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Xinjiang labor clouds solar sector as panel prices swell

Sanctions risk compounds shortage in one of world's top silicon-producing regions

A solar system is installed on a roof in Sydney: much of the silicon used in solar panels is made in China, specifically in the Xinjiang region.   © Reuters

TOKYO -- China's alleged abuses against Uyghur Muslims in Xinjiang are now casting a shadow over the solar industry, as human-rights-conscious countries shy away from a region that is one of the world's biggest sources of silicon.

The price of silicon used to make polycrystalline wafers for solar panels now stands at more than $27 per kilogram, compared with $6 or so in June 2020, according to Tokyo-based consulting firm RTS. Roughly 80% of global production of this raw material -- which does not need to be as pure as the silicon used in semiconductors -- is handled in China, with about half of that in Xinjiang.

The cost jump adds to economic repercussions from the forced labor issue that have already hit products from cotton to iPhone components, and complicates the trajectory for one of the most important energy sources in the global pivot away from carbon.

"The rise in panel prices is changing budget plans, and small and midsize power companies have started to rethink investments," said a representative at a solar panel installer. Panel prices account for about 40% of the cost of a solar project.

The price spike started last summer, when explosions and a fire at silicon plants in Xinjiang led to a shortage, and made silicon-reliant industries painfully aware of the risks of concentrating so much production there.

On top of that, the Biden administration signaled in May that it was considering sanctions on Chinese solar panels in light of alleged use of forced labor, and similar concerns were raised in Europe as well. Wafer and panel makers worried about supply chain disruptions scrambled to stock up on silicon.

Security guards stand outside what is officially known as a vocational center in Huocheng County in Xinjiang. These facilities have been criticized as a hotbed for human rights abuses.   © Reuters

Other materials including glass and aluminum have also become more expensive, putting further upward pressure on panel prices. Chinese-made panels, which make up 80% of global output, now go for 22 cents per watt, up about 20% from a year earlier.

Prices are climbing even more sharply in Japan, with even large orders costing around 30 yen to 35 yen per watt, or about 27 cents to 31 cents -- an increase of between 30% and 40% over the same period.

Besides the increase in production costs, "Chinese panel makers are prioritizing domestic supply, which has squeezed shipments to Japan," a research firm said.

Japan has little room to expand production itself. While its solar panel makers once led the world, they have since lost out to Chinese competitors and largely faded into the background. Panasonic and Mitsubishi Electric have decided to stop making panels, and Sharp and Kyocera have scaled back output.

Japanese players together held just 0.4% of the global market last year, only enough to meet about a tenth of domestic demand.

A solar panel plant outside Shanghai: Higher costs for silicon, aluminum and glass have contributed to a 20% rise in panel prices over the past year. 

The U.S. in June added four Chinese silicon-producing companies to the so-called Entity List, including Hoshine Silicon Industry (Shanshan) and Xinjiang Daqo New Energy. Certain U.S. exports to these companies now require special permission from the Commerce Department.

All imports of silicon made by Hoshine were banned as well.

Details of the ban, like how the U.S. will determine whether a product contains Hoshine silicon, are unclear, and there has been little impact on silicon and panel prices so far. Still, they could surge if Europe and other regions also start to crack down on Chinese players.

In Japan, some companies are now asking Chinese suppliers whether their solar panels contain silicon from Xinjiang. But there is no way for Japanese buyers to verify the claims.

"It will be difficult to completely eliminate Xinjiang-made silicon," said a source at one Chinese panel maker.

Cheap Chinese panels have been crucial to reducing the cost of solar power and expanding the global use of renewable energy. The recent controversy highlights the risk of depending too heavily on China for materials and devices vital to solar panel production.

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