This article is an attempt to explain the solar photovoltaic value chain with regard to the current relationship between USA – China – Malaysia. It provides a broad perspective to anyone who wants to learn more on the solar photovoltaic value chain and the technology on solar photovoltaic including policy-making government bodies such as Ministry of International Trade and Industry Malaysia (MITI), Malaysian Investment Development Authority (MIDA) and private sectors such as attorneys, human activists and solar photovoltaic R&D scientists and engineers.
During discussions about silicon modules or solar panels, most participants would immediately conjure the image of hundreds of solar modules installed on bare land known as a solar farm or arrays of solar modules that are set-up on commercial or residential building rooftops. Perhaps some may connect it to the picture of solar modules integrated to a system such as solar powered system for internet of things (IoT) in agricultural, communication or security system. The application of the solar system is known as the back-end value chain of the solar module – integration, system, its usage.
As important as the back-end value chain is, the front-end is actually the main factor. It involves a huge investment in the manufacturing side with the first 7 stages of the solar photovoltaic (PV) value chain from the global manufacturing perspective. Let us go through the complete crystalline solar photovoltaic value chain as illustrated in Fig 2.
From the illustration in Fig. 2, the first 7 stages illustrate all the stages needed to produce a complete solar module – front-end value chain. Initially, the majority of solar module manufacturers are located in China that are involved in processing the first 7 stages of solar PV value chain. These China’s manufacturers enter the US market by exporting solar modules to the end users or solar installers.
It is known that China’s manufacturers entered the US market by selling their solar modules at a lower price as they enjoyed lower production cost in their country. Needless to say, the lower pricing structure is hurting the local businesses in the US domestic market. To protect the US local businesses, the US Government has responded by imposing anti-dumping duties to solar modules imported from China. In order to avoid high anti-dumping duties imposed at the US port of entry, China diverts their solar manufacturing to other countries such as Malaysia, Thailand and Vietnam. The US Government does not impose anti-dumping duties on solar modules manufactured in Malaysia, Thailand or Vietnam.
From Malaysia’s perspective this is a huge business opportunity to bring solar manufacturers to invest in Malaysia through Malaysia Investment Development Authority (MIDA). MIDA is a principal agency under the Ministry of International Trade and Industry (MITI) with the main objective in promoting and facilitating foreign investments into Malaysia’s manufacturing sector. The facilitation from MIDA includes, inter alia, matching grant money for setting up R&D in Malaysia and sponsoring local Malaysian employees for oversea’s training. With these initiatives, Malaysia will benefit from the increased numbers of skilled manpower in the high technology and manufacturing sectors.
Going back to the illustration in Fig. 2, the solar PV manufacturers (mostly foreign investors) in Malaysia are practicing different business strategies to manufacture the solar module. For instance, company A directly may start from Stage #2 (silicon crystal growth) all the way to Stage #7 (solar module). Company B may start from Stage #5 (slicing) to Stage #7 (solar module). Company C may only perform Stage #6 (solar cell). Company D may start from Stage #5 to Stage #6 and then outsource Stage #7 to another manufacturer outside of Malaysia. At any point of time, none of Stage #1 (poly-silicon) is being processed inside Malaysia. Hence, this explained why at this moment there is no fully integrated solar manufacturing processes in Malaysia.
This bring us to the next subject of why China-owned made in Malaysia solar modules (Stage #7) were detained at the US port of entry wherein the issue is only related to Stage #1 (poly-silicon) pursuant to the United States Codes (U.S.C.) § 1307:
Under 19 United States Codes (U.S.C.) § 1307 Convict-made goods; importation is prohibited,
“All goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in any foreign country by convict labor or/and forced labor or/and indentured labor under penal sanctions shall not be entitled to entry at any of the ports of the United States, and the importation thereof is hereby prohibited, and the Secretary of the Treasury is authorized and directed to prescribe such regulations as may be necessary for the enforcement of this provision.
"Forced labor", as herein used, shall mean all work or service which is exacted from any person under the menace of any penalty for its nonperformance and for which the worker does not offer himself voluntarily. For purposes of this section, the term "forced labor or/and indentured labor" includes forced or indentured child labor”
Take note here that, under the said code all goods manufactured wholly or in part in any foreign country by forced labor shall not be entitled to enter at any point of the ports in the US. The US Department of Commerce’s Bureau of Industry and Security believe that the particular entity (manufacturer) of polysilicon (Stage #1) for the solar module is in connection with forced human labor in Uyghurs and other Muslim minority in China. They have identified and added 5 companies to the Entity List in connection with the participation of accepting, or utilizing forced labors. One of the companies is Hoshine Silica Industry Co., the manufacturer of poly-silicon (Stage #1) which is also the poly-silicon supplier for several solar companies in Malaysia. Even if China-owned solar manufacturer only produced Stage #6 and Stage #7 in Malaysia, they are still subject to the said code; hence, the made in Malaysia solar module is reported being held by the US CBP at the US entry port. Unless the China-owned made-in Malaysia solar manufacturers provide evidence to prove the supply of solar photovoltaic value chain is free from forced labor, the said detained solar modules would not be released.
Now this is like a chess game, China makes their move, USA makes their move. The big question is what will be China’s next move to overcome the new US restriction on exported Malaysia solar modules? Will China maintain and expand their solar PV manufacturing sites here in Malaysia? They could import polysilicon (Stage #1) from elsewhere or invest more money in Malaysia to manufacture Stage #1 locally and / or become a fully integrated solar manufacturer.
Based on my own personal experience, Malaysia is not the cheapest manufacturing site for high tech industries from the perspective of the cost for all supplies, the resources, the salary for engineers, and technicians. This has led many to suspect that the main reason for China solar manufacturers investments in Malaysia is to circumvent the anti-dumping duties as the primary objective and not because of cheap labor or cheap resources.
In addition to anti-dumping duties enforced on solar modules made in China, several entities in China are currently under investigation by the US Department of Commerce for violating the aforementioned US codes. Now that the US has put restriction on solar modules made in Malaysia, what will be the compelling reason for China solar manufacturers to remain in Malaysia? It will not be a surprise if the current China solar manufacturing investors have decided to exit Malaysia as they will not be the first investor to exit Malaysia.
MIDA has a critical role to play in helping the business community in solar manufacturing concerns to justify their continued presence in Malaysia. Assistance from the Government of Malaysia is not just creating incentives to lower production costs, but also provide assistance to reduce market barriers at international borders. Thus, the Government of Malaysia must fully understand the intricate details of all 7 stages in the solar photovoltaic value chain adopted by each China-owned solar manufacturers in Malaysia. Keep in mind that each of them has its own unique business strategy which would be unfair for them to be ‘punished’ just because they are ‘solar manufacturers’ from China. Without the necessary understanding of the complexity at the manufacturing operations, Malaysia could stand to lose out as the destination for complete, integrated solar photovoltaic value chain.
Summary of USA - China's - Malaysia Solar PV Triangle
References:
uscode.house.gov
www.commerce.gov
Images of flags are from https://enwikipedia.org