How American Tax Breaks Brought a Chinese Solar Energy Giant to Ohio

American manufacturers are crying foul, saying these factories undermine their quest to build a domestic solar supply chain. Although other countries have taken advantage of the IRA’s subsidies, political objections have focused on Chinese investment. Bipartisan momentum is building in Congress to block China-backed firms from claiming tax credits for manufacturing anything central to the energy transition—a category that extends beyond solar panels to electric vehicles and batteries.

In Ohio, retired middle-school science teacher Eileen DeRolf has become an outspoken critic of Illuminate and the policies that brought it to Pataskala. She points to a 15-year tax abatement from the city and $4 million in incentives from a state economic development agency, to say nothing of the $350 million in potential annual tax subsidies from the Inflation Reduction Act.

“To me, this is betraying America, to allow an uneven playing field,” DeRolf said. “I happen to not particularly want our geopolitical No. 1 enemy to benefit off our economic system.”

Illuminate and its American and Chinese parent companies see it differently. They point to an influx of well-paying jobs and to a resurrection of manufacturing in a fast-growing sector of the economy.

“We’re a majority-owned American company,” said John Duer, Illuminate’s chief legal officer. “We have a minority partner based in China. We’re not a Chinese company trying to do business in the US.”

Executives at Invenergy and Longi had been talking about collaborating for years, but it took the Inflation Reduction Act — the 2022 law meant to jump start US clean energy manufacturing — to spur them to action. Less than seven months after President Joe Biden signed the IRA, they announced plans for the Pataskala plant, and by early 2024, panels were rolling off the assembly line.

In addition to the tax credits Illuminate can claim for its US-made panels, its parent companies reap significant benefits from the tie-up. Invenergy is the factory’s first and biggest customer, earning additional credits for using domestically produced components in its solar arrays. And Longi, like other Chinese panel-makers, brings advantages gained through decades of experience and generous support from Beijing.

China identified solar panels as a priority more than a decade ago, handing subsidies and low-cost financing to developers and manufacturers, while pushing utilities to use more renewable power. Chinese firms also benefited from cheap electricity and cheap labor.

In addition, the industry has been dogged by allegations that some suppliers used forced labor from the country’s westernmost province, a mostly-Muslim region called Xinjiang. Beijing has repeatedly denied these accusations.

What no one disputes is that today Chinese companies dominate the market for solar panels and all of their component parts.

For environmental advocates, China’s cheap panels have been a boon, driving a more than 50-fold increase in emissions-free solar power generation globally since 2010. But to American rivals, something more nefarious was at work. They argued Chinese solar companies were selling their products below cost to unfairly corner the market, and trade authorities agreed, kicking off a cycle of tariffs meant to level the playing field.

Today, steep US tariffs have effectively killed domestic demand for made-in-China solar panels. Companies, including Longi, first responded by shifting operations to other Asian nations, spurring another round of trade probes and enforcement. By producing panels in Ohio, Longi steps out of this game of Whac-a-Mole — and avoids at least $155 million(2) in annual tariffs.

Combined with the incentives from the IRA, Longi and other panel-makers can “make huge profits,” said Yana Hryshko, chief solar analyst at consulting group Wood Mackenzie. After surviving two decades of industry turbulence, these “are not stupid companies,” she said. “They will not make a move without being confident.”

On a June Friday morning, job-seekers started to gather at the Perry County, Ohio, career center well before Illuminate’s recruitment event was scheduled to begin. Many of the plant’s workers come from outside Pataskala, including areas hit hard by the collapse of coal mining.

A job at the plant would mean a longer commute for Tricia Tilley, a 47-year-old janitor and church secretary. It would also nearly double her income and provide health insurance for her and her teenage son.

As for the company’s ties to China? “I know they’re from another country, but they’re here trying to put money into our country,” she said. “As long as it’s a good job and they’re paying everybody—keeping on the up-and-up—I don’t see any problem with it. Follow the rules like everybody else, we’re cool.”

Right now, Illuminate depends on the expertise of Chinese workers who’ve spent years handling specialized module-making machinery and brittle crystalline silicon cells. For many, it’s their first time outside of China, drawn by higher salaries and a sense of adventure.

“We’re here just to teach the American workers,” said Li, a production line technician who asked to be identified by her family name because she wasn’t authorized to speak to reporters. “When they can start a production line by themselves, there’ll be no need for us to be here anymore.”

Li’s days begin with a video chat around 5 a.m., a chance to talk with her children in China before a company shuttle takes her from suburban Columbus to the factory. Many of the Chinese workers at Illuminate work 12-hour shifts, six days a week, logging 60% more hours every month than the plant’s typical American employees.

Longi’s expats went through language training, though most rely on translators to communicate with their trainees. They also got a crash course in American culture, with advice to avoid commenting on race, skin color or body type. Li said her American colleagues have been kind.

“I hadn’t been out of China before. Now I get to come out and take a look,” she said. Li pegged her timeline at “two or three years. After that I’ll go back. Then I can say I’m a person who has been to the United States!”

Illuminate is leaning in to its heartland identity. Its website touts its role “investing in Ohio” and “onshoring America’s supply chains.” It’s partnering with local high schools for a robotics challenge and also has sponsored the city’s summer fireworks and its roughly 60-year-old fall festival.

DeRolf and other local skeptics deride these efforts as a charm offensive, albeit an effective one. It’s made it “ever so much more difficult to get this town and the people to pay attention to what we’ve got in that building,” DeRolf said.

Like DeRolf, activists in Mesquite, Texas, are taking aim at a $270 million plant that began producing panels late last year. Some 1,400 Texans now work at the factory owned by Canadian Solar Inc. — and while the company’s corporate headquarters are in Ontario, most of its directors and much of its manufacturing reside in China.

Foreign direct investment has always been critical to countries trying to build domestic industry. In the late 1990s, China, for its part, welcomed Western automakers, providing access to its growing market while learning from their decades of experience.

“Most of the companies that are building solar panels right now that have the know-how or skills are Chinese,” said Ilaria Mazzocco, a senior fellow at the Center for Strategic and International Studies. They also have well-established supply chains outside the US. At Illuminate, for example, panels are made with photovoltaic cells and glass from Malaysia and aluminum frames from Vietnam.

Many key materials aren’t yet produced domestically, and Illuminate says it’s actively working to expand its US supply base.

The promise of the Inflation Reduction Act was that “you’re restoring the American industrial base,” said Nathan Picarsic, the founder of consulting group Horizon Advisory, which has investigated Chinese supply chain dominance and the use of forced labor. But as more Chinese-backed solar companies operate on US soil, it betrays “the story that we’re telling ourselves about the manufacturing renaissance.”

The clash reverberates beyond solar to the fast-growing field of electric vehicles and battery manufacturing, also subsidized by the Inflation Reduction Act. In rural northwest Michigan, the town government is opposing an electric vehicle battery factory planned by a subsidiary of China’s Gotion High-tech Co. Ltd. The project is still mired in legal fights.

In Virginia, Governor Glenn Youngkin discouraged Ford Motor Co.’s interest in building an electric vehicle battery plant with China’s Contemporary Amperex Technology Co. Ltd. in the state, calling it a “Trojan horse” for Beijing. The move drew praise from Youngkin’s Republican base. Ford is now building the plant in Michigan and will license CATL’s technology in lieu of a deeper partnership.

Licensing is one way the US can tap Chinese manufacturing expertise and technical know-how while retaining more control over operations, said Mazzocco. Regardless, the issue is a flashpoint for politicians—and is fueling bipartisan efforts in Congress to bar companies with ties to China and other so-called “foreign entities of concern” from claiming the IRA’s manufacturing tax incentives. (It’s also a way lawmakers could try to offset spending in the next budget fight.) The Treasury Department could also move unilaterally to impose restrictions on what projects qualify for the credit.

Cory Ford, a school bus mechanic in the Pataskala area, doesn’t share his community’s embrace of the Illuminate plant. He doesn’t want US taxpayer dollars to benefit Chinese industry; he’s also concerned that the firms could leave as quickly as they arrived. After all, Chinese companies have become expert at rapidly relocating in response to unfavorable tariffs or taxation.

“We’ve given so much in subsidies and government funding,” he said. “When that runs dry, how quickly is that building going to empty out?” And, he asks, what happens to the local American workers left behind?

Illuminate isn’t going anywhere, Duer said, even if Washington puts the manufacturing subsidies outside of reach: “We would adjust. Nothing is fatal. Nothing can’t be overcome. The fact of the matter is, we’re here to stay.”

(1) BloombergNEF projects US domestic demand for solar panels will be 45.5 gigawatts in 2024 and 50.4 gigawatts in 2025.

(2) Estimate based on the average price in September for panels exported to the US ($0.25 per watt), Longi’s share of Illuminate’s planned annual production capacity (5GW) and a potential combined antidumping and countervailing duty rate for Malaysian modules exported to the US of 25%. Note: Any final antidumping and countervailing duty rates would be set as part of a US trade probe of imports from Malaysia and three other Southeast Asian nations expected to conclude next year.

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