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Is the IRA paying off for the US solar supply chain?

As the US solar supply chain industry faces multiple challenges, the jury is still out

3 minute read

These days, it feels like the US solar industry is constantly in the news. Whether it’s new solar generation records in Texas, or shrinking residential solar demand, the dynamic industry continues to garner national attention.  

And this is especially the case when it comes to the development of the US’s solar supply chain. When the Inflation Reduction Act (IRA) was passed in August of 2022, it included numerous incentives to build factories to produce solar components in the US such as wafers, cells, and modules. This generated considerable excitement within the industry – maybe the US could become a solar manufacturing hub like it was over a decade ago.  

But there’s also been a slew of policy changes and developments in recent months – from tariffs to planned factory cancellations to new guidance on domestic content tax credits – that complicate the picture for the domestic solar supply chain.   

So, is the IRA paying off? And what does the future hold for the US solar supply chain?  

Yes, the IRA has successfully promoted domestic solar manufacturing investment 

No sense in burying the lead – it is undeniable that the IRA has led to a massive increase in investments for the domestic solar supply chain. Wood Mackenzie is tracking 144 GW of announced module manufacturing capacity, 71 GW of cell manufacturing capacity, and 61 GW of wafer manufacturing capacity by 2027. Today, there’s no wafer or cell manufacturing in operation, and about 26 GW of module manufacturing capacity in operation. If all this capacity were built, it would represent a renaissance for the domestic solar supply chain.  

But of course, not all of this manufacturing capacity will get built. Some investments will fall through and less experienced companies won’t have the expertise and wherewithal to execute on their plans. By assessing each individual announcement and its prospects, Wood Mackenzie predicts only about 45% of module capacity, 25% of cell capacity, and 5% of wafer capacity will come to fruition.   

Challenges remain to create a healthy, sustainable supply chain 

While the IRA has clearly instigated a massive increase in investment, whether this will result in a healthy, sustainable domestic supply chain remains to be seen. There are several challenges that put this at risk.  

First, and perhaps most obvious, is that the domestic industry will continue to rely on upstream imports. As is evident from the prior figures, there are less announcements for new cell and wafer facilities compared to module manufacturing facilities. And since cell and wafer facilities are much more expensive, complex plants, their likelihood of success is lower. Until the prospects for these upstream components change, the US will continue to import wafers and cells.   

Second, there is currently a weak ecosystem of domestically-made solar components in the US. Manufacturers still rely heavily on imports for items like solar glass, frames, backsheets, junction boxes, and more. With any luck, domestic industries for these components will develop once there is concrete demand from local manufacturers. But this will take time to develop.  

Third, there will always be considerable price risk for domestic manufacturers. Since the global solar supply chain has expanded rapidly in the last few years, leading to oversupply conditions, price competition across the world is steep. Most domestic manufacturers are already selling their modules at a loss to compete.  

Intense competition with lower priced imports is certainly nothing new. But as module prices have declined in the last year, it’s become an increasing challenge for companies hoping to build out a domestic industry. The recent updates to the Section 201 tariffs as well as a new petition for antidumping and countervailing duties from a coalition of domestic manufacturers are clear responses to this tough environment.  

These challenges are certainly not insurmountable. But until there are clear paths to overcoming them, a healthy, sustainable domestic solar supply chain hangs in the balance.   

Find out more at Solar and Energy Storage Summit 2024

I will be presenting at Wood Mackenzie’s Solar and Energy Storage Summit in June. Now in its seventeenth year, our Summit will drive the conversation forward to discuss how the sector can take advantage of the opportunities provided by the IRA, foster innovation in cell and battery technology, and evolve solar and storage business models for the ever-changing energy landscape.  

Click here for more information.