To achieve carbon neutrality and increase energy security, the international community is accelerating the energy transition to reduce fossil fuels and increase renewable energy. Solar power, in particular, has emerged as a fast-growing renewable energy source, as its generation costs have fallen to the level of fossil fuels and it is relatively easy to install. Demand is growing rapidly and is expected to exceed the cumulative installed capacity of coal by 2027. In addition, demand for energy storage systems (ESS) is growing in line with the expansion of renewable energy generation. Since the production of electricity from solar and wind power fluctuates depending on the amount of sunlight available and wind speeds, it is necessary to build an ESS to store the generated electricity and release it when it is needed. Among ESS, the demand for battery energy storage systems (BESS) based on lithium-ion batteries (LiB) is growing rapidly, as it is less constrained by location and can be easily dismantled and moved compared to pumped storage hydroelectricity, in which power is generated by utilizing altitude differences in locations such as reservoirs.

The problem is that China accounts for 74.7-96.8% of capacity at each stage of the global solar supply chain, and about 70% of capacity in the upstream and midstream of the LiB-based BESS supply chain.  

South Korea has technological competitiveness in LiB used for solar power generation and BESS. However, the domestic solar industry remains overly dependent on imports of solar products from the People’s Republic of China and struggles to compete with price-competitive Chinese products. In addition, Korea lost its leading position in the global market share of LiB for BESS to China in 2021.

This article analyzes how the US and Europe, the main markets for solar and LiB-based BESS, are responding to China’s dominance in the supply chain. We examine the Chinese government’s policies and company strategies behind the monopolization of each industry, and consider a comprehensive response that governments and companies can adopt.

Chapter 2 analyzes the US and European responses to China’s dominance in the solar industry, including import restrictions and policies to strengthen domestic supply chains, and identifies Chinese government policies to promote the solar industry and Chinese company strategies.

First, the United States began imposing high anti-dumping and countervailing duties on Chinese solar products in 2012, significantly reducing its dependence on imports from the People’s Republic of China. However, Chinese companies set up production facilities in Southeast Asia to redirect their exports, increasing US reliance on imports of solar products from Southeast Asia to 70-90% in 2022. In response, the US government launched an investigation into circumvention exports via Southeast Asia and identified five Chinese companies in violation, but these only amounted to a portion of the major cell and module companies in China. While the US has ostensibly reduced its reliance on imports of solar products from the People’s Republic of China, it continues to make decisions that leave room for Chinese products. The US is also pursuing a policy of building its domestic solar supply chain by offering an IRA-based investment tax credit (ITC, AEPC) and per-unit production credits (AMPC) for each stage of supply. The US solar supply chain currently lacks wafer or cell production capacity, and module production capacity is insufficient to meet Biden’s carbon neutrality target. The US is therefore trying to attract competitive companies to internalize the supply chain and expand production capacity. The US’ strategy can be summarized as: the establishment of a complete supply chain for crystalline silicon solar wafers domestically, led by South Korea’s Hanwha Solution, which is currently building the largest solar farm in North America; and the ramping up of thin-film solar cell production, led by First Solar. Through this, the US will likely succeed in internalizing the solar supply chain as it intends, however it will be difficult to wholly exclude China from the supply chain.

Europe has also imposed anti-dumping and countervailing duties on Chinese solar products since 2013, but unlike the US, it discontinued the tariffs in 2018. Since then, Europe’s dependence on imports of solar modules from the People’s Republic of China has risen to more than 80 per cent in 2021. Instead of reducing its dependence on the PRC for solar products, Europe seems to be focusing more on securing renewable energy, mainly solar, by importing large quantities of cheap Chinese products. The EU Commission’s declaration in 2019 to reach carbon neutrality by 2050, coupled with Russia’s reduction of fossil energy supplies to Europe in the wake of the Russia-Ukraine war in 2022, has put Europe in a position where it needs to secure more renewable energy faster. In response, the EU Commission published the Carbon Neutral Industry Act, identifying solar power generation as one of eight carbon-neutral strategic technologies and setting a target of producing 40 per cent of the EU’s needs locally by 2030, based on the promotion of strategic projects. The EU also announced that it would extend subsidies through the Temporary Crisis and Transition Framework (TCTF) to attract private capital investment in the sector, which requires significant funding. However, the European solar industry is already struggling in the face of low-cost Chinese products and cannot afford to increase investment.

Since the early 2000s, China has provided active support to promote exports in the solar industry, support for domestic and overseas stock market listings, and investment subsidies to localize the production of equipment and technology. However, as major markets such as the US and Europe began to impose import restrictions, China began to develop its domestic market based on the Gold Sun pilot program (50 per cent of total investment in solar PV projects subsidized) and feed-in tariff (FIT) policies. Since 2017, when the industry entered into a mature stage, subsidies have been gradually reduced and the approach to strengthening R&D capacity has shifted from unconditional subsidies to selective incentives for companies with technological prowess. As a result, China’s solar industry has been reorganized around leading players, with companies lacking core competitiveness being eliminated. In August 2021, the Chinese government abolished the FIT scheme for the solar industry, entering the phase of marketization from subsidy-led growth. In addition, the policy direction for the solar industry through 2025 is expected to focus on expanding solar power application areas such as BIPV, developing next-generation solar technologies around perovskite, and protecting indigenous technologies (e.g. adding wafer technologies to the list of prohibited and restricted technologies).

The Chinese solar industry is currently oversupplied and internal competition is fierce. Chinese companies have already gained in-house production capacity and technology, and are now strengthening their competitiveness by securing unique flagship technologies and setting industry standards that other companies cannot match. In addition, Chinese solar companies are responding to US import restrictions by expanding production bases in Southeast Asia to redirect exports, and to the US IRA by building solar production facilities in the US.

Chapter 3 analyzes the Chinese-led LiB-based BESS industry, the US and European responses described in Chapter 2, and Chinese government policies and corporate strategies.

Although the US has imposed a 7.5 per cent tariff on Chinese LiBs under Section 301 from 2019, in addition to the existing 3.5 per cent tariff, the share of US imports of LiBs from the PRC has continued to grow, reaching a 10-year high of 70 per cent in 2022. This is because, with the exception of the key mineral mining and refining stages of the US LiB-based BESS supply chain, the four core materials and cell stages already have formed domestic supply chains, but production capacity is far from sufficient to meet demand. In addition, refined products (such as lithium compounds) and cathode materials (graphite) for core materials are dominated by China. Therefore, the US seems to have adopted a realistic strategy of strengthening domestic production capacity at each stage of the supply chain, based on the IRA, and not imposing discriminatory rules on LiB for BESS. The IRA provides an investment tax credit (ITC) for BESS investment costs and a manufacturing tax credit (AMPC) for LiB cells and modules, core materials and minerals. This is a win-win situation as LiBs for BESS are almost entirely produced by Chinese and Korean companies, but the AMPC incentives will favor Chinese companies as they already have a competitive price and technology advantage over Chinese-made lithium-ion batteries (LFPs).

Europe’s LiB-based BESS supply chain is also facing a supply shortage in the region relative to demand at the upstream and midstream levels. Unlike the US, Europe has not adopted regulatory measures such as anti-subsidies for LiB in China. As a result, the share of LiB imports from China has increased proportionally, reaching 45 per cent in 2022, in line with the growing demand in the European market. The low price and volume of Chinese LiB in Europe is under increasing pressure. Along with solar, the EU Commission has included battery and storage technology as one of the eight strategic technologies in its Carbon Neutral Industry Act and aims to produce at least 40% of the annual demand for battery and storage devices in the region by 2030. It also announced the Critical Raw Materials Act (CRMA), under which China aims to achieve 10% local mining, 40% local refining (processing and treatment) and 25% local production of recycled raw materials in terms of annual consumption by 2030, and to diversify its raw material imports to avoid relying on any single source for more than 65%. In addition, a battery law will come into force in 2024, imposing high environmental standards on the battery supply chain and preventing non-compliant batteries from entering the market. Taken together, Europe’s strategy reflects concerns about over-reliance on China, as seen in the solar power section. The focus is on diversifying sources, particularly upstream in the LiB supply chain, to spread risk. However, there appears to be no movement to exclude China from the supply chain. Of course, the implementation of the EU battery legislation will make it more difficult for foreign battery companies to enter the European market by giving LiB a higher exchange rate, but this is not a discriminatory measure as European companies will also have to comply.

On the other hand, by 2020, China’s new ESS (BESS, compressed air energy storage, flywheel energy storage, etc.) will have moved from the R&D demonstration stage to the early commercialization stage. In addition, internally, BESS and compressed air ESS technologies, led by LiB, have reached world-leading levels. The Chinese government sees 2021 as the pioneering year of the new ESS industry and aims to develop it to the scale-up stage, as stated within the 14th Five-Year Plan for 2021-25. For LiB in particular, the focus is on improving productivity through technology upgrades and reducing operating costs, as well as strengthening cohesion in the domestic supply chain. The government will focus on encouraging upstream and downstream companies in the LiB supply chain to develop closer cooperation, including signing long-term contracts and clarifying quantities and prices at each stage of the supply chain to ensure stable supply.

Internally, Chinese LiB companies have formed their own alliances between upstream and downstream companies to stabilize their supply chains. In response to the US IRA, they are also building local production bases in the US, cooperating with US FTAs, expanding into Europe, and increasing investment in LiB recycling in anticipation of the European Battery Directive.

In Chapter 4, based on the above analysis, we suggest responses for the Korean government and companies. First, it is time to develop a comprehensive solar industry policy for Korea. Specifically, it is necessary to: (1) expand solar applications and subsidize production to revitalize the domestic market; (2) provide government support for exports and financing; (3) provide funding for solar companies that are expected to expand into the North American market through the US IRA; and (4) provide government R&D support to maintain the super-gap technology of perovskite solar cells and pre-emptively promote commercialization. Second, it is necessary to consider developing LiB recycling technology and increasing investment to respond to the European battery legislation and to secure key minerals. Third, Chinese upstream companies and Korean midstream and downstream companies in both the solar and LiB-based BESS industries should urgently sign long-term supply contracts in the short term, and focus on securing proprietary technologies in the long term. 

국문요약

제1장 서론

1. 연구배경 및 필요성

2. 선행연구와 본 연구의 차별성

3. 연구의 구성

제2장 태양광 산업

1. 중국이 장악한 글로벌 태양광 산업

2. 주요국의 대응

3. 중국의 전략 분석

제3장 BESS 산업

1. 중국이 주도하는 글로벌 LiB 기반 BESS 산업

2. 주요국의 대응

3. 중국의 전략 분석

제4장 결론 및 시사점

1. 요약과 결론

2. 시사점

참고문헌

Executive Summary