China has decided to reduce its production capacity of polysilicon, a key material for solar panels, by 30%, which is expected to benefit South Korean solar companies such as Hanwha Solutions and OCI Holdings. The maintenance of the advanced manufacturing production tax credit (AMPC) in the legislation known as the "One Big Beautiful Bill (OBBBA)" passed by the U.S. Congress is also a positive factor for South Korean solar companies.
According to industry sources on the 7th, the Chinese government urged major solar corporations to voluntarily reduce production and undergo restructuring during a recent meeting. The key point is to cut polysilicon production capacity by about one-third. Reuters reported, "Negotiations are also underway to establish a fund worth 50 billion yuan to restructure some solar companies that are reporting losses," noting that reductions in production are expected to begin in the fourth quarter of this year, leaving polysilicon production capacity at approximately 2 million tons (t). China's polysilicon production capacity was 3.25 million tons as of the end of last year.
The polysilicon market for solar energy is almost monopolized by China. By 2024, China accounted for 95% of the world's polysilicon production. In Korea, only OCI Holdings produces polysilicon. OCI Holdings closed its plant in Gunsan, North Jeolla Province, in 2020 and currently produces polysilicon for solar energy only in Malaysia.
Hanwha Solutions has begun vertical integration of its solar energy business in the U.S. This is because the Inflation Reduction Act (IRA), created under the previous Biden administration, only supported tax credits for solar installations produced in the U.S. According to the IRA, companies producing solar cells and modules in the U.S. receive AMPC benefits of 4 cents and 7 cents per watt, respectively.
Hanwha Solutions is investing 3.2 trillion won to establish a solar production complex called "Solar Hub" in Georgia, USA, starting in 2023. The goal is to produce ingots, wafers, cells, and modules, each at a scale of 3.3 gigawatts (GW), in the solar supply chain consisting of polysilicon, ingot, wafer, cell, and module. To reduce dependency on China, Hanwha Solutions plans to source more polysilicon from OCI Holdings.
The continuation of AMPC payments related to solar energy until 2032 under the OBBBA legislation also helped alleviate uncertainty. Lee Woo-hyun, chairman of OCI Holdings, remarked at a recent second-quarter earnings briefing, "The enactment of the OBBBA legislation has alleviated some uncertainties in the U.S. solar business by maintaining the AMPC as it is," adding that provisions newly introduced, such as the Foreign Entity of Concern (FEOC), will present new opportunities for non-Chinese companies in the solar value chain like OCI Holdings.
However, uncertainty remains as specific details related to the OBBBA executive order have not been finalized. While the OBBBA legislation maintains the broad framework of providing tax benefits to foreign companies like those in Korea producing in the U.S., detailed implementation guidelines are still undecided. A representative from Hanwha Solutions said, "We must wait until details such as the origin criteria are determined."