China’s dominance of solar poses difficult choices for the west

According to the International Energy Agency, global spending on solar energy production in 2023 will for the first time in history outpace spending on oil production: $380bn on solar compared with $370bn on oil.

The geopolitical implications of solar displacing oil as the world’s major source of energy are enormous. Why has the Middle East been a central arena in the “great game” for the past century? Because countries there have been the major suppliers of the oil and gas that powered 20th-century economies. If, over the next decade, photovoltaic cells that capture energy from the sun were to replace a substantial part of the demand for oil and gas, who will the biggest losers be? And even more consequentially: who will be the biggest winner?

The vast majority of the solar panels on which the world will spend more this year than on oil will come from just one nation. China manufactures 80 per cent of all the solar panels produced globally. And, as the IEA notes, China’s dominance is even more pronounced when one examines the entire supply chain. It produces
85 percent of the global supply of solar cells, 88 per cent of solar-grade polysilicon, and 97 percent of the silicon ingots and wafers that form the core of solar cells.

China’s rise to dominance in solar has been rapid (see chart). In 2005, Europeans ledthis race, with Germany accounting for a fifth of global solar manufacturing. By 2010,while Europe installed eight out of every 10 solar panels in the world, it produced onlyone. This year, China will make eight of every 10 solar panels produced worldwide andadd five of those to its grid. In 2023 alone, China will more new solar capacitythan the US has deployed since Americans bought their first panels in the early 1970s.

The factors driving China’s success in this arena are the same ones that have made itthe uncontested manufacturing workshop of the world. These include low-cost capital,rapid regulatory approvals, protection from foreign competition, lower labour costs,an unparalleled network of suppliers, and fast-growing domestic demand.