Issue Paper

Building Supply Chain Efficiency in Solar and Wind Energy:

Trade and Other Policy Considerations

Veena Jha

Climate and EnergyMay 2017 |

l Climate and Energy

Building Supply Chain Efficiency in Solar and Wind Energy: Trade and Other Policy Considerations

Issue Paper

May 2017

Veena JhaMaguru Consultants

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Published by International Centre for Trade and Sustainable Development (ICTSD)International Environment House 27 Chemin de Balexert, 1219 Geneva, Switzerland

Tel: +41 22 917 8492 Fax: +41 22 917 8093 ictsd@ictsd.ch www.ictsd.org

Publisher and Chief Executive: Ricardo Meléndez-Ortiz Director, Climate, Energy, and Natural Resources: Ingrid JegouSenior Research Fellow: Mahesh Sugathan

Acknowledgements

This issue paper is produced by ICTSD’s Programme on Climate and Energy.

The author wishes to thank Kanika Chawla (CEEW), Ron Steenblik (OECD), Jodie Roussel (Trina Solar) and Raghunath Mahapatra (Weslpun Energy) for their helpful comments and inputs on a previous draft of this paper. Rene Vossenaar’s review of an earlier version of the paper as well as his contribution to the analysis in Annex 3 are also gratefully acknowledged.

ICTSD is grateful for the generous support from its core donors including the UK Department for International Development (DFID); the Swedish International Development Cooperation Agency (SIDA); the Ministry of Foreign Affairs of Denmark (Danida); the Netherlands Directorate-General of Development Cooperation (DGIS); and the Ministry of Foreign Affairs of Norway.

ICTSD welcomes feedback on this publication. This can be sent to Ingrid Jegou (ijegou@ictsd.ch) or Fabrice Lehmann, ICTSD Executive Editor (flehmann@ictsd.ch).

Citation: Jha, Veena. 2017. Building Supply Chain Efficiency in Solar and Wind Energy: Trade and Other Policy Considerations. Geneva: International Centre for Trade and Sustainable Development (ICTSD).

Copyright © ICTSD, 2017. Readers are encouraged to quote and reproduce this material for educational and non-profit purposes, provided the source is acknowledged. This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivates 4.0 International License. To view a copy of this license, visit: https://creativecommons.org/licenses/by-nc-nd/4.0/

The views expressed in this publication are those of the author and do not necessarily reflect the views of ICTSD or the funding institutions.

ISSN 2225-6679

iiiClimate and Energy

TABLE OF CONTENTS

LIST OF TABLES AND FIGURES ivLIST OF ABBREVIATIONS vFOREWORD viEXECUTIVE SUMMARY vii1. INTRODUCTION 12. GOVERNMENT POLICIES FOR WIND AND SOLAR ENERGY 23. THE WIND ENERGY SUPPLY CHAIN 9 3.1 Evolution of the Wind Energy Supply Chain 12

3.2 Trade in Components and Wind Turbines 13

4. SUPPLY CHAIN ISSUES IN SOLAR ENERGY 15 4.1 Mapping the Solar Supply Chain 15

4.2 Location of Supply Chain 18

4.3 Trade in Solar PVs, Cells, and Modules 18

5. CASE STUDIES 20 5.1 Wind Industry 20

5.2 Solar Industry 23

5.3 Government Policies 27

6. CONCLUSIONS AND RECOMMENDATIONS 29 6.1 Recommendations 30

REFERENCES 31ANNEX 1. QUESTIONNAIRE FOR COMPANIES SERVING THE WIND ENERGY SECTOR 35ANNEX 2. SOLAR QUESTIONNAIRE 37ANNEX 3. TRADE IN RENEWABLE ENERGY PRODUCTS (WIND, SOLAR PV) 38

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LIST OF TABLES, FIGURES, AND BOXESTable 1: Regulatory policies for wind and solar energy

Table 2: Policies designed to encourage manufacturing

Table 3: Other policies used to support renewable energy

Table 4: Employment through the supply chain of solar and wind energy

Table 5: Employment in wind and solar industry in 000s in 2012

Table 6: What do major wind energy firms do?

Table 7: Estimation of value added at different stages of supply chain of a solar PV module

Table A.1: US imports in wind-specific parts and components, 2012–2015

Table A.2: US imports in wind-specific parts and components: some indicators, 2012–2015

Table A.3: Imports of wind-powered generating sets (HS 850231)

Table A.4: Exporters of wind-powered generating sets (HS 850231)

Table A.5: Top 10 exporters and importers of gears and gearing, ball or roller screws, gearboxes and other speed changers (HS 848340), 2013–2014

Table A.6: Top 10 exporters and importers of towers and lattice masts (HS 730820), 2013–2014

Table A.7: Top 10 exporters and importers of blades and hubs (HS 841290), 2013–2014

Table A.8: Top 10 exporters and importers of AC Generators (HS 850164), 2013–2014

Table A.9: HS 854140 or PV: Top 15 exporters, 2012–2015

Table A.10: HS 854140 or PV: Top 15 importers, 2012–2015

Table A.11: China: exports in HS 854140 and in solar cells (TL 854140.20), 2006–2015

Figure 1: Global installation of solar PV modules, 2007–2022E

Figure 2: The wind energy supply chain

Figure 3: Distribution of value added along the supply chain

Figure 4: Cumulative demand for solar-PV cells, 2016–2020E

Figure 5: Disaggregation of the products and services created in the solar supply chain

Figure 6: Cost distribution of a unit of solar energy

Figure 7: Total global employment in the solar energy industry, 2010–2015

Figure 8: Capacity utilisation, shipments, and market shares for firms in the “Silicon Module Super League,” 2013, 2014, and forecasted 2015

Box 1: Chile’s renewable energy target: A moving goalpost

Box 2: The effects of localisation: A case study of solar CSP technologies in India

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LIST OF ABBREVIATIONSAPEC Asia-Pacific Economic Cooperation

ASCM Agreement on Subsidies and Countervailing Measures

BNDES Brazilian Development Bank (O banco nacional do desenvolvimento)

BRICS Brazil, Russia, India, China, and South Africa

COMTRADE United Nations Commodity Trade Statistics Database

COP21 21st Conference of the Parties to UNFCCC

CSP concentrated solar power

CTE WTO Committee on Trade and Environment

EEG Germany’s Renewable Energy Sources Act (Erneuerbare Energien Gesetz)

EGA Environmental Goods Agreement

EIA Environmental Impact Assessment

EWEA Economics of Wind Energy Association

FIT feed-in tariff

GDP gross domestic product

GVA gross value added

GVC global value chain

HS harmonised system

HTS harmonised tariff schedule

IDB Inter-American Development Bank

INDCs Intended Nationally Determined Contributions

IRENA International Renewable Energy Agency

ITC International Trade Centre

LAC Latin America and Caribbean

LCOE levelised cost of electricity

LCR local content requirement

LED light emitting diode

NCRE non-conventional renewable energy

NREL National Renewable Energy Laboratory

OECD Organisation for Economic Co-operation and Development

OEM original equipment manufacturer

PPA power-purchase agreement

PTC production tax credit

PV photovoltaic

REN21 The Renewable Energy Policy Network for the 21st Century

SDGs sustainable development goals

SME small and medium-sized enterprises

TRIMs Trade-Related Investment Measures

UNEP United Nations Environment Programme

UNFCCC United Nations Framework Convention on Climate Change

USITC United States International Trade Commission

VAT value added tax

WCO World Customs Organization

WITS world integrated trade solution

WTO World Trade Organization

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FOREWORDFossil fuel based energy use is the biggest contributor to anthropogenic greenhouse gas emissions. Therefore, a rapid scale-up and deployment of renewable or sustainable energy sources will be critical to the pursuit of countries’ pledges under the Paris Agreement of the UNFCCC to address climate change. A scale-up of sustainable energy will also enhance energy access for millions of people in the developing world, power economic growth and improve energy security by reducing the reliance on fossil fuel imports.

Scaling up the expansion of renewable energy and improving energy efficiency will entail addressing impediments to the global diffusion of clean energy and energy efficient technologies. Trade policy can contribute in this regard by lowering barriers to market access for sustainable energy goods and services.

Clean energy goods and services, critical for climate change mitigation are increasingly being delivered through globally dispersed supply chains. Such supply chains involve raw material, components, capital equipment and services that are traded across borders, assembled or processed in one or more countries and re-exported to a third country where the final renewable electricity takes place.

There is however little understanding of how these supply chains evolve. Do they develop in response to renewable energy targets that have been set by various countries, or is trade a driver for setting up these global value chains, or is it a combination of both? A case in point is China which developed its solar photovoltaic industry largely in response to European policies and targets for renewable energy. Why are some countries completely bypassed in the development of supply chains? Can policy, particularly trade policy, be a driver in integrating countries with various value segments of global supply chains? And are there policies that rather impede the integration into global value chains?

This paper seeks to address some of these questions through a combination of literature research as well as interviews with private sector representatives and interactions with experts. The objective of the paper is to examine the impact of trade and other policies on the development of global value chains for solar PV and wind energy at the firm level, in order to eventually inform trade policy making conducive for climate mitigation. It also strives to identify steps along the value chain which are particularly suitable for developing countries that wish to develop capacity in the sector, recognizing that the climate potential of effective clean energy supply chains is linked with broader development opportunities for a range of countries.

The author of the paper is Dr. Veena Jha, Director of Maguru Consultants Limited and previously with UNCTAD. The paper was conceived by ICTSD and developed by ICTSD’s Programme on Climate and Energy. As a valuable piece of research, it has the potential to inform innovative policy responses on climate change mitigation, sustainable energy trade and domestic clean energy industrial policy initiatives as well as more broadly on environmental goods and services trade negotiations. In addition, it will be an important reference study for policymakers involved with climate change mitigation and clean energy industrial development as well as trade negotiators. We hope that you will find the paper to be a thought provoking, stimulating, and informative piece of reading material and that it proves useful for your work.

Ricardo Meléndez-Ortiz Chief Executive, ICTSD

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EXECUTIVE SUMMARYIn 2015, several developments supported the evolution and maturing of the renewable energy sector. In December 2015 at the UN Climate Change Conference (COP21) in Paris, a majority of countries committed to scaling up renewable energy and energy efficiency through their Intended Nationally Determined Contributions (INDCs). On the side of the private sector, by the end of 2015, more than 50 of the world’s largest companies participated in RE100, by which companies committed to getting 100 percent of their electricity from renewable energy sources. At the UN, Goal 7 of SDGs is to ensure access to affordable, reliable, sustainable, and modern energy for all. Goal 7 target 7.2 is to “by 2030, increase substantially the share of renewable energy in the global energy mix” and target 7.a is to enhance international cooperation to facilitate access to clean energy research and technology, including renewable energy.

Given the widespread support of the renewable energy sector, both solar and wind energy each grew upwards of 20 percent between 2012 and 2015. Competition in these two renewable energy sectors is fierce, driven by improvements in technology and its performance, falling prices, domestic policy incentives that support manufacturing, renewable energy deployment, and finally upgrading grids to accommodate renewable energy inflows. The supply chain of solar PV (photovoltaic) and wind energy offers interesting opportunities for developing countries to be a part of the renewable energy drive. ICTSD has embarked on a project which studies the impact that domestic and international trade and environment policy can have on the supply chains of solar and wind energy. This paper, with some primary data through firm level interviews (chapter 4), highlights the drivers of these two industries. Its primary focus is to identify successful policy intervention as well as policy coherence issues.

Several developing countries are now becoming major participants in the solar and the wind energy supply chains. In 2015, China was again by far the largest investor, with an investment of US$110.5 billion, followed by the United States at US$56 billion. While Europe maintained its position as a large player, its investment over a year decreased by about 20 percent. Chile, India, Mexico, South Africa, and Middle Eastern countries emerged as new players. Brazil has also become a significant player since 2014.

Both of the industries have developed through design-driven government policy. A number of policies such as renewable energy targets, Feed-in-Tariffs (FITs), Local Content Requirements (LCRs), and others outlined in Chapter 2 have been critical in the development of this industry. While FITs along with LCRs have been successful in some countries, they have not necessarily worked well in others. In the wind industry, FITs played a crucial role in adding capacity all over Europe. Germany, for example, added almost 2GW a year since 1991. China, on the other hand, used its five year plans to provide ambitious targets on renewable energy. These targets were implemented with auctions of wind power concessions and a standardised FIT.

Wind and solar industries have followed a somewhat different trajectory globally. Solar installations increased significantly when inexpensive solar PVs from China flooded global markets. Thus, domestic production capacity was not needed to deploy solar energy. In the case of wind, however, though some components are traded widely, most have to be locally manufactured. Hence, domestic industrial capacity is essential. For example, in recent years subsidies (especially FITs) have been declining, but even so countries like Germany, which have huge domestic production capacity, have maintained a high level of localisation (about 70 percent) in the wind sector.

The paper also shows that most developing countries have an opportunity to participate in the global supply chains of renewable energy. Provided the policies are right, they can participate in

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either upstream or downstream activities or both. Jobs in the downstream activities are generally higher in value terms in solar industry. In the wind industry, manufacturing jobs may be higher value than downstream jobs. In developing countries some capital intensive services can be replaced with labour intensive ones and in most cases the downstream labour intensive services associated with solar energy are higher value than the upstream ones. In manufacturing, countries with established industries such as aircrafts, steel, glass, etc., have a competitive edge.

While trade has generally followed solar and wind installations, the two have had distinct paths. Deployment has not been a necessary condition for solar PV exports, while domestic deployment and technology improvements have been the drivers behind wind turbine and components exports. Tariffs, except in a few rare cases, have not been a major impediment to trade in this sector. Non-tariff barriers, such as LCRs and subsidies, and lately standardisation, are an integral part of the support policies used to develop the domestic renewable energy sector in most countries. Several large countries, which used LCRs or other WTO inconsistent policies, have now become major exporters or dominant players in the renewable energy scenario. Hence, it is important to discuss issues of policy coherence in this sector, to the extent that renewable energy support policies can come into conflict with trade policy.

The future of this industry, according to the firms interviewed, is evolving rapidly. Wind turbines are becoming larger which requires more sophisticated engineering and skills. LCRs may increase costs in some markets and may actually decrease them in others. Policy uncertainty, especially sudden removal of support (such as FITs), has dampened growth in this industry. However, firms have recognised that incentives will need to be withdrawn in a phased manner as support for the industry would not be indefinite.

Firms expressed the view that in the future technology transfer and quality standards may affect competitiveness. They anticipate that governments may lay down new and stringent performance standards (such as performance of PV cells and modules) for domestic deployment as well as export purposes for which the use of certain types of technology may be essential. In such cases, access to these technologies should be facilitated. Standards may also affect the services segment of the value chain (such as installation, operations, and maintenance) and this may vary by country depending on local needs, priorities, and circumstances (unlike goods where standards are more or less harmonised). For example, the government may stipulate water consumption limits for solar plants and other environmental norms, which again may necessitate the use of certain types of technologies.

Firms claimed that governments made policies with outdated information and, hence, were incorrect. In order to design a program that is sustainable, a longer time perspective is required as the solar installation is completed within a few months, but the firm has to generate and provide power or energy for 25 years. Government policy is made on a yearly (and in some cases five-yearly) basis, so it is difficult to respond to the rapid evolution of the solar industry.

Based on the experience of countries and the firms interviewed, this paper recommends the following policy options.

1. Countries should try to maintain high renewable energy targets, continuously revising them upwards, and maintain stable policies over a period of at least five to ten years if not more.

2. These goals should, however, be revised from time to time after a review of its implementation.

3. Policy coherence should be maintained. For example, LCRs and tariff liberalisation do not go hand-in-hand.

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4. LCRs, if implemented, should be done in a WTO consistent manner. Countries should provide economic and other forms of support to the renewable energy industry in a time bound way so that they do not develop infants who never grow up. It is well worth discussing ways in which trade and energy policies can develop in mutually supportive ways.

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1. INTRODUCTION

In 2015, several developments supported the evolution and maturing of the Renewable Energy (RE) sector. A historic climate agreement in Paris and the United Nations Sustainable Development goals brought together the global community to rally behind a commitment to address the most pressing social, economic, and environmental problems, including climate change, and stimulating necessary growth of the renewable energy sector.1 At the UN Climate Change Conference (COP21) in Paris, a large number of countries pledged in their Intended Nationally Determined Contributions (INDCs) to increase the share of renewable energy in their total energy supply and improve energy efficiency (UNFCCC 2016). In addition, G7 countries promised to strive “for a transformation of the energy sectors by 2050” and to “accelerate access to renewable energy in Africa and developing countries in other regions” (G7 2015). G20 Energy Ministers signed on to an 11-point Communiqué including adopting a toolkit “for a long-term sustainable and integrated approach to energy deployment” (G20 2015). A G20 Energy Access Action Plan for sub-Saharan Africa focused on the substantial renewable energy resources of the region and “the importance of improving energy efficiency” (G20 2015). The United Nations (UN) General Assembly dedicated one of its 17 Sustainable Development Goals (SDGs) to sustainable energy for all.2

Notable commitments at Paris included a US-China Joint Presidential Statement on Climate Change outlining new domestic policy commitments for renewable energy (White House 2015). The European Union (EU) committed to a binding renewable energy target to complement its carbon emission reduction

targets (Latvian Presidency of the Council of the European Union 2015). The International Solar Alliance, launched by the president of France and the prime minister of India, aims to accelerate solar energy deployment for energy security and sustainable development.3 In addition, by 2030 African countries agreed to increase their renewable energy capacity by twice as much as they did in 2015 from both renewable energy and non-renewable energy sources (Africa Renewable Energy Initiative 2016). The leaders of the Climate Vulnerable Forum, consisting of 30 nations (middle-income and least-developed nations, and small-island developing states), called for getting all their energy from renewable sources by 2030 (Climate Vulnerable Forum 2015).

On the part of the private sector, as of December 2015, “2,025 companies publicly pledged to reduce their carbon emissions” globally through renewable energy and energy efficiency (REN21 2014). By the end of 2015, more than 50 of the world’s largest companies participated in RE100, through which companies received all their electricity from renewable energy sources. These include 53 of the world’s largest companies, including Google (Sawyer 2015).

Given the widespread support to the renewable energy sector, both solar and wind energy have grown upwards of 20 percent between 2012 and 2015 (REN21 2016). Several developing countries are now becoming major participants in the solar and the wind energy sectors. In 2015, China was the largest investor, with an investment of US$110.5 billion, followed by the United States at US$56 billion. European investment went down marginally while

1 Paolo Frankl, International Energy Agency (IEA), personal communication with REN21, 8 February 2016; Gevorg Sargsyan, World Bank, personal communication with REN21, 28 January 2016; Steve Sawyer, Global Wind Energy Council (GWEC), personal communication with REN21, 14 January 2016; Rabia Ferroukhi, International Renewable Energy Agency (IRENA), personal communication with REN21, March 2016.

2 Sustainable Development Goal 7 is “Ensure access to affordable, reliable, sustainable and modern energy for all.”

3 See also: “International Solar Alliance Mobilizing USD 1 Trillion for Solar Energy by 2030, UNFCCC Lima Paris Action Agenda.” http://newsroom.unfccc.int/lpaa/

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Indian investment increased. A number of new markets grew rapidly between 2014 and 2015. These included Mexico ($4.2bn, up 114 percent), Chile ($3.5bn, up 157 percent), South Africa ($4.5bn, up 329 percent), and Morocco ($2bn, up from almost zero in 2014). Africa and the Middle East’s investment was $13.4bn, an increase of 54 percent from the previous year (UNEP 2015).

The value chain of both wind and solar technologies are incredibly complex and involve several players as well as processes. For example, in the wind industry subcomponents such as rotor blades, towers, and nacelles can be manufactured by several countries which have the industrial capacity to produce aircrafts, automobiles, or other such products. In solar energy, countries can participate in the value chain through the production of silicon, manufacturing solar cells, assembling modules, inverters, mounting systems, combiner boxes, and similar components. For concentrated solar power (CSP), components (such as mirrors, receivers and power blocks, bent glass for the parabolic mirrors), are traded but standards and specifications may be exacting. The presence of complimentary industries can help the development of wind and solar industries: steel, the automotive and aircraft industry for wind, semi-conductor for PV, and glass for CSP.

On the services side, the supply chain of both solar and wind includes project planning, manufacturing, installation, grid connection, operation and maintenance, asset management, and finally decommissioning. Value is also

created in areas such as policy formulation, developing appropriate financial services, educating the required technicians, research and development, and consulting services. While some services require specialists, a number of labour-intensive activities in the installation phase of both wind and solar plants could be relatively unspecialised.

Generally the impact of renewable energy deployment on GDP has been positive despite several methodological limitations. A study in Mexico using an input-output methodology showed that developing 20 gigawatts (GW) of wind power could increase GDP between US$7.9 billion and US$28.5 billion (IRENA 2014). Similarly, a study in Japan assuming a target of 14–16 percent renewable energy in total energy mix by 2030 found that benefits were about double or triple the costs of installation (IRENA 2014).

This paper studies the impact of domestic and international trade and environment policy on the supply chains of solar and wind energy. Chapter one lists and analyses the policies that helped develop these industries. Chapters two and three explore the supply chain issues in the wind and solar industry respectively. Chapter four, based on actual interviews with firms, documents how firms see the evolution of the supply chain of these two industries. Finally, the conclusions and recommendations section explores mechanisms for improving participation in the solar and wind industry while also discussing the issue of policy coherence.

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2. GOVERNMENT POLICIES FOR WIND AND SOLAR ENERGY

Both the wind and solar energy industries have developed by design in most countries, driven by government policies. Renewable energy incentives include renewable energy targets, Feed-in-Tariffs (FITs), quotas or/and renewable portfolio obligations, net metering, tradeable certificates, etc., all of which involve the end-users. However, some schemes such as

tax credits for producers would involve the production side. Several forms of support may even qualify as specific subsidies (not generally permitted by the WTO) as they may be paid directly to renewable energy producers for capacity installed in a specific year for a fixed duration. Table 1 identifies the broad regulatory policies used by a number of countries.

Table 1. Regulatory policies for wind and solar energy

Renewable energy policy

Approximate number of countries using them

How much has deployment increased

How effective was the policy

Renewable energy targets, specification of the percentage of electricity that must come from renewables

136 countries Globally solar and wind accounted for 4 percent of total power generation at the end of 2015 from insignificant levels just ten years ago.

A necessary but not sufficient step for improving deployment of renewable energy.

Feed-in-Tariff (FIT) or premium payment

103 countries In almost all countries deployment increased

Considered very important in meeting targets

Electricity Utility Quota and or Renewable Portfolio standards

36 countries Generally increase in deployment

Used by developing countries often instead of FITs and has been effective

Net metering implies that renewable energy generators can consume their own power and supply the surplus to the network at retail rates.

21 countries Generally increase in deployment

Used in Latin America, widely used in the USA, instead of FITs. Generally effective.

Tradeable renewable energy certificates

23 countries Increased deployment Mostly used in the EU, UK particularly. Being phased out due to competition regulation in favour of tendering. Difficult to assess effectiveness but has been discontinued in the US.

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Table 1. Continued

Renewable energy policy

Approximate number of countries using them

How much has deployment increased

How effective was the policy

Tendering or competitive bidding or auctions amongst renewable energy providers

50 countries Increased deployment Among the new generation of regulations used effectively in the EU, Latin America, and Asia. Effectiveness may be limited by subsidies to fossil fuels, high import tariffs, and antidumping and other trade remedies which have artificially inflated prices.

Source: Based on REN21 (2015a)

* i.e. excluding large hydro, defined in Chile as >20 MW

Source: Vossenaar, 2016

The most effective incentive for attracting manufacturing is a competitive domestic marketplace with growing demand for power and minimal policy instability. Chile is an excellent example of how without subsidies, but with smart policy frameworks,

a government can create a solar boom without high cost to ratepayers. Chile is a country where incentives for renewable energy have not been high. This is because electricity from fossil fuels is very expensive, and hence renewable energy is competitive.

Table 2 lists the policies that have so far been used to encourage manufacturing of wind turbines or solar PV cells and modules. These policies may be direct or indirect. It is to be noted that the timing of the manufacturing capacity additions in major markets such as Germany, US, China, India, and Japan has

coincided with the initiation of these support policy incentives. However, short-term poli-cies of less than three years may lead to a sudden surge in renewable energy deployment but are unlikely to be sustained over a period of time or result in manufacturing capacity creation.

In 2008, Chile enacted a Law N° 20.257, requiring utilities to reach a share of non-conventional renewable energy (NCRE)* of 5 percent by 2014, and increase this share by 0.5 percentage points annually, to reach 10 percent in 2024. There is a penalty in case of non-compliance. Further, in October 2013, another Law 20698 required electric utilities with more than 200 MW installed capacity to generate at least 20 percent of their electricity from NCRE sources by 2025. The 5 percent quota had to be reached by 2013 (i.e. one year earlier than the deadline). The quota would be increased by one percentage point annually to reach 12 percent in 2020, followed by a 1.5 percent annual increase, to reach 18 percent in 2018 and then by a 2 percent annual increase to reach 20 percent in 2025. Further, Chile’s “Roadmap to 2050: Toward a Sustainable and Inclusive Energy Future,” released in September 2015, stated that 70 percent of the electricity matrix should come from NCRE sources by 2050, with an emphasis on solar and wind energy. To achieve this goal, 45 percent of new electricity-generating capacity installed between 2014 and 2025 should come from NCRE sources.

Box 1. Chile’s renewable energy target: A moving goalpost

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Source: Based on REN21 (2015a); and OECD (2015)

While subsidies have been widely used, once they disappear (if a real market hasn’t been built) then manufacturing will disappear too. For example, the US production tax credit (PTC), the central federal wind tax subsidy has been unstable and sporadic with the result that wind deployment increased from 1 GW to only 5 GW over 15 years (Barua, Tawney and Weischer 2012). Localisation accounted for only 35 percent until 2006 (Barua, Tawney and Weischer 2012). Since 2007, two year renewals were given with a four year extension in 2009. This led to an explosion of the industry until 2012 after which orders started tapering off in 2013

as also shown by the trade figures in chapter II. However, the PTC was extended in 2015 bringing about a further increase in deployment (North American Windpower 2015). In Germany, FITs were tied into a sophisticated overarching Renewable Energy Act (EEG), introduced in 2000 and incorporating elements such as fast-track permits and priority access to the conventional grid for renewable energy. In China, domestic deployment policies were tied to goals in the national Five Year Economic development plan, which was primarily targeted at reducing costs through upscaling and providing cheap funds to the industry (REN21 2015b).

Table 2. Policies designed to encourage manufacturing

Fiscal incentives and public financing

Number of countries

using them

Which countries are using it

How effective was it in generating manufacturing

Capital subsidy such as a grant or rebate

56 Mostly OECD and some large developing countries

Most have manufacturing capacity

Investment and production tax credits

43 Mostly OECD and some Asian countries

Manufacturing investment very sensitive to it.

Reduction in sales, energy, carbon, VAT, and other taxes

93 Range of African and other developed and developing countries

Probably increased deployment. Effect on manufacturing less certain as the effect is indirect. Countries like Colombia, Kenya, and South Africa have removed it.

Energy Production Payment

22 Mostly African countries but also countries like China, India, and the UK

Mostly affected deployment but manufacturing effects not clear. Again this is an indirect effect.

Public investments, loans, and grants

75 Countries from all economic groups and regions

Effect on manufacturing in large countries but ambiguous in others.

Local Content Requirements (LCRs)

At least 21 countries, including seven OECD, nine emerging, and five developing countries.

In most cases development of manufacturing capacity, but not always efficient.

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Source: REN21, 2013–2016 Global Status Reports

Table 3. Other policies used to support renewable energy

PolicyNumber of Countries

Effectiveness

Grid development policies

Over 80 countries Mostly improved deployment of renewable energy

Infrastructure Over 90 countries Often inadequate and slow to take off

Research and development, education and training

Over 80 countries Fledging programs and often slow to implement. R&D takes many years to commercialise. Training programs are more effective are preparing workers to enter growing industries.

While the entire paper evaluates the effectiveness and coherence in these policies, this chapter gives a broad overall view of these issues. The two success cases that have been frequently mentioned in the literature are Germany and China. Germany’s steady policy approach as of 1991, with a tapering production subsidy, led to an annual deployment of wind energy of 2 GW. Germany achieved higher than 70 percent local content and produced more than 11 GW of wind energy annually by 2012 (Barua, Tawney and Weischer 2012).

Similarly, China had aggressive targets, revising them every five years, and enacted a renewable energy law in 2006. Wind power concessions were auctioned to meet the planned targets. While LCRs may have been vital in building this industry at the initial stage, they were removed in 2009 when localisation reached 70 percent. China also changed from a bidding system to a FIT in 2009. This change doubled deployment annually from 2006 to 2009. The rates have been rising every year since then and the localisation of

the industry is substantial (Barua, Tawney and Weischer 2012).

India had two spurts of wind energy. The first, in 2006, coincided with the establishment of the renewable portfolio obligations and national renewable energy targets. The industry, which was already exporting turbines, was able to take advantage of the renewable energy targets to install capacity domestically. The second spurt, in 2009, resulted from more aggressive renewable energy targets in the 2008 National Action Plan on Climate Change. Further incentives were changed to a KWh premium from capacity added between 2010 and 2012 (Barua, Tawney and Weischer 2012).

LCRs, as shown above, are also used by several countries. Whether LCRs lead to cost reduction will depend on a detailed examination of the cost drivers. In the example given below, despite a reduction in tariffs in 2016, the World Bank estimates that LCRs were likely to reduce total project costs by 5–9 percent for CSP technologies. Box 2 below looks into the case of LCRs in India.

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“For CSP projects in India, currently, the components being imported into India are mirrors, heat-transfer fluid receiver tubes, steam generators and steam turbine generators. In the case of the direct steam generation process, imports are limited to mirrors and steam turbines. Currently because of customs duty exemptions, imported components cost the same as domestically manufactured components. The import duties for solar thermal projects have been further reduced in 2016.

If one assumes that these components can be manufactured locally the question is whether the cost of their production would fall. Key components, such as mirrors, heat collector elements, heat-transfer fluid receiver tubes, and solar steam generators, constitute only 25 percent of the cost of the CSP project. The other key equipment such as a steam turbine generator currently being imported adds up another 10 percent to the project cost. This 35 percent import value is for the parabolic trough technology. In the case of the tower or Compact Linear Fresnel Reflector technology, the only component that may need to be imported is the flat mirror and steam turbine, which will translate to about 20 percent of the project cost.

The manufacture of low-iron glass-based mirrors involves emptying the furnace of the earlier charge and replacing it with a new charge of low-iron sand. Emptying the furnace and achieving the quality needed for solar application takes around 10 days. Because the volumes are low, the mirror manufacturers typically schedule the manufacturing twice a year. Unless there is sufficient volume, the mirror manufacturers may find it more cost-effective to import the mirrors than to manufacture them locally. It is understood that Borosil has a dedicated low-iron glass manufacturing facility that can cater to about 600 MW in a year. Assuming that local manufacturing would result at best in a 25 percent reduction of certain equipment costs, this would translate into a reduction of 5–9 percent of the project cost.”

Box 2. The effects of localisation: A case study of solar CSP technologies in India

Figure 1 below shows the likely evolution in demand from 2016–2022. India has displaced Japan at the third place and its market is expected to grow more than 9 percent in 2017 reaching 85 gigawatts. In 2016 it was expected to install more capacity than all of Europe by 2020. Until now, 13 countries have installed at least 2GW PV capacity, but this is expected to grow to 20 countries by 2020. Utility-scale solar PV installations account for

61 percent of the total in 2015/2016, but by 2020 distributed generation is likely to be at par with utility scale installations (Attia and Parikh 2016). As can be seen above, the largest markets were China, Japan, and the United States, while the highest growth in solar power installation were in China, India, and the US. The top four markets were expected to account for 73 percent of the total installations in 2017.

Source: World Bank Energy Sector Management Assistance Program (2013)

8

Figure 1. Global installation of solar PV modules, 2007–2022E

Source: GTM Research Global Solar Demand Monitor, Q1 (2017)

Growth driven by FITs, and China’s role in supplying cheap solar PVs has led to a boom in the solar sector. This rapid growth as well as price fall has made governments reduce FITs to avoid budget deficits. In Germany

for example, companies use the power they generate from solar cells themselves rather than getting FIT from the government (IHS Technology Solar Team 2015).

120.0

100.0

80.0

60.0

40.0

20.0

0.0

GW

dc

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E

2.56.1 7.1

16.2

29.2 29.9

39.541.9

50.9

78.0

85.4 86.090.4

96.4

104.6

110.1

Major shifts expected in the global solar market in 2017:

1.

2.

3.

4.

China: Similar 30+ GW expectations in 2017

demonstrate the industry’s dependence on China’s

opaque policy-driven demand.

U.S.: Despite 97% growth in 2016, demand will

contract by over 10% before the non-ITC-rush utility-

scale pipeline is replenished.

India: A nearly 30 GW tender pipeline and rapidly

declining costs will spur a doubling of 2016

demand this year.

Japan: Policy transition toward auctions results in

25-30 GW of approved projects being canceled,

though 8 GW still likely in 2017.

Cumulative Forecast

2017-2022 = 572.9 GW

2017-2022 CAGR = 5.2%

9Climate and Energy

Figure 2. The wind energy supply chain

Source: Bureau of Labor Statistics (2010)

3. THE WIND ENERGY SUPPLY CHAIN

Wind energy markets are recovering after a brief slump in 2013. The demand for turbines and its components is improving. At the same time, component manufacturing is becoming increasingly diverse geographically though the major facilities are in Brazil, China, Denmark,

Germany, India, and the United States (Inter-national Trade Administration 2016). Although there are over 8,000 parts in a single wind turbine, these can be categorised into some groups of components (Figure 2). Figure 3 shows the value added at different stages of a wind turbine.

Raw materials

Component manufacturing

Project development

Operation and maintenance

Steel Cast Iron Fiberglass Rubber Concrete Aluminum

Blades Tower Nacelle Generator

Scientific studies Land leasing Logistics Construction

Wind turbine service technicians Energy and utility companies

10

While several components require expertise, some of them may be easily manufactured in developing countries. These include components like gearboxes, bearings, bolts and nuts, washers screws, studs, etc. Most of the services components of the value chain can be developed locally.

Figure 3 shows the distribution of various stages of the supply chain in the total costs of a typical EU or US based wind industry. The percentages may vary a bit depending on the country concerned, its labour costs, land costs, and infrastructural costs. The share of value added at the different stages of the supply chain has also been evolving over time. In the US, upstream costs, shown by the green shaded areas, account for roughly

68 percent of total costs (NREL 2014). In Europe, the cost distribution is 49 percent for downstream and 51 percent upstream (EWEA 2009).

Of the wind turbine costs, around 70 percent is the manufacturing cost of components depending on the country concerned. Approximately 30 percent is the service cost of the industry used even in the manufacturing process of wind turbines. Several services in this industry are tradeable and around 50 percent of the components are also tradeable. In Europe roughly 75 percent of the total costs are that of the wind turbine manufacturing. In other parts of the world the costs vary between 70 percent and 80 percent and the rest pertain to services (REN21 2015a).

Figure 3. Distribution of value added along the supply chain

Source: Based on EWEA (2009); and NREL (2013)

Jobs in the wind turbine industry are either “direct” (i.e. in the industry itself) or “indirect” (i.e. in supporting industries). The multiplier effects which arise from the consumption of workers and owners are classified as “induced” jobs (Breitschopf, Nathani and Resch 2011). The number of indirect jobs is double that of the direct jobs, being much higher in countries which have a high level of localisation. However, jobs in the services segment are more durable as they are spread over the

lifetime of the project which is approximately thirty years (IRENA 2014). Table 4 below shows the approximate levels of employment along the supply chain of wind and solar energy. It illustrates that the wind industry generates more jobs at the manufacturing stage on average than the solar industry. However, at the construction and installation phase the solar industry generates more jobs than the wind industry, showing that downstream jobs in the solar industry may be higher.

Contingency Construction Finance

Rotor

Drivetrain

Tower

Development

Cost

Engineering

Management

Site Access, Staging,

and Facilities

Assembly and

Installation

Electrical

Infrastructure

Turbine Costs

68%

Balance of

System

23%

Financial

Costs

9%

16%

40%12%

9%

6%3%

3%

1%2%

6%

11Climate and Energy

4 Job years are based on jobs calculated for the life of a windmill that lasts 20–30 years. So one job would be equal to 20 to 30 job years.

5 The levelised cost of electricity is the average price that the renewable energy asset (wind or solar) must receive in a market to break even over its lifetime.

The level of employment differs across countries as the levels of automation tend to be different, as shown in Table 5 below. Typically in overpopulated developing countries it is to be expected that the levels of employment would be higher. In India the total direct and indirect employment was 42,000 jobs in the wind sector. Using moderate and high-growth scenarios, total future job creation in the total renewable energy sector can increase from 1.051 million to 1.395 million jobs by 2020 (CII & MNRE 2010). China and India generated far more jobs than the other countries testifying to the labour intensive nature of operations for all stages of solar and wind industry than in other countries.

Almost 95 percent of the 4 GW of global installed offshore wind capacity in 2016 was in the EU, especially in Germany and the United Kingdom. Thus, the LCOE (levelised cost of electricity) is difficult to measure as currently the sample is limited to around 50 projects only.5 This may change once countries like China and South Korea enter offshore markets (World Energy Council 2013). O&M costs are substantially higher for offshore in comparison to onshore. Turbine size and costs may also be higher for offshore as wind power generating capacity is higher. Offshore grid connection is also relatively more expensive and permissions are difficult to obtain (World Energy Council 2013).

Source: Greenpeace (2012)

Table 4. Employment through the supply chain of solar and wind energy

Type of EnergyManufacturing (Jobs per MW)

Construction and Installation (Job years4 MW1)

Operation and Maintenance (Jobs per MW)

Wind onshore 6.1 2.5 0.2

Wind offshore 11.0 7.1 0.2

PV 6.9 11.0 0.3

Solar thermal 4.0 8.9 0.2

Solar heat 7.5 N/A N/A

Source: IRENA (2013, Table 1)

Table 5. Employment in wind and solar industry in 2012 (in thousands)

Type of Energy Germany Spain Other EU United States China India Brazil WorldSolar PV 88 12 212 90 30 112 N/A 1360

Solar CSP 2 18 N/A 17 N/A N/A N/A 37

Solar heating/Cooling

11 1 20 12 800 47 N/A 892

Wind Power 118 28 124 81 267 48 29 753

12

Source: International Economic Development Council (2011)

Table 6. What do major wind energy firms do? (Arrows denote direction of trend.)

3.1 Evolution of the Wind Energy Supply Chain

Only about 50 percent of the components in value terms in the US wind industry are made locally (US Department of Energy 2015). Other countries also have a similar percentage of local manufacturing. The percentages, however, differ depending on the component. For example, domestic content in nacelle

assembly can reach as much as 90 percent (but most components internal to the nacelle are outsourced), in towers 70–80 percent, and in blades and hubs 45–65 percent (Lawson 2013). GE and even Vestas outsource most components as shown in Table 6 below (Lawson 2013).

Buy all components

In-house production of just key technology components

In-house production

Vestas x

GE x

Enercon x

Gamesa x x

Suzion x x

Siemens x

Clipper x x

Nordex x x

Manufacturing near the installation sites can be advantageous as it reduces transport costs and can more easily meet the technical specifications of the manufacturer (James and Goodrich 2013). Having spare parts nearby can also be an added advantage (James and Goodrich 2013). While globally prominent companies such as Vestas and Siemens have established manufacturing capacities in several countries, in major markets such as China, Germany, India, and the US, the largest market share remained with a domestic company, as local policies strongly favoured domestic suppliers (Barua, Tawney and Weischer 2012). A growing overcapacity in manufacturing turbines in China, India, and the US will likely deter investment in new capacity for several years (Barua, Tawney and Weischer 2012).

Europe used to be the supply chain centre of key components and materials. Globalisation induced major European suppliers to expand

their business to North America, Asia, and more recently to South America. Additionally, LCRs and globalisation together made South and East Asia a major producer of components for the renewable energy sector. More than 50 percent of the wind turbine component suppliers are currently from South or East Asia. Between 2013 and 2015, 129 suppliers collapsed, of which 88 were from Asia, 23 from Europe, and 18 from North America. The maximum exits were from the top five components: towers, castings, forgings, blades, and generators (Zhao 2015).

To secure supply in terms of quantity and quality, vertical integration gained popularity in the 1996–2008 period (i.e. the practice of one company controlling the different steps along the supply chain). However, in 2010, there was a dramatic turnaround when supply exceeded demand. In 2011–2013, overcapacity of turbine manufacturing plus a prolonged market

13Climate and Energy

6 Taper integration describes a firm that is backward or forward integrated but relies on firms outside the corporation for a proportion of its intermediate inputs or for the distribution of its products.

7 The levelised cost of electricity (LCOE) is a measure of a power source which attempts to compare different methods of electricity generation on a comparable basis.

8 Interviews of the author.

contraction made major turbine OEMs opt for outsourcing. The taper integration, hybrid model of vertical integration and outsourcing, secured quality control while retaining flexibility. Large turbine vendors still retain core technologies for in-house manufacturing, such as turbine control systems, converters, and blades.6

Manufacturers and would be manufacturers of most key components and materials will continue to face the challenge of overcapacity, but bearings (including ultra large tapered roller bearings with almost all direct-drive designs) and rare earth materials are expected to be in short supply through 2018. A strong regional imbalance exists for control systems, castings, forgings, and rare-earth materials, which will continue to pose a sourcing challenge in some regions. The LCOE will certainly play a role in deciding which firms will join or remain in the supply chain.7

3.2 Trade in Components and Wind Turbines

This section provides some data on international trade in wind turbines and components, mainly based on COMTRADE which contains global trade data at the 6-digit (subheading) level of the Harmonised System (HS). At this level, only HS 850231 (wind-powered generating sets) exclusively captures equipment used in electricity generation from wind resources. It also shows trade in other HS subheadings, which include components used in wind energy together with other unrelated products (see Annex 3).

Trade data give a fair idea of new entrants in the market, but HS codes are not specific, and not all products imported or exported would be destined for the wind industry. Having said that, the top traders do coincide with those that have the maximum rate of deployment of wind energy and also the new entrants do appear to show up in the trade figures.

Unlike the solar industry, for which an export-centric strategy has been possible, countries which have a substantial domestic capacity and deployment have been at the forefront of exporting wind turbines and components. Trade between neighbouring countries (especially in Europe) has been important. Tables A.3 and A.4 in Annex 3 show the high percentage of intra-EU trade in the total trade of EU. The new entrants, such as Brazil, Chile, the Russian Federation, Turkey, and Uruguay, figure on the import side. The new exporters, such as Estonia, Greece, and Portugal, reached high levels of domestic deployment in 2011–2012 and subsequently became small exporters. Notably, India and Japan, which were large exporters in the earlier years, have now become relatively insignificant exporters. One major Indian firm attributed this to the fact that major markets such as Brazil had implemented some forms of LCRs, which meant that trade fell while investment in those markets rose.8

Table A.5 in Annex 3 shows the ranking of exporters and importers for the most widely traded HS subheading, i.e. gearboxes (HS 8483.40). It closely corresponds to the countries in which the deployment of wind energy is the highest. However, gearboxes are not exclusively traded for wind energy purposes (NSK 2017).

It is likely that some countries’ imports of towers and lattice masts would mainly be destined for the wind energy sector. Imports of tubular towers to the United States are indeed believed to be used extensively in the wind-power industry, as is shown by the trade figures at the HTS 10-digit level (see Annex 3). Indonesia is becoming an important user of wind energy; hence, its emergence as both an importer and exporter of wind components. However, this may also indicate assembling activity. Again, high levels of intra-EU trade

14

are indicative of the trade hub which the EU has generated in this sector.

Selling at competitive prices is not the sole criterion for competition in these markets. For example, Japan, which is a high cost producer, supplies AC generators to the US—and countries such as Germany and Denmark which have niche markets, with the US being a net importer for several years. Clearly technology, efficiency, and quality also play a role in determining the supplier in some developed markets.

Tables A.6 to A.8 in Annex 3 show the predominance of intra-European trade in total

trade of the EU, suggesting that a regional hub has been built around Germany and Denmark. Similarly, Canada and some Latin American countries mostly import from the US. Asian countries import from Chinese, Indian, and Japanese manufacturers. For smaller components, regional hubs are not important as shown by US imports from Europe.

There is a growing trade in services such as turbine design, wind assessment, project development, and financing. Trade can also include a combination of equipment and services, as was the case for China and India. They export projects on a turnkey basis which may include assembly and even O&M in some cases.

15Climate and Energy

4. SUPPLY CHAIN ISSUES IN SOLAR ENERGY

The solar energy industry is highly innovative and diverse. Within the solar-photovoltaic (solar-PV) market, traditional crystalline silicon cells accounted for 93 percent of sales by value in 2015, while thin film cells made up the remaining 7 percent (International Energy

Agency 2014). Falling global prices, particularly due to oversupply from China, have boosted demand showing a huge predicted boom in solar installation (See Figure 4). While the black lines indicate current major markets, the other colours indicate emerging markets.

Figure 4. Cumulative demand for solar-PV cells, 2011–2022E

Source: GTM Research Global Solar Demand Monitor, Q1 (2017)

Rest of World

China

United States

India

Japan

Germany

Italy

Mexico

France

Australia

United Kingdom

Canada

Brazil

South Korea

Thailand

Chile

Morocco

South Africa

Phillippines

Turkey

Jordan

UAE

0 50,000 100,000 150,000 200,000 250,000 300,000

2001-2016 2017E 2018E 2019E 2020E 2021E 2022E

Cumulative Installed and Forecasted Demand (MWdn)

16

Figure 5. Disaggregation of the products and services created in the solar supply chain

Source: Baumgaertner (2013)

The bulk of the capital costs for a utility-scale solar-PV installation is for modules, followed by

balance of system costs. The cost distribution of a unit of solar energy is shown in Figure 6 below.

Publishing, Trade & Industry Organisations, Education

Financing, Consulting, Testing

Manufacturing Equipment

Materials & Chemicals

for water-, cell and module- production

Poly-

Silicon

Software

Concentrated Solar Thermal Power PlantConcentrated Solar Thermal

Components:

Concentrators, Receivers

Silicon

Wafers

& IngotsPV Cell

Crystalline

Module

Mounting

BIPV

Tracking

Electrical

ComponentsWholesale

Distribution

Project

Development

Design

Engineering

Construction

Operations

&

Maintenance

Products

Services

Thin-firm Module

Multi-

junction

Call

Concentrating PV Module (CPV)

Solar Glass

Substrate

Protective

Cover

4.1 Mapping the Solar Supply Chain

The solar-PV supply chain, as shown in Figure 5, involves several actors at varying levels of expertise. The supply chains of large manufacturers can be complex with different components of varying qualities imported simultaneously from different countries.

Unlike the wind industry sector, downstream activities on the services side account for a high share of value added. The services components are shown by the green section of Figure 5 and the manufacturing of solar cells is depicted by the blue segments.

While the costs by different segments vary across countries, employment also varies across countries in the solar industry (Tables 4 and 5). Unlike the wind industry, the majority of the employment in the solar energy industry takes place in the services segment rather than in manufacturing. Employment in developing countries, such as China and India, is higher than in developed countries (Table 5).

17Climate and Energy

Figure 6. Cost distribution of a unit of solar energy

Source: Energy Informative (2015)

The value added at different stages of the supply chain is shown below. This reflects only the main stages of solar PV module manufacturing. In manufacturing, the Balance of Systems (BoS) represents half the upstream jobs and GVA

creation. In India approximately 50 percent of the jobs were in the manufacturing of solar cells and modules (NSK 2017). Employment in wind energy is more stable than in solar (Cameron, van der Zwaan and Kober 2013).

Manufacturing accounts for roughly 25 percent of the total jobs in some countries (Cameron, van der Zwaan and Kober 2013). A greater number of jobs are in the downstream segment which includes services such as installation, system design, research and development, and other

such services. Downstream employment has grown over time while upstream has remained stagnant. For example, in Japan, manufacturing jobs merely doubled from 2002–2011 while those in services and other segments increased by 3.5 times (IEA PVPS 2002–2011).

Source: Based on IRENA (2014, Table 1.1)

Table 7. Estimation of value added at different stages of supply chain of a solar PV module (US$ per kilowatt)

Stage Of Production

Sales Receipts (turn-over or gross output)

Less: Cost of Intermediate Products and Services

Value Added

Polysilicon 150 50 100

Silicon Wafer 330 150 180

Solar Cell 460 330 130

Final Product (PV module)

660 460 200

Total 1600 990 610

Solar Panels

Balance of System

Labor

Permits, Inspection Fees

Operational Costs

20%

30%

20%15%

15%

18

Similarly, it has been estimated that, for every firm in the German solar industry that manufactures a solar PV module, six other firms are created along the solar-PV value chain (Barua, Tawney and Weischer 2012). In Europe, 86 percent and 83 percent of the impact on jobs and gross value added (GVA) respectively in 2014 was linked to downstream activities. Services such as engineering, studies, and administration showed less sensitivity to the downsizing of the PV market (EY Global Cleantech Centre 2015).

4.2 Location of Supply Chain

The structure of the solar-PV industry is diverse. Solar energy generators assemble the unit and are either vertically integrated or use different sources for different parts. New entrants generally prefer horizontal integration, while old firms are more vertically integrated. For example, Solar World, a German based company founded in 1988, is “highly vertically integrated.” Others, however, buy all the different components shown in Figure 5 for assembly on site (EY Global Cleantech Centre 2015).

The locations of large parts of supply chains have been in countries with strong demand, which generally follows attractive incentives. The largest markets have traditionally been in Europe though this has shifted to India and

China lately. Projects cost the same roughly in Europe and North America but cost much less in India and China primarily due to lower labour costs for O and M (IRENA 2016). Module manufacturers are able to sell products at higher prices in markets that benefit from high FITs, like Japan and South Africa (IRENA 2016). Trade figures would provide a good indication of the emerging markets in this industry, as we will see below.

4.3 Trade in Solar PVs, Cells, and Modules

Solar PV cells and modules are traded under HS subheading 854140, which also covers other photosensitive devices and light emitting diodes (LEDs). The subheading is not specific for PV (see Annex 3). As solar PVs are highly tradeable, some countries like China benefitted from FITs in EU 28. The top exporters as shown in Table A.9 in Annex 3 include high cost producers such as Japan, Korea, Germany, and the US as well as countries such as China, Malaysia (though this may include a high proportion of LEDs), Hong Kong, and other Asian countries.

Domestic deployment has not necessarily been a precondition to export of PV modules. Even in Germany, with aggressive deployment policies, exports were and continue to be a major part of its growth strategy. Germany uses cheaper imported modules domestically and exports the more expensive modules. Until lately,

Figure 7. Total global employment in the solar energy industry, 2010–2015

(US$ per kilowatt)

Source: National Solar Jobs Census 2016, The Solar Foundation: solarjobscensus.org.

Nu

mb

er o

f E

mp

loy

ees

Inst

all e

d P

rice

($

/W)

400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2017

Projected2010 2011 2013 20152012 2014 2016

$8.00

$7.00

$6.00

$5.00

$4.00

$3.00

$2.00

$1.00

$0

93,502 100,237

119,017 142,697

173,807208,859

260,077

286,335

Employees spending at least 50% of their time on solar-related work

Residential Nonresidential Utility (Average of Fixed-Tilt & 1-Axis)

19Climate and Energy

both China and Japan followed an export, led strategy and only recently has deployment in both countries increased. Similarly for India, domestic deployment only increased after 2013 (Barua, Tawney and Weischer 2012; International Trade Administration 2016).

The United States now runs a huge trade deficit in solar-PV cells and modules (Tables

A.9 and A.10), even though it has been a major centre for innovation in solar energy. Trade in services in this industry is likely to increase in the near term, especially in financial and consultancy services (International Trade Administration 2016). Developed countries with more experience in these areas are likely to have expertise in providing these services around the world.

20

5. CASE STUDIES

The literature review of the supply chain of the wind and solar industries provided above offers a good insight into various aspects of the supply chain. In order to get a more in-depth and up-to-date understanding of factors which influence the supply chain in these two industries, a number of interviews have been carried out. This chapter is based on interviews of firms across China, Europe, India, and the US conducted by the author. No evidence from secondary sources has been added, except to substantiate the views of the firms. The interviews confirmed that the two industries are evolving rapidly. Firms that were interviewed preferred to remain anonymous. The questionnaires that formed the basis for the interviews are attached in Annexes 1 and 2. Much of the information obtained during the interviews fell, however, outside the framework of the questionnaire.

In concrete terms, select firms (about ten) that operate in countries that are important producers and traders in various segments of the global value chain were chosen. These included firms that operate both upstream and downstream in the supply chain. These firms either originate or operate in Brazil, China, the EU, India, and the US. Most interviews were telephone consultations or face-to-face interactions with operators. Follow up interviews to confirm details were also conducted.

5.1 Wind Industry

5.1.1 The changing size of wind turbines

According to the firms, the average size of wind turbines is likely to rise as offshore wind becomes more popular. Currently, the average size is 2.5 MW for on-shore wind, but could grow to 15 MW for offshore wind. According to the sources interviewed, in 2015, 7.5 MW turbines began to be sold, showing an unprecedented technological leap. For offshore wind, the sources interviewed confirmed that the average size of the turbines being sold during

that year was 4.2 MW. Large turbines mean larger and more specialised parts. This could imply a diversification of the supply chain on the one hand, or adaptation on-site as transport costs tend to be formidable.

5.1.2 How the supply chains are evolving

Some firms claimed that in the EU the supply chain of the wind industry was well established, the quality of wind turbines was above average, and the standards were high. An extreme example quoted was a German wind turbine manufacturer which manufactures everything from steel to towers and blades, and has integrated backwards along the entire supply chain. However, another source, also from the EU felt that large supply chains were developing outside Europe, as brand manufacturers need to reduce prices with decreasing subsidies. They claimed that vertical integration is a rarity as rotor blades and electrical devices are generally outsourced with all the other components manufactured in-house. In Europe they claimed that since 2012 below 50 percent (by value) has typically been outsourced. Through outsourcing, some firms claimed that cost reductions of 70 percent have been achieved for solar PV installations, and 20 percent for the manufacture of wind turbines. For most firms the supply chain is becoming horizontal. For example, the firms interviewed suggested that in the future they may purchase components of the wind turbine from their own subsidiaries or those of other firms.

The geography of the wind energy supply chain varied among the firms interviewed, but was fairly regionalised, with centres in Asia, Europe, Latin America, and the United States. Some of the companies interviewed source parts like blades from China and India. This trend may be changing, as companies such as TPI Composites, a US based firm, are setting up facilities to manufacture blades in different regions of the world. Vestas and Nordek are

21Climate and Energy

important clients of TPI. In Europe, blades are generally not sourced from outside suppliers, though towers are imported from South Africa, Vietnam, and Korean manufacturers with plants in China. In the United States, Chinese parts have been subject to anti-dumping duties, thus effectively barring Chinese blades from US markets. Ball bearings and generators are generally sourced from Asia—mostly China and East Asia. Tariffs in some countries on ball bearings (HS 8482) are 8 percent. Lowering them could benefit the wind industry, so some firms believe the EGA negotiations would be of benefit to the wind industry.

Initially, when the renewable energy directive was introduced in Europe along with a generous dose of subsidies, manufacturers from different industries diversified into the wind energy business. For example, Siemens bought a company that was manufacturing wind turbines. Once they understood the technology, they began to make their own turbines. But initially retooling may have been done by the wind industry. Pioneers in the wind energy industry introduced new technologies to the market, but over time smaller firms adapted these designs and entered the market. In a globalised world, the approach according to the firms interviewed was to find their own sweet spot in GVCs, where they had a competitive advantage in terms of location and costs.

5.1.3 Government policies that support the wind industry

Firms reported that the main driver for wind-power development had been market support by government since 2003. In 2009, the EU renewable energy directive set a 20 percent target for 2020. In the EU, a range of government incentives was used—including regulatory as well as fiscal measures. Among these, the interviewees particularly mentioned financial support to the capacity installed, support for capital, FITs and now market premiums for renewable energy, other market-based instruments, auctioning, and a premium on electricity prices. Determining feed-in tariffs through auctions has been

introduced only recently in the EU—but as the industry has matured and European recession deepened, administratively-determined FITs have been reduced or even phased out.

In India, different kinds of support have been provided by the government. Tax credits for the production of wind turbine components, and reductions in, or exemptions from, customs duties on key components, are commonly used. There are no taxes on operating costs for 10 years; the government also conducts a commercial viability gap analysis and funds this gap. There is also an income tax holiday for 5 to 10 years to pay off loans for the manufacturer as well as those involved in the installation.

Firms felt that countries with little manufacturing capacity end up making components because of LCRs. Initially they only develop an assembly line, but the strategic purpose of LCRs is to lock in markets and leave room for only local suppliers in the market. However, firms also admitted that local hubs had developed because of LCRs. For example, one large company set up facilities in Egypt following big orders for natural gas-fired power plants and wind turbines. Because of LCRs, the company was obliged to set up a blade-manufacturing facility in Egypt. It had a similar experience in Morocco. However, these policies led to the development of manufacturing and distribution hubs, which were used to supply the region. The firms also added that these advantages were only available to the first mover in a market, but may not work for the next phase or for second movers.

Firms expressed the view that LCRs in BRICS countries, because of their large markets, may be able to attract investment. One wind energy firm complained that South Africa started with a 20 percent LCR and was slowly increasing it to 50 percent. While there may be distinct gains in deployment and employment to countries which use LCRs, firms also pointed out that LCRs are prohibited under the WTO’s Trade-Related Investment Measures (TRIMS) Agreement on Subsidies and Countervailing

22

Measures (ASCM). Indian firms trying to break into Brazil’s wind energy market complained that they were deleted from the list of those eligible for cheap loans provided by the Brazilian Development Bank (BNDES) because they did not meet the country’s LCR. Brazilian suppliers to the wind energy industry have been the main winners of that policy. For example, building on techniques developed in Brazil for civilian aircraft, Tecsis (Tecnologia e Sistemas Avançados), has gained considerable market prominence in the manufacturing of blades and hubs.

5.1.4 High capital costs are leading to trade in second hand turbines

Another factor that was reported by firms, especially in India, was the high level of capital required for setting up wind farms. While the firms felt that, technically, they did not have a problem in obtaining the requisite financing, they had to seek funds from outside India. They reported that tied funds were being provided by European firms. For example, one firm interviewed claimed that funding from Spain was only available if 50 percent of the hardware was sourced from Spain. The logic for the firms supplying these turbines to India was that the sites for wind energy in the EU were limited and hence new technologies which used the sites more efficiently were being sought for Spain’s own wind farms. There was thus a need to sell or transfer used turbines to other parts of the world. Most firms interviewed did not shift suppliers and repeatedly sourced from the same two or three suppliers. Of these, GE and Gamesa were the major suppliers for the firms interviewed in India.

5.1.5 Insights into wind farm management

The firms also offered interesting aspects on the fledgling offshore wind industry. For offshore wind installation, vessels and underwater cable-laying vessels are required. This capacity can either be hired or owned, or provided by the utilities. Offshore wind power, where many of the interviewees were involved, provides very stable cash flows for

a long period of time. Different financial institutions can own and manage them, but they can also sell stakes to others.

The interviewed companies also shed light on the multiple new ways that on-shore wind farms are managed. Generally, an environmental impact assessment (EIA) is conducted by independent consultants on sites identified by firms or governments, and then developers are invited to build farms in consultation with the community and the transmission system generator. Manufacturers sell the turbines to the wind energy farms, but the distributors could be anyone from electric utilities to pension funds, to communities. In small wind farms used for private activities, the distributor and generator may be one. But for big wind farms that are used to sell electricity to the grid, different actors may become involved.

5.1.6 Grids

Another bottleneck identified by firms is the inability of the electricity grid to easily accommodate wind energy. In the EU itself there are 28 different systems of grid management. For example, the Spanish grid is not connected to France. Denmark, on the other hand, with its meshed grids has an export potential of 140 percent of its potential electricity from wind. There are days when Denmark can meet its entire demand with electricity generated by wind turbines, and export the surplus. European regulators hope to obtain 15 percent inter-connectivity within the EU. Currently it is lower than 5 percent. Multiple actors, such as national transmission system regulators and European transmission associations of regulators, would be involved in this process.

In India on the other hand, firms reported that during periods of peak electricity demand there have been no major problems with intermittency of wind-generated power. Wind power is generally decentralised, typically involving seven or eight turbines of 2 MW each, combined through cables to a main transformer. Thus, grid capacity and design

23Climate and Energy

were not as yet a major issue in India. This may be the case for other developing countries too.

5.1.7 Standardisation of components

Standardisation is another emerging issue for this industry. Generally, contractors set the standards for their component manufacturers. Some of these standards are set by standardisation bodies, but most are set commercially. Different standards operate in different wind energy markets. In India, for example, all wind parts, whether imported or manufactured domestically, need to be certified that they meet the required standards. India’s standards differ from international norms because of its unique wind conditions featuring cold dry winds from the Himalayas in winter, to the monsoonal winds from the ocean in the rainy season, and the hot winds from the desserts in the summer.

5.2 Solar Industry

From a historical perspective, European based solar-PV companies have tended to have in-house facilities for the manufacture of components. Most developers interviewed used either mono- or poly-crystalline silicon PV cells, but seldom thin-film cells. The type of technology they use depends on the trade-off between the cost of the PV technology and the cost of land. Where land is inexpensive, they tend to use thin-film PV cells, which have a lower conversion efficiency than silicon-based cells and thus require a larger area to produce the same amount of electric power. If reasonable cost wise they look to install a silicon-based PV system, as it has a longer life span. Another challenge mentioned by the manufacturing companies was the fall in prices which they expect would even out in the next twelve months or so.

Under Indian conditions where air temperatures can reach 50 degrees Celsius, thin-film cells can buckle and change colour, or develop bumps, all of which decrease the solar panel’s efficiency. In India, solar sites are identified by the government. As land is in short supply in India, mostly barren land is used for both solar and wind installations, and firms establish themselves in these sites by expanding existing capacity or building incremental capacity.

5.2.1 Supply chain issues

The interviewed firms claimed that the demand for silicon from the solar industry was less than 5 percent of its total consumption globally in a year. Thus, as long as silicon was available at competitive rates in sufficient quantities as at present, there was likely to be no shortage of inputs in this industry. Most firms interviewed had their manufacturing bases in Asia for manufacturing PVs, and use real silicon and mono-silicon technologies.

While the manufacturing facilities of the solar firms interviewed are based in Asia, project development was carried out in locations that offer the best deployment incentives, such as in China, Europe, and South America. Supply chains are constructed according to the market segment in which the firm has a comparative advantage. In India, government policy is geared to encourage 200 MW plants or small module manufacturers.9 However, developers still import modules when they are cheaper than domestically manufactured ones.

Firms prefer to outsource ingots and wafers, though in-house production has been rising over time. This is largely attributable to the increase in the size of installation (Figure 5). For example, a firm interviewed for this paper suggested that while it may prefer to outsource

9 While an Indian firm mentioned this, on investigation the author found that antidumping duties suggested by the manufacturers’ association had never been imposed by the government in the interest of improving deployment of solar energy.

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components in the 1 GW segment, it may manufacture in-house all the components for its 7 GW segment. A lot of what firms import depends on the technological breakthroughs and which of these breakthroughs are most accessible to them. If a firm has a well established and cost-effective supply chain for a 1 GW installation, it also has to make sure that its supply chain solution fits all of its customers. For example, a LCR requirement in

the country will necessitate the manufacture of components in the country. As a firm shifts its production from 1 GW to 5 GW, it has to adapt to changes in grids. The grid requirements for a 7 GW plant may require on-the-spot manufacturing or various levels of specialisations and specialised parts necessitating more in-house production—hence a different supply chain from a 1 GW installation.

The company also has to change its warehousing policies and hence its supply chain. It has to decide on how much warehousing has to be done by third parties, or whether simply to outsource all of its chemicals and inputs. The industry needs a lot of storage, as it has to store chemicals. In order to meet its needs, the company has had to create an intelligent hub, which besides monitoring the technology, labour, and other costs, also checks the stability of the currency, laws and governance, subsidies, etc., in the country concerned.

For a local market, the most efficient supply chain may be different from that of an international market. For example, in India solar PVs were mostly imported from Germany but now they

are primarily sourced from China. Though manufacturing solar PVs and panels were part of the government’s agenda, it was not a top priority for the firms producing and distributing solar energy. At present, Indian firms consider Chinese modules as good as German ones.

The firms interviewed did not expect to encounter any bottlenecks around their supply chain. They did report some problems with rooftop installations, but these problems arose not because of the solar PV modules but because of the condition of the roof itself. In buildings older than twenty years it was of material interest to the client to redo the rooftop before the installation of the panel. That delayed the installation of the panels.

10 The Silicon Module Super League (SMSL) is defined as comprising Canadian Solar, Hanwha Q-Cells, JA Solar, Jinko Solar, Trina Solar, and Yingli Green.

Figure 8. Capacity utilisation, shipments, and market shares for firms in the “Silicon Module Super League,” 2013, 2014, and forecasted 201510

Source: ©PV-Tech.org, Solar Media Ltd. (2015)

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5.2.2 Cost distribution between products and services

The survey found that the distribution of activities between services and manufacturing differs among firms and across countries. In India, for example, one developer reported that the cost of a solar panel accounts for 40 to 45 percent of the total, inverters 20 percent, and installation, civil works, and wiring another 20 percent. The cost of land accounts for an additional 15 percent. Another firm from India said that 50 percent of its total project cost was absorbed by solar modules, 30 percent was other raw materials procured locally, and 20 percent was services.

Another firm elsewhere reported that the cost of its electricity generated by solar power was about two cents per kilowatt-hour. Operation and maintenance costs worked out to 5 percent, which came from the earnings of the plant. An additional 20 percent to 30 percent of operating revenue was generated from services (see Figure 5), and 10 percent was added by land costs including a service used to lower land costs. All in all, services generated roughly 40–50 percent of the total value of a solar PV plant. In other locations and countries, and for other firms, presale services of solar power (i.e. in the installation phase) were about 5 percent of the total value of the solar PV plant, and post sales services of solar power were between 5 percent and 8 percent based on the location of the installation. Another producer claimed that maintenance costs are equivalent to about 10 percent of installation costs.

The services component, however, varies according to the type of installation. Rooftop installations cost more than industrial installations for example. Installation costs are generally a function of development costs, and there is a limit to the total of the two costs for a rooftop solar plant. In densely populated areas such as those in China, economies of scale for rooftop solar can be reached much faster than in other areas.

5.2.3 Idle capacity and high start-up costs

Firms interviewed by the author reported that overproduction of solar PVs from 2013–2015 had meant that new firms producing solar energy prefer to use spare global capacity in PVs instead of investing millions in start-up costs. Plants built in the early 2000s cost US$5.35 million for a 5.6 MW plant. Since then, capital costs have declined by 80 percent, as several solar PV firms set up new plants in low-cost countries. This development substantially increased the number of players, though the quality of some solar cells produced by these start-ups was sub-standard.

The firms claimed that several developing countries see solar power as a way of leapfrogging the whole conventional grid conducted fossil fuel based system and achieving energy security. A lot of regulators see solar energy as something that they can use to bring power to their constituency. But solar energy has to be profitable to improve its deployment. Firms claimed that returns are as low as 5 to 7 percent. Often payments were delayed, which implies that while returns may be 6 percent to 10 percent, the actual return was only about 5 percent.

Firms claimed that the emerging markets were very price conscious. A 1 MW solar plant in India cost between US$1.4 and US$1.5 million dollars along with land costs. It can be built for about US$1 million, but the longevity of such plants would be uncertain and is unlikely to last more than 25 years. In the emerging markets, several solar power generation companies were close to bankruptcy. Most new solar plants were unlikely to last more than seven to eight years as they used substandard parts in order to reduce costs. Small-scale, decentralised solar energy, while immediately delivering electric power at lower than grid rates, was unlikely to be economic in the long run according to some firms interviewed. They expressed the view that countries like India must have large-scale programs as only that could bring economies of scale.

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Some firms claimed that research and development was mostly in the United States (65 percent) and most of it was directed towards storage, not towards perfecting the construction of the cells to accommodate all types of climatic conditions. Any commercially viable solution to storage would have to involve storage systems, but current technologies used for storage could have severe health effects. For example, a lithium wall in a house used for solar energy storage may increase its efficiency, but may have crucial health effects according to one firm.11

5.2.4 Forthcoming challenges

Firms claimed that there was a disconnect between a high-tech system installed and the viability of using these technologies in developing countries under extreme weather conditions. The tracking systems currently being used are based on microcontrollers, which are destabilised by sudden sandstorms and this in turn could short-circuit the electricity supply. Once a solar plant is installed, grid insufficiency (i.e. the low capacity of grids to transmit high-voltage solar power) leads to higher costs. In India, for example grid efficiency is 30 to 35 percent. However, technological leapfrogging improved efficiency by 30 to 45 percent by linking smart invertors to the grid. Invertors were used to stabilise voltage of power transmission and hence deal with intermittency and grid fluctuations. The other major challenge was dealing with storage, and maximising the efficiency of transfer of power. The grids were old, and a lot of investment had already gone into existing grids which were essentially built for long-distance transmission. The nearer grids were not adequately financed, which meant decentralised power would be difficult to generate. Now the grids have to leapfrog to a completely new technology, based on a smart grid that can more easily handle the problem of intermittency.

Other firms interviewed in Europe said that there had been a lot of developments and there was growing awareness of grid-based solutions. Japan was at the forefront of grid solutions that were being shared globally, including to several Latin American countries. Even mobile apps for dealing with intermittency are being developed and integrated into this sector.

The most severe problem, identified by almost all the firms interviewed, was financing. Long-term financing is required for the solar industry. While financing for 20 years is required, it is generally available for seven to eight years and 10 years at best. Currently, on account of the low quality of the solar plant and services, investors look to a payback period of six years in developing countries, which means that real solar power costs without subsidies are high. In this context, decentralised solar energy, where customers pay as you go, has many advantages. This is a model that many firms feel should be followed in Africa too.

Another major challenge is finding the right skill set and talents. Even the best companies in emerging markets substitute capital for labour because of lack of skills. Firms in India often work on 100 percent outsourcing of all PV modules, but build the infrastructure (e.g. invertors, grid connections, and land scoping) for suitable sites. However, because solar energy is an intermittent and resistive power, companies have to build inductors to connect it to a normal grid. Historically, inductive grids were built, so inverters are now used to supply to the conventional grid, thus increasing the demand for invertors and for local investment in manufacturing them.

Indian firms also reported that they needed training at various levels. While the firms themselves and the government were providing training for project execution, there was little awareness of safety procedures. Because India is dusty, supervisors are required to

11 The Silicon Module Super League (SMSL) is defined as comprising Canadian Solar, Hanwha Q-Cells, JA Solar, Jinko Solar, Trina Solar, and Yingli Green.

27Climate and Energy

oversee the cleaning of PV panels. Contractors needed to be trained as do lower-level trained technicians and tradesmen. One firm was of the opinion that generic training was required for developing a solar workforce.

Another issue highlighted by one of the firms was the possible cost of dismantling and recycling used solar panels. While no recycling had been planned by solar plants in India, the more advanced manufacturers already offered this service at a global level. Another globally prominent firm stated that the recycling of solar panels was not a difficult exercise as it is similar to recycling a smartphone or a TV panel. Further, rocket fuel was reused in solar panels and hence in the process of recycling it could be retrieved for reuse.

5.3 Government Policies

Government policies should be supportive of the solar industries according to the firms interviewed. According to the firms, FITs in Spain and Italy were far too generous and could not be sustained during those countries’ recessionary periods. The two countries changed the structure of their FITs after having previously committed to their continuance for 20 years. The interviewed firms said that they would like to see policies designed in an intelligent way, automatically taking account of price reductions. For example, firms reported that large modules were installed too quickly in the UK, though for a reason: the UK government wanted to collect information and build information systems so as to keep pace with the solar industry’s requirements.

At the local level, the governments in the EU monitor deployment of solar energy on a yearly or even monthly basis, but firms are looking for policy stability for at least two decades to pay back their investments. In the solar industry in India, for example, the capital subsidy had the largest impact, and so did the 4 percent concessional import duties. Renewable energy portfolio standards affected the installation of solar plants. The states buying renewable energy created a demand, and utilities were compelled to buy a certain proportion from

renewable energy sources because of the renewable energy portfolio requirement. Decentralised solar energy costs in India in general are cheaper than grid generated—on average 10 cents versus 12 cents.

LCRs in the wind sector were not considered useful in small wind farms. Only when firms were installing at least a capacity of 3–5 GW (and realistically 6 GW) was market share attractive for firms in markets where LCRs ruled. However, the firms interviewed suggested that such a market share was difficult to obtain as the largest players had only a share of 10–12 GW in the largest markets.

In some cases, in the solar industry, the LCR requirement was contravened by importing PVs and then repackaging them to meet LCR requirements. Interviewed firms had different views on LCRs in the solar sector. Some solar energy firms interviewed reported that costs might have risen by 20 percent in India on account of LCRs. On the other hand, one solar firm from India reported that its costs over time had fallen by 5–8 percent because of LCRs. (See Box 2).

Firms reported that companies which invest in countries with LCRs do so for a short time. They superficially qualify for LCRs. The large companies cross-subsidise the branches of the same firm operating in countries with LCRs. These contracts typically finish after six to eight months as the firms, having got a foothold, decide to wait until the LCRs are removed. One further danger is policy instability as LCRs may be withdrawn under pressure from foreign firms or when there is a WTO ruling against them, as was the case in India. This kind of policy instability can affect profitability. New governments overturn policies of older governments. In some cases there are natural markets where LCRs may not be required. For example, one of the companies interviewed worked in islands which are powered by oil. All the pipelines are monitored by solar panels and in this case the local component is naturally high so LCRs were not required. There are examples, therefore, in which LCRs have been useful and

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those where they have not been. Further, they said that several countries where they were operating claimed that they were not aware that LCRs were illegal under WTO rules.

There were many firms along the solar PV value-chain in India which could fall into the SME category. Developers may source certain parts and components from big firms whereas others, such as IT equipment, could be sourced from smaller firms. There are no policies, such as credit and financing, that would give a competitive advantage to smaller manufacturing firms along the value-chain in the clean energy sector in India. Further payment delays can often disadvantage small firms.

In India, according to the firms interviewed, policies affecting the manufacturing sector are uncoordinated and often contradictory. Different agencies and ministries, banks, and financial institutions are involved in different aspects of policy and legislation affecting the clean energy industry. There needs to be a coordinated approach responsive to the needs of all value-chain segments in the sector.

Firms also complained that barriers to cross-border movement of people, such as skilled technicians and engineers, could also affect cost-competitiveness of downstream developers. Other firms felt that such freedom of movement may also need to be balanced against the objective of providing training to the local workforce and creating local employment opportunities as well.

Firms expressed the view that in the future technology-transfer and quality standards may affect competitiveness. They anticipate that both for domestic deployment as well as export purposes, governments may lay down new and stringent performance standards (such as performance of PV cells and modules) for which the use of certain types of technology may be essential. In such cases access to these technologies should be facilitated. The government should also assist firms in India in meeting the stringent quality norms that prevail in international markets for various products along the value-chain. Standards may also affect the services segment of the value-chain, such as installation, operations, and maintenance, and this may vary by country depending on local needs, priorities, and circumstances (unlike goods where standards are more or less harmonised). For example, the government may stipulate water-consumption limits for solar plants and other environmental norms which again may necessitate the use of certain types of technologies.

Firms claimed that governments made policies with outdated information and, hence, were incorrect. In order to design a program that is sustainable, a longer time perspective is required as the solar installation is completed within a few months, but the firm has to generate and provide power or energy for 25 years. Government policy is made on a yearly basis (and in some cases a five-yearly basis) so it is difficult to respond to the rapid evolution of the solar industry.

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6. CONCLUSIONS AND RECOMMENDATIONS

Support policies have been critical to the development of both the solar and wind industry. Europe, Denmark, Germany, Spain and the UK developed their markets through the provision of FITs, but capacity addition has decreased because of the economic crisis as well as accompanying budget deficits. Generous government support also led to uneconomic projects, such as those in Southern and Eastern Europe (World Energy Council 2013). Thus, building renewable energy plants in developing countries for the European markets is no longer a viable option as was the case for China in the last decade. Overproduction (largely by China), has meant that countries with inherent capacity, such as India and Brazil, also do not find it economical to manufacture solar PVs even with LCRs. However, this situation may change as the market gets balanced in the next few years.

Declining solar PV prices fuelled deployment even in Europe though incentives such as FITs were reduced. Incentives which are geared to reducing prices or improving competition are likely to be most successful. Incentives also need to be withdrawn gradually but in the initial stages it is necessary to provide a comprehensive set of incentives as in the case of China (Bloomberg News 2014). A number of incentives such as FITs, concessional bidding mandatory grid access, and capacity targets were all clubbed together to guide the industry towards greater deployment and exports (Zifa et al. 2015). In the solar sector, as mentioned earlier, exports were greater than domestic deployment initially (Windpower Monthly 2015). There was a growing trend towards integration of China’s turbine makers in wind farm development (North American Windpower 2015). Internationally, global Chinese firms such as Goldwind followed the same strategy as at home.

Most developing countries which participate in the global supply chain of wind energy are, however, those that already have established industrial capacity. Most have well developed automobile and/or aircraft sectors which facilitate the manufacturing of wind turbine

parts. However, there are exceptions such as Uruguay. Uruguay has low tariff barriers for wind turbines and components as well as other renewable energy goods such as solar PV and hydraulic turbines. Uruguay became LAC’s second largest importer of wind-powered generating sets in 2014. Policies which were responsible for this performance include renewable energy targets, regulatory stability, tax exemptions, a relatively open economy, and good returns from power-purchase agreements (PPAs) (Vossenaar 2016). Financing, however, has been a challenge, and support from the Inter-American Development Bank (IDB) and the World Bank has been crucial (Vossenaar 2016).

Grid-connection policy is another area in which developing countries may be handicapped. Chile is a good example. Because of the high price of electricity, renewable energy is competitive but inadequate grid capacity makes it difficult for the country to fully utilise its renewable energy. In China, inadequate grid-connection delayed the project pipeline of wind energy (Vossenaar 2016). This is a problem which India has not yet seen on account of the decentralised nature of its renewable energy.

Financing is another major bottleneck. In South and Central America government auctions have encouraged a boom in the wind industry. Affordable financing coupled with LCRs has also benefitted Brazil. Other countries such as Argentina, Chile, Mexico, and Uruguay have had high financing costs and hence lower installed capacity than Brazil (Vossenaar 2016). Other countries in the Middle East, Africa and South Africa also have high financing costs (Vossenaar 2016).

There is a lack of policy coherence. LCRs and tariff liberalisation do not go hand in hand. Brazil’s solar industry is a case in point, where LCRs are necessary to qualify for a loan from the Brazilian Development Bank (BNDES). However, as imported modules are very cheap, applying LCRs leads to a cost increase of 25–30 percent–

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thereby discouraging investment, both foreign and domestic. This is, however, not the case in wind energy where the LCR has been very successful in bringing down the LCOE in Brazil.

FITs also need to be implemented in a coherent manner. They cannot be removed all of a sudden, but need to be brought down gradually in line with the fall in market prices of renewable energy. Germany is a good example in this context, but it has to be noted that energy costs in Germany are amongst the highest in Europe. FITs and production incentives, whether for renewable energy or for its components, have yielded good results in some markets (though not in all) when implemented with LCRs and renewable energy targets.

All the firms interviewed suggested that LCRs were not helpful, but yet they continue to invest in big markets with LCRs. The firms also suggested that stability of policy was an important issue guiding their investments in developing countries and elsewhere. Firms also were in favour of incentive measures such as FITs continuing for some time to come. Some firms suggested that the price fall was temporary and would not continue in the future as the market re-balances and overcapacities and unsold inventories are exhausted. Having said that, the solar and wind energy boom continues and prices continue to fall.

It must also be recognised that renewable energy policies can come into conflict with trade rules. Policies such as LCRs, FITs, and competitive and concessionary bidding can come into conflict with WTO rules. Yet they may be absolutely vital to kick start this industry. While it can be argued that these policies, especially LCRs, may not be the most effective set of policies in improving either deployment or efficiency, they may be the only options available to governments in these recessionary times. These may also be populist policies which help governments to sell the idea of a renewable energy industry which also creates jobs.

6.1 Recommendations

1. Countries should try to maintain high renewable energy targets, continuously revising them upwards, and stable policies over a period of at least five to ten years if not more.

2. While high renewable energy targets are a very important policy tool, they should be realistic with firm implementation plans and adequate policy support should be provided.

3. Countries should formulate a comprehensive set of consistent policies which do not contradict each other. For example, LCRs and tariff liberalisation do not go hand in hand.

4. Policy frameworks should be designed in a way which allows the most competitive actors to take part in the supply chain. This will accelerate the cost reduction and innovation and hence the scaling up of renewable energy in the energy mix. LCRs, if implemented, should be designed carefully so as to not undermine the environmental objectives of the renewable energy-sector. However, countries implementing them should be conscious that they may face legal challenges in the WTO. Countries should generally provide economic and other forms of support to the renewable energy industry in a time-bound way so that they do not develop infants who never grow up. However, phasing out has to be fine-tuned with maintaining policy stability for encouraging firms to invest in this industry.

5. It is well worth discussing whether some time-bound relaxation of WTO rules might be needed to support this industry. At the very least some discussion of trade and energy in the CTE is required.

31Climate and Energy

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James, Ted, and Alan Goodrich. 2013. Supply Chain and Blade Manufacturing Considerations in the Global Wind Industry. Golden: National Renewable Energy Laboratory. http://www.nrel.gov/docs/fy14osti/60063.pdf

Latvian Presidency of the Council of the European Union. 2015. Submission by Latvia and the European Commission on Behalf of the European Union and Its Member States. Riga: Latvian Presidency of the Council of the European Union. http://www4.unfccc.int/submissions/INDC/Published%20Documents/Latvia/1/LV-03-06-EU%20INDC.pdf

Lawson, James. 2013. “To Keep Wind Competitive, Manufacturing Ups its Game.” Renewable Energy World, 2 April. http://www.renewableenergyworld.com/articles/print/volume-16/issue-2/wind-power/to-keep-wind-competitive-manufacturing-ups-its-game.html

Li, Junfeng, et al. 2012. “China Wind Energy Outlook 2012.” Beijing: Chinese Renewable Energy Industries Association. http://www.gwec.net/wp-content/uploads/2012/11/China-Outlook-2012-EN.pdf

Maehlum, Mathias Aarre. 2015. “How Much Do Solar Panels Cost?” Energy Informative. http://energyinformative.org/solar-panels-cost/

North American Windpower. 2015. ″Congress Passes Omnibus Bill with Five-Year Wind PTC Extension.″ North American Windpower: 18 December. http://nawindpower.com/congress-passes-omnibus-bill-with-five-year-wind-ptc-extension

33Climate and Energy

OECD. 2015. “Overcoming Barriers to International Investment in Clean Energy.” Investment Insights. Paris: OECD Publishing. http://www.keepeek.com/Digital-Asset-Management/oecd/environment/overcoming-barriers-to-international-investment-in-clean-energy_9789264227064-en#.WQiP_FLMwkg

PennEnergy Editorial Staff. 2013. “GE Signs $2.7B in Gas Power Contracts in Algeria.” PennEnergy. http://www.pennenergy.com/articles/pennenergy/2013/09/ge-signs-over-2-billion-in-gas-power-contracts-in-algeria.html

NSK. 2017. “Gearboxes.” http://www.nsk.com/industries/gearboxes.html

REN21. 2014. Renewables 2014 Global Status Report. Paris: REN21. www.ren21.net/gsr

REN21. 2015a. Renewables 2015 Global Status Report. Paris: REN21. http://www.ren21.net/wp-content/uploads/2015/07/GSR2015_KeyFindings_lowres.pdf

REN21. 2015b. The First Decade 2004-2014. Paris: REN21. http://www.ren21.net/Portals/0/documents/activities/Topical%20Reports/REN21_10yr.pdf

REN21. 2016. Renewables 2016 Global Status Report. Paris: REN21. http://www.ren21.net/gsr-online/chapter06.php#Policies

Sawyer, Steve. 2015. ″The Paris Climate Conference is Over, but the Renewable Energy Transformation has Kicked into High Gear.” Huffington Post, 17 December. http://www.huffingtonpost.com/stevesawyer/the-paris-climate-confere_1_b_8813300.html

United Nations Environment Programme (UNEP). 2015. Global Trends in Renewable Energy Investment. Nairobi: Frankfurt School—UNEP Centre and Bloomberg New Energy Finance. http://fs-unep-centre.org/publications/global-trends-renewable-energy-investment-2015

United Nations Framework Convention on Climate Change (UNFCCC). 2016. ″INDCs as Communicated by Parties.″ Accessed 4 May. http://www4.unfccc.int/submissions/indc/Submission Pages/submissions.aspx

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US Department of Energy. 2015. Wind Technologies Market Report. Oak Ridge: US Department of Energy. http://energy.gov/sites/prod/files/2015/08/f25/2014-Wind-Technologies-Market-Report-8.7.pdf

Vossenaar, Rene. 2016. Recent Developments in Trade and Tariffs in Renewable Energy Goods in Latin America and the Caribbean. Geneva. International Centre for Trade and Sustainable Development (ICTSD): http://www.ictsd.org/themes/climate-and-energy/research/recent-developments-in-trade-and-tariffs-in-renewable-energy

White House. 2015. US-China Joint Presidential Statement on Climate Change. Washington, DC: White House. https://obamawhitehouse.archives.gov/the-press-office/2015/09/25/us-china-joint-presidential-statement-climate-change

Windpower Monthly. 2015. “Ten of the Biggest and the Best Manufacturers.” Windpower Monthly, 30 June. http://www.windpowermonthly.com/article/1352888/ten-biggest-best-manufacturers

34

The World Bank. 2013. ″Development of Local Supply Chain: A Critical Link for Concentrated Solar Power in India.″ Energy Sector Management Assistance Program. Summary Report 81536 v.1 (2013). http://documents.worldbank.org/curated/en/764771468044058737/pdf/815360ESM0v10E0Box0379837B00PUBLIC0.pdf

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Zhao, Feng. 2015. ″Global Wind Supply Chain Update 2015.″ Presentation at EWEA 2015, 17-20 November, Paris. http://www.fticonsulting.com/~/media/Files/us-files/intelligence/intelligence-events/global-wind-supply-chain-update-2015-fti-ppt-final.pdf

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35Climate and Energy

ANNEX 1. QUESTIONNAIRE FOR COMPANIES SERVING THE WIND ENERGY SECTOR

Q1. From your supply chain, what proportion of inputs both upstream and downstream do you manufacture in house?

Q2. What size of wind turbines do you manufacture mostly?

1. 1 MW

2. 2.5 MW

3. 10 MW

4. 15 MW

Q3. How many of your components do you need to retool?

Q4. Do you distribute your own turbines directly to developers or work through a separate distributor to serve residential or business customers?

Q5. Do you work with electric utilities that buy your power?

Q6. Do you use compressed air energy storage or any other advanced technology to store wind energy?

Q7. What parts of the supply chain are you involved in?

1. Wind farm development (i.e. buying land, buying turbines)

2. OEM (i.e. the purchase or making of components, assembly, selling completed turbines to developers)

3. Tier 1 suppliers: Making large components such as towers, blades, and gearboxes.

4. Tier 2 suppliers: Ladders, fiberglass, resin, machined parts, motors, electrical parts, etc.

Q8. Is the national transmission grid the biggest obstacle in generating wind energy?

Q9. Is the government investing in new energy infrastructure, installing a smart grid, and negotiating an optimal rate plan?

Q10. Which of the following financial incentives does the government of the home country provide?

1. Tax credits for production of components

2. Investment credits

3. Other financial incentives

Q11. What kind of policies does the government have for encouraging the generation of renewable energy?

1. Renewable Energy Portfolio standards (i.e. a certain percentage of total energy generated must be renewable)

2. Feed-in tariffs

3. Local-content requirements

4. Rebates of import tariffs

5. Antidumping

Q12. Of the following main components, where are the bottlenecks likely to arise, through import barriers or local manufacturing deficits or technical standards?

1. Towers

2. Generators

3. Gearboxes

4. Bearings

5. Blades

Q13. Of these main components, where are the likely bottlenecks going to arise along the your supply chain? Where do you prefer local suppliers and where do you prefer existing suppliers?

36

Manufacturing Highly engineered bearings

Blades

Generators

Gearboxes

Towers

Transportation or shipping Train

Boat

Truck

Installation equipment Cranes

Installation vessels and underwater cable-laying vessels for offshore wind

Transmission Transmission capacity

Q.15. In terms of strategy, which policy areas would benefit your supply chain the most?

1. Public Policy: renewable portfolio standards, production and consumption incentives, and smart grid development

2. Infrastructure: Wind manufacturers require large industrial sites and buildings with high ceilings to accommodate the large dimensions of towers, blades, etc. Having qualified sites is integral to attracting manufacturers.

3. Workforce Development: States are consistently finding that there is a shortage

of skilled wind technicians, and demand for skilled workers will only rise.

4. Transportation: Transporting a wind turbine from the factory to an installation site can comprise up to a quarter of the total cost of installation.

5. Marketing: Adopt a marketing plan that focuses on your strengths and what can realistically be delivered.

Q16. What led you to develop component manufacturing? Why do you locate them where you do, and at the global level what do you think is the future of this industry?

Q14. Can you identify for which of these you find the greatest bottleneck?

37Climate and Energy

ANNEX 2. SOLAR QUESTIONNAIREQ1. Do you use established technologies like photovoltaic cells, concentrating solar power, and solar thermal energy?

Q2. In the PV sector do you use traditional crystalline cells or thin crystalline cells?

Q3. Prices of solar cells around the world have plummeted due to global economic recession, expansion of lowcost manufacturing, and fluctuating government subsidies. In this context would you recommend the manufacture of solar PV?

Q4. Solar panel factories require millions in start-up costs, leading some companies to keep domestic R&D facilities intact while outsourcing commercial production abroad. Is this your strategy?

Q5. What proportion of total costs is services and what proportion is goods in a solar panel installation?

Q6. What are the major challenges in this industry?

1. Flexible thin film cells with higher efficiencies

2. General increases in efficiency to reduce installation size and cost

3. Light-tracking control

4. Dealing with intermittency, storage, and maximising efficiency of transfer to the grid

Q7. What kind of trade and environment policies has proved most beneficial to you?

Q8. How vertically integrated would you like your industry to be?

Q9. In this era of cutting costs, how much of your supply chain would you like to outsource ideally and from where?

38

ANNEX 3. TRADE IN RENEWABLE ENERGY PRODUCTS (WIND, SOLAR PV)

Global trade statistics are available only up to the six-digit (subheading) level of the Harmonised Commodity Description and Coding System, also known as the Harmonised System (HS), developed by the World Customs Organization (WCO). Trade data shown for different HS subheadings are based on COMTRADE, using the World Bank’s World integrated Trade Solutions (WITS).12

HS 850231 (wind-powered generating sets) is one of the very few HS subheadings that exclusively captures renewable energy equipment. The subheading includes nacelles and any items, such as blades, imported with the nacelle. If these components are imported separately from the nacelle, they are classified under different HS subheadings together with other, unrelated products (see below). Trade in parts and components traded under such subheadings is, in general, larger than trade in HS 850231. Concerning solar PV equipment, PV cells and modules are part of HS 854140 (photosensitive semiconductor devices, including PV cells whether or not assembled in modules or made up into panels; light emitting diodes). Since the subheading includes unrelated products, global trade statistics are not specific for PV equipment. Trade statistics shown in the paper therefore have to be interpreted carefully, also taking into account other variables such as annual renewable energy capacity additions and more detailed national trade statistics, where available.

The paper shows key importers and exporters for wind-powered generating sets for the period 2007–15. Table 7 shows recent surges in imports in wind-powered generating sets (HS 850231) into South Africa, Uruguay and Chile. These countries have built up wind capacity installations only recently. South Africa’s cumulative capacity by

2015–end was almost entirely added in 2014–15, 85 percent of Uruguay‘s cumulative capacity by 2015-end was added in 2014–15, and 85 percent of Chile’s cumulative capacity by 2015–end was added in the 3-year period 2013–15. Relatively large imports into certain other developing countries (not shown in Table 7), such as Ethiopia, Pakistan and Peru, may also be associated with recent capacity additions.

Tables 9 through 11 show top importers and exporters for selected HS subheadings (other than 850231) that include wind-power parts and components, even though these subheadings are not wind-specific and include unrelated products. Trade figures for certain countries may be (closely) associated with wind power deployment. However, trade figures for other countries shown in the respective tables may correspond mainly to unrelated products. In some cases, more detailed national trade statistics could also provide some insights (see below).

HS 848340 (gear boxes, other speed changers, ball or roller screws, Table 9) represents the largest value of trade at the six-digit HS level, but it is very difficult to know how much trade is associated with the wind-power sector. No country seems to have more specific national tariff lines (TLs). It is noteworthy that important players in wind deployment and trade are among the key traders in the subheading, including Brazil, Canada, China, Denmark, Germany, and the US. India (not shown in Table 9) is also a relatively important importer.

Trade flows are also shown for HS 730820 (towers and lattice masts); HS 841290 (parts of engines and motors) which include wind turbine blades and hubs; and HS 850164 (AC generators

12 Trade figures may be affected by missing observations, as certain countries may not (yet) have reported trade figures for a specific period (e.g. Vietnam for 2015) or by revisions. Trade data obtained may therefore vary somewhat according to the date COMTRADE has been accessed. Trade flows have been estimated based on HS07 data to cover longer time series and also because some countries (e.g. India and Malaysia) have not reported HS12 data for 2012. Added (HS02) data have been used for the Philippines. The HS subheadings analysed have not been affected by HS revisions in 2007 and 2012. This section has been contributed by Rene Vossenaar.

39Climate and Energy

of an output exceeding 750 kVA). For certain countries, trade in parts and components may be associated with wind power deployment and trade in wind-powered generating sets. For example, top exporters in HS 730820 (towers) such as China, Denmark, Germany, India, and Spain are also among the top exporters of wind-powered generating sets. Denmark and Germany are the top exporters in HS 841290 (which include wind turbine blades and hubs). Some import figures for certain countries also suggest a link with wind energy deployment, as in the case of imports in HS 730820 into the United States and Ethiopia. Ethiopia is also a significant importer in HS 850231 (not shown in Table 7).

National Tariff Lines and Statistical Codes

National (and regional) tariff schedules include tariff lines (TLs), which extend the six-digit sub-headings by adding additional digits, for tariff purposes (certain tariff schedules also include statistical codes). TLs and statistical codes may capture certain environmental goods more narrowly and may also be updated more frequently to take into account developments in environmental technologies. However,

TLs are not internationally harmonised and corresponding product descriptions can therefore differ from one country to another. Whereas an analysis based on national statistics goes beyond the scope of the paper, trade in certain TLs and statistical codes that specifically cover renewable energy products are briefly analysed here, mostly using the ITC Trade Map and, for the United States, the USITC Data Web.

Wind

Whereas there are no specific HS subheadings for wind energy parts and components, some national tariff schedules include certain TLs that capture wind-specific parts and components more narrowly. In particular, the Harmonised Tariff Schedule (HTS) of the United States includes certain 10-digit statistical codes that allow for a rather accurate estimate of the value of imports corresponding to a significant portion of the US wind-power sector.13 Table A.1 shows US imports in the period 2012–15.

Table A.2 shows what portion of HS subheadings, in the particular case of the United States, is covered by wind-specific parts and components.

13 See also: 2015 Wind Technologies Market Report disseminated by the US Department of Energy, in particular page 82 (US Department of Energy 2015).

14 Not exclusive to wind turbine components. However, tubular towers are primarily used in wind power applications. See US Department of Energy (2015).

15 As from 2014, nacelles when shipped without blades may be imported under HTS 8503.00.9560 (machinery parts suitable for various machinery, including wind-powered generating sets). This follows Customs and Border Protection ruling number HQ H148455 (April 4, 2014) stating that nacelles alone do not constitute wind-powered generating sets, as they do not include blade assembly which are essential to wind-powered generating sets as defined in the HTS. See US Department of Energy (2015).

Source: USITC Dataweb

Table A.1: US imports in wind-specific parts and components, 2012–2015 (US$ millions)

Statistical code DescriptionUS imports (US$ millions)

2012 2013 2014 2015850231.00.00 Wind-powered generating sets 990.5 14.6 187.7 234.2

730820.00.2014 Tubular towers and lattice masts 886.1 110.2 270.8 320.2

841290.90.81 Wind turbine blades and hubs 924.4 271.2 421.9 670.9

850164.00.21 AC generators for wind-powered generating sets

332.3 185.7 275.4 229.2

850300.95.4615 Parts for these generators 127.8 33.8 63.6 127.2

Total 3261.1 615.5 1219.4 1581.7

40

Statistical code DescriptionImports

(US$ millions)HTS-10 Portion

Variation 2015/2012 (percent %)

HTS-10 HTS-6 HTS-10 HTS-6

850231.00.00Other electrical generating sets, wind-powered

356.8 356.8 100% -76% -76%

730820.00.20* Tubular towers and lattice masts 396.8 554.7 72% -64% -58%

841290.90.81 Wind turbine blades and hubs 562.6 1966.3 29% -32% -12%

850164.00.21AC generators for wind-powered generating sets

255.6 522.9 49% -31% -24%

850300.95.46 Parts for these generators 88.1 1819.9 5% -0.4% 17%

Reporter 2007 2008 2009 2010 2011 2012 2013 2014 2015All reporters* 5237.7 6975.2 6913.3 5983.5 7371.9 6171.0 6810.0 6298.0 4946.7

Canada 108.6 545.2 435.7 895.0 546.2 657.5 631.9 628.2 441.8

United Kingdom* 123.4 424.0 457.5 550.5 816.3 929.3 753.9 593.5 338.7

Mexico 17.0 85.4 195.3 295.3 341.4 318.7 300.4 569.5 420.3

Germany* 453.3 563.3 438.2 562.6 932.8 242.1 248.2 547.2 375.9

Russian Federation

0.9 4.9 1.9 3.1 2.6 6.8 1073.7 536.6 86.4

South Africa 0.2 0.7 0.6 0.7 0.7 1.1 579.9 380.6 206.9

Turkey 92.4 285.0 506.2 405.2 353.6 288.1 473.7 349.7 417.5

Belgium* 150.8 104.1 28.9 129.7 81.7 13.8 16.6 273.7 N/A

Uruguay 6.9 0.1 0.1 17.3 0.1 5.0 127.0 269.9 482.6

Brazil 42.3 121.7 221.1 273.9 456.3 307.1 376.7 269.0 137.4

Chile 1.0 15.3 122.3 15.5 69.7 46.9 336.3 244.5 104.7

United States 2365.1 2679.1 2300.6 1197.5 1289.9 990.5 14.6 187.7 234.2

China** 372.0 189.3 26.4 11.5 11.7 3.3 9.9 8.5 0.5

EU28* 1957.4 2448.6 2419.4 2642.3 3620.5 2750.9 2039.0 2319.0 1665.6

Intra-EU28 1859.1 2342.5 2305.9 2567.6 3554.0 2507.7 1880.4 2143.8 1522.8

Extra-EU28 98.2 106.0 113.5 74.7 66.5 243.2 158.6 175.2 142.9

All, excl. intra-EU28

3378.6 4632.7 4607.4 3415.9 3817.9 3663.3 4929.6 4154.2 3423.9

Table A.2: US imports in wind-specific parts and components: some indicators, 2012–2015 (US$ millions)

Table A.3: Imports of wind-powered generating sets (HS 850231) In descending order of 2014 trade volumes (nominal US$ basis)

* Not wind-specific

Source: COMTRADE, using WITS (Vossenaar 2016)

* including intra-EU28 trade.

** included to show significant trade in 2007-08

Source: COMTRADE, using WITS (Vossenaar 2016)

No trade flows are shown in the paper for HS 850300 (parts suitable for use solely or principally with the machines of heading 8501 or 8502) as,

even in the case of the United States, only a very small portion of trade is wind-specific.

41Climate and Energy

Reporter 2007 2008 2009 2010 2011 2012 2013 2014 2015All reporters* 3423.8 4804.4 4526.6 4450.7 5597.5 7648.0 7897.3 8734.0 7808.8

Denmark* 1673.0 1191.8 1501.4 1675.3 2028.3 1637.2 2864.5 3742.3 3303.4

Germany* 969.5 2004.2 932.1 1211.8 1320.1 3155.9 2855.3 2206.8 2358.0

Spain* 198.0 478.7 742.7 706.5 877.4 1185.8 893.9 1560.6 1468.3

United States 14.2 22.1 117.0 142.1 255.0 388.0 425.7 543.3 148.9

China 78.0 210.9 151.1 56.6 351.2 466.9 467.6 302.3 291.2

India 335.8 651.1 335.6 122.9 41.1 43.8 76.3 83.0 4.7

Vietnam 108.6 126.4 116.9 67.4 128.4 4.0 77.4 70.2 N/A

Netherlands* 15.8 15.1 4.8 7.8 7.0 19.6 24.3 45.5 72.2

Mexico 0.0 0.9 0.1 0.0 0.6 0.1 3.9 42.7 27.0

Portugal* 3.4 181.7 23.3 11.2 5.8 26.9 13.1 42.2 28.2

Estonia* 2.1 1.0 4.4 2.4 9.3 10.9 54.6 28.2 35.0

Greece* 5.1 16.6 12.0 52.6 12.1 32.1 32.1 21.8 12.7

Japan** 354.0 468.8 480.6 5.9 12.8 76.6 2.4 1.7 2.1

EU28* 2936.9 3933.5 3283.9 3998.5 4764.4 6595.5 6796.0 7705.9 7329.2

Intra-EU28 1065.9 2144.0 2028.7 1967.3 2520.5 4058.1 4565.3 5640.5 5336.4

Extra-EU28 1871.0 1789.5 1255.2 2031.2 2243.9 2537.4 2230.7 2065.5 1992.7

All, excl. intra-EU28

2357.9 2660.2 2497.8 2483.3 3077.1 3589.9 3332.0 3093.6 2472.4

Table A.4: Exporters of wind-powered generating sets (HS 850231) In descending order of 2014 trade volumes in Nominal US dollars (US$ millions)

* including intra-EU28 trade.

** Japan has been included to show important exports in 2007-09

Source: COMTRADE, using WITS (Vossenaar 2016)

42

ReporterExports

(US$ millions) ReporterImports

(US$ millions)2013 2014 2013 2014

All reporters* 18348.2 19797.1 All reporters* 15821.1 17765.2

Germany* 3669.1 3943.5 United States 2338.6 2670.4

Japan 2262.2 2166.9 China 1819.7 2030.2

China 1723.6 2035.1 Canada 540.9 1518.2

Italy* 1894.9 1981.3 Germany* 1064.0 1271.4

United States 1346.0 1845.0 Brazil 760.1 706.2

Chinese Taipei 652.6 799.7 Mexico 564.1 585.9

France* 672.7 711.1 Denmark* 507.9 569.0

Belgium* 799.4 630.0 Korea, Rep. of 551.9 553.1

Denmark* 460.3 609.4 Japan 452.2 521.8

Finland * 365.3 608.6 Italy* 464.6 514.1

EU28* 10380.2 10949.2 EU28* 5097.2 5618.1

Intra-EU28 5354.2 5659.1 Intra-EU28 3848.1 4259.1

Extra-EU28 5026.0 5290.0 Extra-EU28 1249.1 1358.9

World, excl. intra-EU28 12994.0 14137.9 World, excl. intra-EU28 11973.0 13511.3

ReporterExports

(US$ millions) ReporterImports

(US$ millions)2013 2014 2013 2014

All reporters* 3533.7 3277.0 All reporters* 3112.5 2916.5

China 394.1 606.4 United States 186.5 344.6

Denmark* 805.0 581.6 Ethiopia 33.2 296.2

India 277.2 274.3 Germany* 315.0 277.6

Spain* 300.1 232.9 Algeria 44.7 143.0

Turkey 299.2 229.8 Canada 235.4 142.2

Germany* 179.5 178.9 United Kingdom* 332.6 132.4

Portugal* 114.4 119.0 Indonesia 124.3 102.1

United States 125.1 111.8 Zambia 16.1 96.0

Indonesia 96.6 110.8 France* 63.5 71.6

Sweden* 70.4 105.6 Australia 82.1 69.9

EU28* 1807.6 1470.9 EU28* 1284.9 756.2

Intra-EU28 1489.5 1204.4 Intra-EU28 1082.9 581.4

Extra-EU28 318.0 266.5 Extra-EU28 202.0 174.8

World, excl. intra-EU28 2044.2 2072.6 World, excl. intra-EU28 2029.6 2335.1

Table A.5: Top 10 exporters and importers of gears and gearing, ball or roller screws, gearboxes and other speed changers (HS 848340), 2013–2014

In descending order of 2014 trade (US$ millions)

Table A.6: Top 10 exporters and importers of towers and lattice masts (HS 730820), 2013–2014

In descending order of 2014 trade (US$ millions)

* including intra-EU28 trade.

** Japan has been included to show important exports in 2007–09

Source: COMTRADE, using WITS (Vossenaar 2016)

* including intra-EU28 trade

Source: COMTRADE, using WITS (Vossenaar 2016)

43Climate and Energy

ReporterExports

(US$ millions) ReporterImports

(US$ millions)2013 2014 2013 2014

All reporters* 6333.0 6782.0 All reporters* 6724.8 7324.2

Denmark* 678.7 1109.9 United States 1494.9 1966.8

Germany* 827.3 997.9 Germany* 740.9 907.8

United States 1218.9 913.7 Canada 694.0 411.5

China 773.7 887.5 United Kingdom* 361.2 378.2

Spain* 371.8 441.2 Netherlands* 222.6 270.3

Singapore 435.7 373.3 China 234.1 258.9

Japan 245.1 243.9 Panama 0.9 208.5

Netherlands* 246.9 241.0 France* 148.6 204.8

Canada 219.9 229.0 Sweden* 186.9 192.2

United Kingdom* 169.3 116.4 Singapore 247.6 166.3

EU28* 2967.6 3632.4 EU28* 2787.4 2935.5

Intra-EU28 1829.1 2483.4 Intra-EU28 2015.6 2086.3

Extra-EU28 1138.4 1149.0 Extra-EU28 771.8 849.2

World, excl. intra-EU28 4503.9 4298.5 World, excl. intra-EU28 4709.2 5237.8

ReporterExports

(US$ millions) ReporterImports

(US$ millions)2013 2014 2013 2014

All reporters* 3448.9 3767.9 All reporters* 3335.8 3735.7

United States 521.6 629.1 United States 400.8 547.7

Germany* 524.4 540.3 Korea, Rep. 417.0 365.9

China 428.3 507.6 Germany* 275.1 314.8

Japan 335.4 355.9 Denmark* 351.2 230.1

United Kingdom* 239.0 321.4 Algeria17 35.8 185.9

Austria* 111.1 218.2 China 140.6 137.9

France* 150.3 127.5 Chile 9.3 93.6

Brazil 95.0 122.6 Australia 13.5 91.9

Italy* 123.9 120.8 Kuwait 0.8 83.6

Spain* 170.0 99.9 United Kingdom* 84.9 76.0

EU28* 1769.8 1876.3 EU28* 1098.0 989.3

Intra-EU28 681.5 660.9 Intra-EU28 874.9 716.7

Extra-EU28 1088.3 1215.4 Extra-EU28 223.1 272.6

World, excl. intra-EU28 2767.4 3107.0 World, excl. intra-EU28 2460.9 3019.1

Table A.7: Top 10 exporters and importers of blades and hubs (HS 841290),16 2013–2014 In descending order of 2014 trade (US$ millions)

Table A.8: Top 10 exporters and importers of AC Generators (HS 850164), 2013–2014 In descending order of 2014 trade (US$ millions)

* including intra-EU28 trade

Source: COMTRADE, using WITS (Vossenaar 2016)

* including intra-EU28 trade

Source: COMTRADE, using WITS (Vossenaar 2016)

16 Also includes parts of jet engines for aircraft and spacecraft.

17 The import surge in 2014 in Algeria was probably generators for NG-fired power plants (PennEnergy 2013). It is also doubtful whether orders for Kuwait were intended for the wind industry.

44

Reporter 2012 2013 2014 2015Change 2012–15

(percent)All reporters* 51217.3 46733.7 50449.3 53916.3 5

China 17483.2 15759.2 19389.0 22831.3 31

Chinese Taipei 5608.9 5594.0 6528.5 5928.1 6

Japan 5834.7 4725.7 4535.9 4032.0 -31

Malaysia 2520.0 3288.0 3420.9 3931.0 56

Korea, Rep. 3878.8 3790.6 3420.0 3633.2 -6

Germany* 4697.3 3603.5 3156.3 3131.3 -33

Singapore 1585.1 1501.9 1793.6 2355.6 49

United States 1804.7 1611.8 1627.6 1526.7 -15

Philippines (HS02) 790.2 1231.3 1365.3 1640.3 95

Netherlands* 1421.6 965.7 1127.4 780.1 -45

Mexico 751.2 775.6 681.7 932.3 24

Poland* 24.4 38.3 475.5 419.1 1618

France* 468.2 409.2 339.7 344.0 -27

Belgium* 1003.3 365.2 315.0 248.0 -75

Czech republic* 467.2 210.1 253.2 170.8 -63

EU28* 10555.9 7581.4 6716.3 6224.5 -41

Intra-EU28 8453.3 5285.9 4829.9 4086.3 -52

Extra-EU28 2102.6 2295.5 1886.4 2138.2 2

World, excl. intra-EU28 42764.0 41447.8 45619.4 49830.0 17

Table A.9: HS 854140 or PV: Top 15 exporters, 2012–201520 In descending order of 2014 trade (US$ millions)

* including intra-EU28 trade

Source: COMTRADE, using WITS (Vossenaar 2016)

18 For a discussion, see UNEP (2014, 104).

19 These include Argentina, Brazil, China (as from 2009), Chinese Taipei, Colombia, Ghana, India, Japan (for imports), Morocco, Peru, South Africa (as from 2012), Thailand (as from 2007), and the United States.

20 This HS code also includes other photosensitive device and LEDs

Solar PV

The paper shows trends in trade in HS 854140, which, however, also includes other photosensitive semiconductor devices and light emitting diodes (LEDs).18 Some countries have PV-specific TLs.19

In the early 2000s, PV cells and modules accounted for only a relatively small portion of the value of global trade in HS 854140. This portion has increased over time. For example, in the case of US imports, it increased from only 6 percent in the period 1996–2001 to 68

percent in 2011–15. Similarly, in the case of Japan’s imports, this portion increased from 17 percent in 2002–05 to 87 percent in 2013–15. The portion of solar PV cells in the value of China’s exports in the subheading increased rapidly from 58 percent in 2009 to over 80 percent in 2010–11, but has fallen in recent years to below the 2009 portion in 2015. This may be explained by falling PV prices and the sharp decline in the value of China’s exports of solar cells to the EU28 and the US.

45Climate and Energy

Reporter 2012 2013 2014 2015Change 2012–15

(percent)All reporters* 53438.1 49731.7 53110.6 54123.5 1

China 6432.6 7577.8 8800.2 10106.7 57

Japan 3100.0 7006.5 8757.4 6401.3 106

United States 7115.1 5662.4 6506.2 8626.0 21

Hong Kong, China 3524.7 3890.6 3955.2 3787.8 7

Germany* 7292.7 3752.8 3153.3 2714.3 -63

Korea, Rep. 3031.3 3302.0 2891.8 2649.7 -13

United Kingdom* 953.4 1272.0 2429.7 2160.4 127

Mexico 1207.8 1463.3 1674.4 1735.3 44

Netherlands* 1991.6 1148.8 1456.2 859.4 -57

Chinese Taipei 1219.6 1049.9 1295.6 1435.1 18

Singapore 728.6 838.4 967.6 1387.4 90

Malaysia 376.0 752.8 950.7 1120.7 198

Poland* 65.3 196.8 817.2 702.1 975

India 871.9 1069.5 774.8 2056.7 136

France 1068.8 799.8 729-9 679.2 -36

EU28* 20931.2 11812.6 11462.9 9545.7 -54

Intra-EU28 7026.1 4434.0 3704.0 3222.4 -54

Extra-EU28 13905.1 7378.6 7758.8 6323.3 -55

World, excl. intra-EU28 46412.0 45297.7 49406.6 50901.1 10

Table A.10: HS 854140 or PV: Top 15 importers, 2012–201521 In descending order of 2014 trade (US$ millions)

* including intra-EU28 trade

Source: COMTRADE, 12 Oct 2016. Contributed by Rene Vossenaar

21 Also includes LEDs.

46

Market destina-

tion

Exports (US$ millions) VAR* (per-cent)

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

HS 854140

World 2459.7 5252.3 11745.4 10721.2 25178.6 27946.2 17483.2 15759.2 19389.0 22831.3 -18

EU-28 1417.5 3708.6 9324.4 7655.5 19585.1 18929.7 9506.0 3540.1 2882.6 2394.6 -87

Hong Kong 439.3 607.2 846.3 1197.6 1648.2 1810.4 1719.1 2659.2 2559.4 5278.7 192

Japan 181.7 235.2 289.1 284.5 467.2 641.7 1181.2 3241.7 5092.1 4057.0 532

USA 120.9 208.3 288.7 444.6 1297.2 2886.5 1746.7 1722.0 2223.4 1878.8 -35

India 9.5 17.5 23.8 38.2 100.4 519.8 248.7 611.5 577.7 1467.3 182

Korea 88.6 168.6 476.3 406.4 382.9 518.6 862.8 949.7 1337.2 1368.3 164

Singapore 35.1 60.3 56.9 47.3 66.9 46.4 70.9 76.9 222.2 1052.0 2167

Taipei,

China65.3 107.4 190.4 124.5 191.0 201.7 155.0 234.3 602.1 693.2 244

Philippines 3.5 2.8 4.5 6.7 12.8 33.6 43.8 145.2 308.4 596.9 1676

Dvlpng 708.2 1067.6 1753.9 2053.2 2707.9 3738.9 3762.7 6242.3 8392.3 13896.8 272

Solar cells (854140.20)

World N/A N/A N/A 6173.7 20198.0 22565.3 12787.6 10150.8 12319.2 12938.4 -43

EU-28 N/A N/A N/A 4939.9 17035.6 16772.7 8284.7 2914.2 2352.8 2054.2 -88

USA N/A N/A N/A 277.8 1046.1 2448.2 1416.9 1208.1 1818.2 1634.8 -33

Dvlpng N/A N/A N/A 573.4 767.2 1356.4 954.3 2335.6 3028.3 5357.1 295

Solar cells as a portion of all HS 854140

World N/A N/A N/A 57.6 80.2 80.7 73.1 64.4 63.5 56.7 N/A

EU-28 N/A N/A N/A 64.5 87.0 88.6 87.2 82.3 81.6 85.8 N/A

USA N/A N/A N/A 62.5 80.6 84.8 81.1 70.2 81.8 87.0 N/A

Dvlpng N/A N/A N/A 27.9 28.3 36.3 25.4 37.4 36.1 38.5 N/A

South-South trade as a portion of China’s exports

HS 854140 N/A N/A N/A 19.2 10.8 13.4 21.5 39.6 43.3 60.9 N/A

Solar cells N/A N/A N/A 9.3 3.8 6.0 7.5 23.0 24.6 41.4 N/A

Table A.11: China: exports in HS 854140 and in solar cells (TL 854140.20), 2006–2015(US$ millions)

* Percentage change from 2011 to 2015

Source: ITC Trade Map

47Climate and Energy

www.ictsd.org

Other recent publications from ICTSD’s Programme on Climate and Energy include:

• Standards in the Photovoltaic Value Chain in Relation to International Trade George Kelly & Mahesh Sugathan, 2017

• The Environmental Goods Agreement: How Would US Households Fare? Kornel Mahlstein & Christine McDaniel, 2017

• The Relevance of the Environmental Goods Agreement in Advancing the Paris Agreement Goals and SDGs: A Focus on Clean Energy and Costa Rica’s Experience

Monica Araya, 2016

• Mutual Recognition Agreement on Conformity Assessment: A Deliverable on Non-Tariff Measures for the EGA?

Mahesh Sugathan, 2016

• The Nexus between the WTO and the Energy Charter Treaty in Sustainable Global Energy Governance: Analysis and Policy Implications

Anna Marhold, 2016

• Reducing Import Tariffs for Environmental Goods: The APEC Experience Rene Vossenaar, 2016

• Enabling the Energy Transition and Scale-up of Clean Energy Technologies: Options for the Global Trade System

Ricardo Meléndez-Ortiz, 2016

About ICTSDThe International Centre for Trade and Sustainable Development (ICTSD) is an independent think- and-do-tank, engaged in the provision of information, research and analysis, and policy and multistakeholder dialogue, as a not-for-profit organisation based in Geneva, Switzerland. Established in 1996, ICTSD’s mission is to ensure that trade and investment policy and frameworks advance sustainable development in the global economy.