Analysis Suggests China’s Solar Market Dominance Not “Intrinsic”

October 17, 2013

Over the last decade, the world’s solar photovoltaic (PV) industry grew robustly – bucking the trend of other industries during the downturn of 2008 - with a sustained annual growth rate of 52%. Over the same period, Chinese production of the dominant PV product, crystalline silicon (c-Si) PV, increased from negligible to nearly two-thirds of global output.  The common wisdom, attributing Chinese market dominance to low labor costs and government support is incorrect, however, suggest economists at Massachusetts Institute of Technology (MIT) and the National Renewable Energy Labs (NREL). The researchers modeled pricing factors into a “minimum sustainable price” (MSP) based on three broad categories of cost: indigenous factors, regional incentives, and scale and supply chain. Cost of labor and equity are examples of “indigenous factors,” while “regional incentives” consisted of subsidies, tax holidays, and cost of debt. Based upon modeling a “typical” PV manufacturing facility located in the U.S. (~500 MW annual output) and in China (~ 2000 MW), the researchers produced an MSP difference of $0.28/W for the two sources, matching well with real-world pricing in 2012. The two categories of indigenous factors and regional incentives only accounted for $0.05/W. The remaining $0.22/W, or 78% of the pricing difference, stemmed from manufacturing scale, material discounts, and equipment discounts, lumped together in the category of “scale and supply-chain.” In short, the significantly larger scale facilities with cheaper Chinese-produced equipment allowed production optimization and significant negotiated supply discounts. These advantages, the researchers posit, could be replicated in U.S. facilities given equivalent scale. Future technology will likely enable even further price reduction of PV modules, making highly-scaled local manufacturing economically attractive for a global company in any major consumer region – the USA included.

Article Title: Assessing the drivers of regional trends in solar photovoltaic manufacturing

Authors: Alan C. Goodrich, Douglas M. Powell, Ted L. James, Michael Woodhouse, and Tonio Buonassisi

Citation: Alan C. Goodrich, Douglas M. Powell, Ted L. James, Michael Woodhouse, and Tonio Buonassisi, Energy Environ. Sci., 2013, 6, 2811

DOI: 10.1039/c3ee40701b

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