Avoiding climate change may depend on whether the industry can reduce its dependence on Xinjiang and continue to maintain the supply of important raw materials.

One of the longest deflationary trends is halting. The consequences may have a profound impact on the global ability to avoid climate change.

The decline in the cost of semiconductor chips since the 1950s has changed our world, turning computers from expensive industrial equipment into ubiquitous presence in smartphones, watches, cars, and refrigerators. Similar things have happened to other key semiconductor solar cells in the past decade.

Panel modules that cost US$1,870 per kilowatt in 2010 changed hands at a price of US$163 per kilowatt last year, transforming photovoltaic or PV power from an expensive curiosity to a technology that reshapes energy systems. According to Bloomberg New Energy Finance, for two-thirds of the world’s population, solar and wind power are the cheapest ways to provide new power supplies. The International Energy Agency said last year that within five years of 2025, nearly 60% of electricity generation will be solar.

Although prices are still a fraction of what they were 10 years ago, the increase in solar module costs this quarter is the largest in more than a decade.

In recent months, this trend has stopped. So far this quarter, the price of panel modules has risen by nearly 15%. If this situation continues, it will only represent the seventh quarter in which prices have not fallen in the past 45 quarters. An industry that has continued to decline in cost as a growth model has to deal with the first round of inflation.

Raw materials are the culprit. Polysilicon, a shiny semi-metallic substance used in the manufacture of solar panels and computer chips, has been soaring in price as the strengthening plan for renewable energy installations has hit the supply chain issues that the global economy has awakened from Covid-19. Photovoltaic-grade polysilicon is now US$29.41 per kilogram, which is as expensive as it has been since 2012.

The cost is almost three times the price of US$10.57/kg at the end of last year.

This is related. In the 2000s, the price of polysilicon had been as high as US$450/kg. At that time, a wave of new Chinese manufacturers entered the market and weakened existing manufacturers. This was one reason why the competitive solar energy outlook seemed so bleak. If the same pattern repeats itself, it may have to re-examine the future forecast of the lowest photovoltaic price that will promote the rapid decarbonization of the power system.

With the commissioning of new supplies, the tension in the polysilicon market in 2021 may ease in the next few years. The good news is that a large amount of polysilicon production capacity will be put on the market in the next few years. According to Bloomberg New Energy Finance analyst Jiang Yali, by 2023, the supply of Chinese manufacturers will increase by about 76%. This expansion will even exceed the astonishing rate of growth in solar demand, pushing polysilicon prices back to pre-Covid levels by the end of 2022, and then decline as the oversupply increases in the second year.

There is a problem with the optimistic outlook. Approximately one-third of the new capacity will be in Xinjiang, China’s vast western region, where Uighurs and other Muslim minorities have become victims of policies that the U.S. government has classified as crimes against humanity and may even be genocide. Analyst Johannes Bernreuter (Johannes Bernreuter) said that about 45% of the world’s solar-grade polysilicon comes from four Xinjiang manufacturers. Even groups like Daqiao New Energy have opened their doors and said that they are not involved in the so-called forced labor project, and they must also face the fact that their existence in Xinjiang is determined by some countries in the world. The cheapest coal-fired power generation.

As the world pays more attention to what is happening in China’s minority groups, this poses a threat to the solar supply chain and will cover up current problems. A bill currently being passed by the US House of Representatives will ban the import of all Chinese goods related to forced labor. A House committee on Thursday asked US customs officials to “take strong action” against such products. Public opinion and ESG requirements may force Europe and other regions to take the same action. These actions are capable of tearing up the global solar energy industry from its roots, and this is the time when the global solar energy industry most needs to flourish.

One option proposed by Bernreuter is to prove part of the production as “Xinjiang-free” and allow exports to continue, while products with a more obscure origin serve China’s own booming domestic market. The trade organization Solar Energy Industry Association issued guidelines this year to ensure traceability throughout the supply chain. Even so, it depends on whether solar manufacturers are willing to separate and review the flow of Xinjiang and non-Xinjiang polysilicon. In China’s current political climate, such actions may have a taste of infidelity.

However, some effort must be made to keep one of the most powerful decarbonization engines on. Xinjiang is vital, not only because of its low cost, but also because of its integration into China’s broader solar industry, accounting for more than 70% of global solar panel production. Attempts to establish a non-Chinese supply chain, whether in India, the United States or Saudi Arabia, have little effect other than increasing the cost of photovoltaic installations and delaying the elimination of fossil fuels.

Like fashion trade, aluminum industry and cryptocurrency mining, the solar energy industry has also forged an indissoluble bond with Xinjiang. If it cannot reliably separate its supply chain from claims of human rights violations, the consequences will be dire—both for China and the world.

This column does not necessarily reflect the opinions of the editorial board or Bloomberg LP and its owners.

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