WASHINGTON – At an old medical device plant in northwest Houston, Jim Wood is doing something that would have seemed a surefire money loser just a few years ago.
With its high labor and operating costs, the United States has long been left behind in a clean energy manufacturing boom that has primarily favored China and other lower-wage, developing nations in southeast Asia. But seven months after President Joe Biden signed the energy-focused Inflation Reduction Act into law, a wave of clean energy manufacturing projects have been announced across Texas and the rest of the United States.
Wood, CEO of Houston-based SEG, said his company had been growing increasingly concerned with the delays in shipping panels from Asia, adding that tax incentives under the IRA offered the boost manufacturers needed to set up shop in the United States.
“It seems like every few years there’s some sort of tariff or import issue,” he said. “It’s definitely less expensive (to produce in Asia), but with the IRA bridging the gap it levels the playing field.”
From the $2.5 billion expansion of a solar panel plant in Georgia to the construction of a new battery "gigafactory" in Arizona, close to 30 clean manufacturing projects have been announced in the United States since August, according to the trade group American Clean Power Association.
Many more are expected as clean energy developers look to not only take advantage of the new tax credits but avoid the supply chain disruptions that emerged during the COVID-19 pandemic and continue to drive costly delays in building new wind and solar farms.
While still very early stages, the announcements represent a marked step forward in efforts by the Biden administration to capture a global clean energy industry that has seen more than $1.2 trillion in investment over the past three years. For places like Texas, where fossil fuels have long played a central role in the economy, building manufacturing plants for solar panels, hydrogen fuel and batteries is viewed as crucial to offsetting projected declines in oil and gas revenue in the transition to clean energy.
Texas is fast turning into a sought-after destination, with three solar manufacturing projects already announced, including the expansion of San-Antonio’s Mission Solar plant and Spanish firm PV Hardware planning to open a Texas plant this year. There is also the ongoing construction of a $500 million ship in Brownsville’s port to service offshore wind farms along the East Coast.
Driving the interest is not only the state’s sprawling wind and solar farms – among the largest in the country - but the relatively low cost of development, an existing energy workforce and access to some of the nation’s largest ports along the Gulf Coast, said Ken Medlock, an energy economist at Rice University.
“If you think about what made the Gulf Coast the oil capitol of the world, it’s not just the oil and gas resources,” he said. “Investors can now see a pathway in these new green energy technologies where they couldn’t before.”
Part of that calculation is increasing trepidation among clean energy developers over their longstanding reliance on foreign manufacturers.
Utility-scale solar installations dropped 31 percent last year, due to “significant supply chain challenges,” according to a report from the Solar Energy Industries Association earlier this year.
Still, China controls 60 percent of the manufacturing capacity for renewable energy equipment, according to the International Energy Agency, and as trade relations between the two nations worsen, Chinese solar panels imported into the United States face not only tariffs in excess of 200 percent but increased costs as shipments are blocked by customs officials over suspected violations of U.S. laws preventing the use of slave labor.
French energy giant Total, for instance, is suing China-based solar manufacturer Trina claiming it didn’t carry through on a $300 million order after Total refused to pay a $40 million surcharge assessed to cover increased shipping and material costs.
“I think the circumstances with the pandemic and the geopolitical challenges with China set the table for changing the status quo,” said Scott Paul, president of the Alliance for American Manufacturing, a coalition of steelmakers and the United Steelworkers union. “There has been a look and reset at a lot of companies.”
Encouraging onshoring
For the Biden administration, the concern around foreign supply chains offers an opportunity to build a U.S. clean energy manufacturing sector that struggled to get off the ground under previous administrations. And with the initial success of the Inflation Reduction Act, Biden is facing pressure to do more to expand clean energy manufacturing jobs in the United States.
Sen. Joe Manchin, D-W.V., has been critical of the administration’s decision to allow Americans to claim tax credits for electric vehicles largely manufactured overseas despite the Inflation Reduction Act’s stipulation those credits are for vehicles primarily built in North America. And Republicans, along with some Democrats, are moving to end the administration’s two-year hiatus on tariffs for solar panels made in Vietnam, Thailand and Cambodia, despite a Commerce Department finding last year those countries were helping China evade U.S. tariffs.
“The Communist Party of China should not be allowed to circumvent our trade laws and undercut American manufacturing,” said Rep. Bill Posey, R-Fla.
While Democrats and Republicans alike might be cheering the sudden jump in domestic solar and battery plants, within the Biden administration there is a reluctance to move the country off foreign supply chains too quickly.
At present, the majority of solar panels and wind turbines are still manufactured overseas. If those supply chains were to be cut off it would likely mean a slowdown in the installation of new wind and solar farms – hurting U.S. efforts to reduce greenhouse gas emissions - said Harry Godfrey, managing director at the trade group Advanced Energy United.
“We have to balance a desire to see more manufacturing with some realism,” he said. “Giving a little breathing room to help industry meet these new standards, they’re not going to stop building factories. Everyone knows the writing on the wall.”
And there are limits on how much clean energy manufacturing will actually be done in the United States.
At the new SEG Solar plant in Houston, Wood and his management team, which includes Jun Zhuge, former executive vice president of Seraphim Solar, a China-based manufacturer with which SEG operates a joint venture, are only assembling solar panels. The actual silicon-based solar cells that convert sunlight into energy will be imported from Indonesia, Wood said.
"That part of the industry doesn't really exist in the U.S.," he said. "You're talking about mining and processing silicon for the cells. That uses a lot of water, so you have to recycle water and then there's environmental approvals. It's a much longer cycle and more expensive part of the supply chain."
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