From Chicago's (and D.C.'s and Beijing's) Paulson Institute, Macro Polo, February 9, 2021:
Cheap Solar (Part 2): How Solar Manufacturing Got Its Chinese Characteristics
Over the past decade, China has become both the largest market and the biggest supplier of solar photovoltaic (PV) panels globally. The country dominates manufacturing: only two of the ten largest solar PV manufacturers globally are not Chinese (see Figure 1).
In Part 2 of this series, I examine 1) China’s impact on solar PV prices; 2) how China became a solar industry powerhouse that enabled it to affect costs; 3) the resulting political backlash in other countries and implications for the clean energy transition. (View Part 1 of the series here).
*****1. A Solar Cost Revolution
Thanks to the dramatic fall in PV panel costs, solar energy is now much more competitive with coal, facilitating the global clean energy transition (see Figure 2). Chinese manufacturers were key in making solar panels a commodity that is both widely available and affordable. As of 2019, China was home to almost 80% of the world’s solar panel production capacity.
Although estimating the precise “China impact” on global PV cost is difficult, particularly since costs were dropping well before Chinese manufacturers arrived en masse, there are some proxies. For instance, in 2012, the lowest price that a Chinese monocrystalline silicon solar panel producer could set while maintaining acceptable returns (Minimum Sustainable Price) was estimated to be 23% lower than that of a comparable American firm.
2. How China Did It
China’s solar industry, unlike its wind turbine industry, is dominated by private firms. Local governments, however, were key early players. This was especially so in the Yangtze River Delta region, which could be dubbed the “Polysilicon Valley” given the concentration of major solar firms that led the Chinese industry’s development. These companies were attracted by a variety of local incentives, including industrial parks, subsidized land, tax breaks, and, importantly, discounted electricity.
Initially, Chinese solar producers relied almost entirely on imported components and machinery and exported the vast majority of the end products. But as the industry expanded, so did upstream investment in polysilicon and wafer production, as well as manufacturing equipment. The result was an increasingly indigenized and vertically integrated supply chain, economies of scale, and cost advantages for local manufacturers.
Yet that scale—the average Chinese factory was four times the size of the average American one—led to exports flooding the global market, triggering punitive trade responses (see below). At the same time, demand faltered in European countries as they cut feed-in-tariffs (FiT) after the global financial crisis.
As the export market faced uncertainty, Beijing threw its weight behind the domestic renewables market by adopting its own FiT in 2011. The policy support was effective in bolstering domestic demand. By 2015 China had the most installed solar capacity and electricity generation of any country.
The solar industry continued to grow, attracting more investment. New market entrants proliferated, and an increasingly crowded playing field intensified competitive pressures to cut costs. Industry pioneers like Suntech were driven to bankruptcy, unable to adapt quickly enough.
Beijing actively fueled this competition in order to weed out weaker firms and raise the quality of products. In particular, it launched a top-runner program in 2015 which had the effect of increasing R&D spending to improve efficiency in the value chain and to shift toward higher performance monocrystalline panels. In addition, Beijing slashed the FiT in 2018 pushing the industry towards consolidation.
3. The Fallout and Controversy
Competition from Chinese manufacturing proved damaging and disruptive for former industry leaders, particularly German solar cell and panel manufacturers. To counter Chinese manufacturers’ alleged unfair advantage from state support and local content requirements, the European Union and the United States responded with anti-subsidy and anti-dumping tariffs on Chinese solar panels between 2011 and 2014....
....MORE
If interested see also:
Going Green: "The battle over raw materials will decide who rules the world"
And as noted in "Why Your ESG Fund Is, And Will Be, Dominated By Technology Stocks (and what it means for your returns)":
b) despite the rapid decrease in the price of solar electricity at the panel level, when you add the cost of storage, batteries or pumped hydro or molten salt or whatever, and the price of inverters to make your leccy compatible with the grid and back-up power for when the sun doesn't shine or the wind doesn't blow and connection costs and I'm sure I'm leaving a half-dozen costs out, but when you add it all up renewable electricity is still more expensive than natural gas fired turbines, despite the conversion losses when using natty.
