Domestic Solar Panel Production: Room for Growth ― The growing need for a strategic government response given the future role of solar PV ―

As countries work to decarbonize, the role of solar photovoltaic (PV) power is growing around the world. The technology is expected to become a key source of electricity going forward. However, most solar panels are currently manufactured in China, leaving many countries heavily dependent on Chinese products. Energy security risks are likely to grow as solar PV generation expands; in particular, risks stemming from China potentially imposing solar panel export restrictions. This has made it increasingly necessary for countries to strengthen domestic solar panel manufacturing capacity.

There have been various moves to strengthen domestic panel manufacturing in different countries so far. While the results have varied, the U.S. has seen domestic production rise significantly. The Inflation Reduction Act (IRA), implemented under the Biden administration, facilitated substantial industrial support and contributed directly to this growth. While clear results are yet to be seen in Australia and Europe, government initiatives aimed at expanding domestic production are picking up speed.

Though this kind of large-scale industrial support has historically been considered taboo, there has recently been much talk of the “China Shock 2.0”. This refers to how China’s competitive edge in manufacturing has shifted from low-cost production to a new stage characterized by advanced technology driving competitiveness. In response, an increasing number of countries are adopting what can be called “China-style” industrial policy to support their solar manufacturing industries. This trend is expected to continue spreading. Indeed, one major element of U.S. success has been the growing output of solar panel manufacturers that have received funding from Chinese firms. Accepting investment from technologically advanced Chinese firms may therefore be an important ingredient in an effective industrial policy.

Japan too urgently needs a strategic, state-led approach toward solar panels. If the country rapidly expands support for next-generation perovskite solar cells and manages to increase domestic manufacturing of panels focused on these, it will substantially reduce risks to its energy security going forward.

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