Author Albert Hsieh
Updated September 29, 2022

On September 14, the European Commission issued a proposal to ban products made with forced labor, hoping to keep the EU market free from goods made with forced labor. This is the second ban on forced labor issued by a large regional market, after the U.S. passed the Uyghur Forced Labor Prevention Act (UFLPA) at the end of 2021. 

Comparison with the UFLPA

Europe is the world’s third largest regional market and the second-largest PV market next to China, holding sway in terms of consumers, companies, and the supply chain. Therefore, InfoLink draws comparison between the legislative proposal and the UFLPA of the U.S. to assess potential impacts on the PV industry.

Firstly, the UFLPA targets supply chains in Xinjiang, banning imports of silicon-related industries. Current proposal of the EU, on the other hand, does not focus on any specific region or industry. The European bill is more wide-ranging and less specific, covering all goods entering the EU market. Any product made with forced labor will be barred from the region.

The UFLPA is based on the presumption of guilt. Any product involved with supply chains in Xinjiang is considered made with forced labor. U.S. customs will issue Withhold Release Orders (WRO) against the product unless the manufacturer provides evidence to prove otherwise. Whereas under the EU proposal, investigations are only initiated upon reports based on pertaining proofs.

National authorities in the member countries of the EU will take charge of law enforcement once the regulation is passed. The EU will construct an information-exchange platform for member countries to establish more unified standards.
Unlike the UFLPA, which includes no standard for reviews and document submission, the European proposal will have due-diligence guidance announced within 24 months after it comes into effect. 

Still on the drawing board, the regulation is expected to be passed in 2023 and become applicable 24 months after its entry into force. Therefore, its impact will not be observed until 2025.


Impacts on the PV industry

Having been central to the issue of forced labor, Xinjiang is still subject to impacts of the European proposal, even though the later does not target the PV supply chain or any place of origin. To that end, InfoLink assesses the proposal’s impacts on global PV industry if supply from Xinjiang is restricted.

Xinjiang is the biggest polysilicon manufacturing hub around the globe. For now, faced with difficulties exporting to the U.S., manufacturers locate new production capacities outside of Xinjiang. A few of them stay, but actual progress of the projects requires further observation. 

Due to disproportionate production capacities among upstream and downstream sectors, polysilicon prices have been rising since the second half of 2020, prompting many manufacturers to expand production. The given graph shows polysilicon production capacity hitting 318,000 MT at the end of 2021, with 44% of record market share worldwide. The share gradually decreased as production capacities came online outside of Xinjiang, mostly other regions in China with less labor disputes, such as Inner Mongolia, Sichuan, and Qinghai.  

Xinjiang-based production capacity continues to increase, potentially reaching 560,000 MT by 2025, when the European bill comes into effect. Still, the volume will account for merely 21% of global market share. The influence of Xinjiang's polysilicon on the PV industry is gradually decreasing.

220922_Polysilicon production capacity_en_2

Supply-demand comparison

Both the EU and the U.S. have huge demand for PV components. However, the two markets do not have its own supply chain, thus rely on imports to acquire enough PV components from China and Southeast Asian countries. Data compiled by InfoLink show that China exported 60.1 GW of components to Europe from January to August this year, suggesting how the bloc is highly dependent on the supply of Chinese components.

Europe has seen the most active energy transition worldwide. In 2022, regional conflicts send the price of traditional energy skyrocketing. To rid itself of traditional fossil fuel, European authorities launched several renewable policies. For instance, under the REPower EU, the bloc aims to have 320 GW installed PV capacity by 2025, and 600 GW by 2030.

Both the EU and the U.S. will see demand for PV components surge, with annual demand reaching beyond 100 GW from 2023 onwards, hitting 200 GW by 2025 in an optimistic scenario. By 2023, polysilicon supply will meet the demand of at least 300 GW of modules, considering large-scale polysilicon production expansions in China's non-Xinjiang regions and the existing production capacities overseas. Polysilicon supply will continue increasing and will be well sufficient as long as the two markets put forward clear, achievable requirements.

220922_End user demand and polysilicon supply of EU and U.S. _en_3

Note: Most manufacturers are banned by the U.S. under the UFLPA because they fail to prove the place of origin of silicon metal, a raw material for polysilicon. 

In the extreme situation, where the EU and the U.S. only accept products from non-China supply chains, shortages will occur in all sectors outside of China, from polysilicon to modules, especially polysilicon and wafer sectors in the upstream. China, with cost advantage, secures at least 95% of global market share. Therefore, even with huge incentives, it is rather difficult for other countries to build a comprehensive supply chain to satisfy the bulk demand of the EU and the U.S.

220922_Supply chains outside of China and demand of EU and U.S. _en_4

There is still ample supply for the European and U.S. markets, given current distribution of supply chains around the globe. The two markets are not very likely to see short supply or shortages, unless import document submitted are invalid or other extreme scenarios.

For now, many details of the European proposal remain scant. The regulation is expected to take effect in 2025. Manufacturers have plenty of time to prepare. Under the current version, the EU does not target any specific region or product, nor will customs authorities detain goods without receiving reports. More guidelines, such as due-diligence requirements, will be introduced in the future as a better reference for manufacturers importing products from or exporting to the EU. 

There is no risk in the short term. Both Europe and the U.S. are planning to establish an independent PV supply chain. Still, importation is the first choice of way to satisfy demand, considering time, scale, and production costs. 

In response to the new bill, European manufacturers can conduct due-diligence investigation on their own supply chains in advance. The investigation may go beyond module and even polysilicon sectors to touch upon upstream industrial silicon and other BoM used during the manufacturing process. Or, they may build supply chains completely unrelated to controversial regions and seek strategic partnership to ensure all future imports are absolutely law-abiding.

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