What the U.S. ban on Hoshine Silicon means for the PV industry

By Johannes Bernreuter, Head of Bernreuter Research

The U.S. government has apparently taken a recently published research report from the Sheffield Hallam University about the entanglement of the global solar supply chain with forced labor in the Xinjiang Uyghur autonomous region more seriously than some in the solar industry may have done.

On June 24, the Department of Homeland Security announced that its U.S. Customs and Border Protection (CBP) agency issued a so-called Withhold Release Order against Xinjiang-based Hoshine Silicon Industry Co., Ltd., based on information “reasonably indicating that Hoshine uses forced labor.” The company is the world’s largest manufacturer of metallurgical-grade silicon (silicon metal).

The order “instructs personnel at all U.S. ports of entry to immediately begin to detain shipments containing silica-based products made by Hoshine and its subsidiaries” as well as “materials and goods (such as polysilicon) derived from or produced using those silica-based products,” CBP says. Importers of detained shipments have an opportunity to demonstrate that the product was not made by forced labor.

On the same day, the White House published a list of further measures. Among them, the Department of Commerce added Hoshine Silicon’s Shanshan subsidiary, the polysilicon manufacturers Xinjiang Daqo New Energy, Xinjiang East Hope and Xinjiang GCL as well as the paramilitary Xinjiang Production and Construction Corps (XPCC) to a blacklist that prohibits the export of commodities, software, and technology to those companies. In practice, this restriction will have no relevance.

Mounting political pressure over the forced labor issue in Xinjiang

It looks like the U.S. government has given way to mounting political pressure in Washington, D.C. over the forced labor issue, whereas CBP would have liked to have more time for investigation. On June 10, 24 members of the Way and Means Committee in the U.S. House of Representatives, all from the governing Democrats, sent a letter to CBP saying: “CBP has had sufficient time to review the disturbing facts regarding forced labor and polysilicon production in Xinjiang – we believe it is time to act.”

At a press conference on June 24, however, CBP executive director Ana Hinojosa admitted that the scope of CBP’s investigation is still “evolving.” Hinojosa said: “There are certainly more products that have been produced, but we are continuing our investigations into importers and end products to determine what additional targeting we need to incorporate.”

The CBP executive director also explained that her agency identified $6 million of direct imports from Hoshine and $150 million of downstream products using Hoshine materials over the past two and a half years. That would be a tiny amount compared to the $2.14 billion of solar panel imports in the first quarter of 2021 alone, according to the U.S. Energy Information Administration.

Will the U.S. Customs and Border Protection do more than pinpricks?

In contrast, Hoshine has mentioned all of the world’s top eight polysilicon manufacturers as its customers as the Sheffield Hallam University report has revealed: Tongwei, Wacker, Daqo, Xinjiang GCL, Xinte, East Hope, OCI and Asia Silicon. These eight together made up more than 90% of the global solar-grade polysilicon output in 2020.

The big question is: What will CBP make of that fact? If it only does pinpricks as the tiny import figures presented at its press conference indicate, the Withhold Release Order against Hoshine will remain symbolic politics, and the impact on the U.S. solar market will be limited.

In any case, the uncertainty about how strictly CBP will execute the order is increasing the pressure on polysilicon manufacturers to cut ties with Hoshine. The two most obvious candidates to do that are China-based Tongwei and Germany-based Wacker since both don’t source a large portion of their silicon metal demand from Hoshine.

OCI as another non-Chinese manufacturer would also be well advised to stop sourcing from Hoshine in order to establish itself as a supplier untainted by forced labor. Wacker and OCI alone could thus supply untainted polysilicon for 30 GW of solar modules.

In the medium term, there is no way around new supply chains outside China

The next important step will be keeping this material unblended with polysilicon from Xinjiang at the wafer manufacturers in China as it is likely that an import ban on polysilicon from Xinjiang will follow – at the latest when the Uyghur Forced Labor Prevention Act is passed by the U.S. Congress.

In view of the Chinese dominance in wafer production, it will not be easy to accomplish, audit and prove at customs a supply stream of untainted solar products, but the solar industry demonstrated in the past that it can be inventive in overcoming such hurdles. While it will take some time for the industry to accommodate to the new conditions, things may have settled in 2022.

However, it is also clear that this can only be an interim solution. There is no way around establishing new solar supply chains outside China. Solar power plant developers should become aware that products manufactured without forced labor and a high carbon footprint have a price – perhaps 2 $Cents per watt or 10% more than solar panels made in China. If environmental, social and corporate governance (ESG) criteria are no lip service for them, investors and consumers have to be ready to pay this price.