Chinese solar companies are gradually shifting the country’s solar supply chain away from Xinjiang as the U.S. increases its scrutiny of the region.

Daqo New Energy Corp., which operates a massive polysilicon factory in the western China region, announced Monday it would build a second, larger facility in Inner Mongolia. That’s part of a broader movement. Just 15% of announced or under construction polysilicon projects as of November are in Xinjiang, according to BloombergNEF, compared to 40% of global capacity being there at the end of 2020.

The shift is happening as the U.S. intensifies its scrutiny over allegations of forced labor and other efforts to suppress the predominately Muslim Uyghur minority there — claims that the Chinese government denies. U.S. Customs has detained solar panels from several Chinese companies this year, and Congress this month passed a bill that would ban goods made in Xinjiang from being shipped to the U.S. unless companies can prove that they’ve not been made with forced labor.

Daqo, which trades in New York and opened its Xinjiang factory to media outlets earlier this year, said Tuesday it has never taken part in forced labor so its decision to locate outside of the region has nothing to do with a risk of sanctions. 

Instead, it’s about setting up in a region with a more developed power grid that gives it access to more renewable energy so it can offer customers a product with a smaller carbon footprint, according to Kevin He, the company’s head of investor relations.

“Inner Mongolia has a lot of solar, a lot of wind,” he said. “So this basically provides a foundation or ideal environment for you to use a certain percentage of renewable energy.”

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Polysilicon production uses massive amounts of electricity to refine silicon metal into the ultra-conductive material that makes up solar panels. One of the reasons Xinjiang became a popular spot for factories is that it offered cheap energy thanks to abundant coal resources with little access to coastal markets.

Now cheap power prices have come to places like Inner Mongolia and Sichuan, and that’s the main driver for the new capacity being located there, said Jenny Chase, an analyst with BloombergNEF. Still, “diversification of risk — both power supply and political — is likely to be part of it” as well, she said.

In addition, as the solar industry shifts supply chains and accelerates traceability services to steer clear of problems, “forced labor risks may start to subside in 2022,” Roth Capital Partners analysts including Philip Shen said in a report emailed Dec. 20.