafers and cells. To quickly build these panel factories, the United States will rely on Chinese production equipment. Once there is a sufficient built environment, real reshoring efforts can begin. Limiting certain companies’ access to federal government assistance to build the industry would prevent any real progress.
But for some, some form of restriction feels necessary. Because the IRA incentives are within the tax code, changing legislation that targets ownership structures, like what Senator Rubio introduced, may be the only path forward to prevent Chinese companies from benefiting from the American manufacturing renaissance. The results of the November elections, and whether lawmakers defending solar energy production are still in power, will determine whether these initiatives move forward or not.
“This is difficult. Let’s just be honest. The Ministry of Finance has never pursued industrial policy before. There is a lot we have to work through,” Carr said. “This is a pretty young effort in the grand scheme of things. It took a while for the IRA to be passed, and it will take a while for things to get going again.”