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Solar stocks are in focus today after another round of panel import disruptions. US Customs recently detained several shipments from manufacturers of solar panels in China allegedly produced under forced labor. This is the latest consequence of recent anti-forced labor initiatives affecting a number of US solar companies.
The U.S. solar industry is facing supply constraints resulting from the import ban imposed by President Joe Biden’s administration in China’s Xinjiang region. Indeed, since the entry into force at the end of June of the Uighur Forced Labor Prevention Law (UFLPA), companies must confirm that their imports were not made by forced labor. Previously, it was the responsibility of US Customs to provide evidence of forced labor to apprehend suspicious shipments. The level of verification required by law has proven to be a major obstacle for many solar panel companies.
The UFLPA is the newest effort against human rights abuses in Xinjiang. Activists say the government forced hundreds of thousands of ethnic minorities there into internment camps. This includes a large population of Uighurs.
Under the law, all imports from the western region of Xinjiang are assumed to be made with forced labor. Xinjiang produces nearly half of the world’s supply of polysilicon, an input needed to produce solar panels.
What does UFLPA mean for solar stocks?
Until a suitable alternative presents itself, the solar industry in the United States could be going through a difficult period of transition. Representatives of solar companies have warned for some time expect delays due to the new law. US Imports of Solar Equipment fell more than 16% during the first half of the year, likely due to rising material costs as well as fear of additional tariffs.
It is a difficult balancing act. The Biden administration is trying to juggle the responsibility of Chinese labor with bold aspirations for renewable energy. Some analysts say it could take up to six months for import disputes over solar panels to subside.
Some panel manufacturers, such as Longi Green Power Technologyeven temporarily shut down some of its panel factories due to the new legislation.
The UFLPA requires proof that quartzite, an ingredient in polysilicon, was not mined in Xinjiang. This places a burden on quartzite miners, who previously were not required to offer such insight into their process.
The legislation could prove a rallying point to improve U.S. solar panel production, as some officials have already called for.
As of the date of publication, Shrey Dua does not hold (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.