The quest to make solar energy a major source of the world’s electricity will not succeed if national policies and industries compete as though it is a zero-sum game.
That is just one of many findings of The New Solar System, a sprawling report released earlier this week by Stanford University’s Steyer-Taylor Center for Energy Policy and Finance, a joint research center that includes the university’s business and law schools. The result of two years of work -- including interviews with dozens of government officials and industry executives in China and the U.S. -- the report sketches out a future where the scale of solar depends on self-interested cooperation.
“The New Solar System does not seek to enable any country to beat another in the global solar industry. It seeks instead to help all countries find their most effective places,” wrote the report’s authors, Jeffrey Ball, Dan Reicher, Xiaojing Sun and Caitlin Pollock.
Though they acknowledge this concept may be idealistic, they insist that emphasizing the strengths of individual countries and tailoring policies to support those strengths will result in the kind of cost reductions required to reach meaningful scale.
Above all, the report argues, subsidies and other financial support for solar offered by state, local and national governments must take a long view in terms of supporting what an individual country does well. This will ensure that financial support continues pushing costs down, but also improves the odds that those investments reap meaningful long-term benefits.
Take the example of manufacturing. “Today, governments fashion certain solar policies largely for short-term economic gain -- in many cases, to [generate] a relatively small number of highly subsidized domestic manufacturing jobs,” write the authors. “A more effective and efficient approach would involve governments assessing and then fashioning polices that played to their jurisdictions’ specific comparative advantages in solar manufacturing.”
To be sure, this kind of approach to solar subsidies and policies would be a departure from the past, which has seen a mixture of overly generous incentives (e.g., the Spanish feed-in tariff) that led to unsustainable booms followed by miserly or nonexistent support that causes industries and companies to die (e.g., Spain today).
It has also led to international trade wars as countries seek to protect domestic manufacturing that would likely not be competitive without tariffs -- a development that has not helped the solar industry to cut costs as aggressively as it could.
In the policy jigsaw puzzle that the report’s authors envision, China is an understandably large piece. Because it dominates both solar manufacturing and solar deployment, China impacts the direction and potential strengths of the solar industry in countries around the world. A deep understanding of the Chinese industry and its direction, argue the authors, is essential in order for the U.S. to devise and pursue policies that play to American strengths, particularly in research and development (R&D).
But the report also argues that the West's fundamental understanding of China’s solar industry is riddled with myths. The authors attempt to bust five major misconceptions.
1. The Chinese industry is in dire financial condition. China became the world’s leader in manufacturing by relentlessly pursuing a strategy of expanding capacity to win market share. That strategy worked for a time, but it also led a number of once-dominant manufacturers to struggle mightily. Nevertheless, the report’s authors point out that over the long term, consolidation is creating a smaller number of larger and more vibrant Chinese companies able to compete globally.
2. Chinese manufacturers don’t innovate. As the report points out, it has long been believed in the West that Chinese solar manufacturers are good at one thing: taking the technological advances devised in places like Germany and the U.S. and employing them at scale in order to drive down costs. But that conventional wisdom is mistaken, the authors assert, as China has become more sophisticated in the R&D realm. Just one example is Trina achieving the world record for efficiency of a research-scale multicrystalline silicon solar cell.
3. The solar industry is centralizing in China. Rather than a global industry concentrated in just one country, China, the report finds that it is decentralizing around the world. As manufacturers consolidate, they are also spreading their R&D, manufacturing and deployment activities far from China’s borders. “This is an important sign of industry maturation. It resembles transformative stages in the growth of other global manufacturing sectors, from automobiles to electronics,” according to the authors.
4. U.S. and European tariffs have hurt Chinese manufacturers. Far from financially crushing Chinese manufacturing, tariffs imposed by the U.S. and the European Union have only made the industry “leaner and stronger.” Those tariffs, the authors argue, have both failed to make the U.S. a major solar manufacturer and have resulted in retaliatory tariffs, which have harmed the one bright spot of American solar manufacturing: polysilicon production.
5. China is closed to foreign investment. Along with becoming a manufacturing behemoth, China also sprinted into the lead in the deployment of solar -- going from just 800 megawatts installed at the end of 2010 to around 76,500 megawatts at the end of last year. But Chinese government and industry officials recognize that the country needs outside capital in order to grow solar installations and allow China to reach its climate targets. This is an opportunity for foreign investment.
Where America fits in
China’s outsized and evolving role in the global solar industry needs to be acknowledged in order to develop better U.S. policies that will maximize domestic economic benefits and encourage ongoing cost cuts. To promote those goals, the report’s authors outline three underlying priorities and a raft of specific recommendations to guide U.S. policy.
The priorities begin with reducing solar costs. Although recognizing the impressive cost declines achieved over the past decade, the report highlights how much remains to be done. Policies should accelerate progress toward the Department of Energy’s (DOE) targets of unsubsidized cost targets of $0.03 per kilowatt-hour for utility-scale solar, $0.04 for commercial solar, and $0.05 for rooftop solar by 2030.
The second priority for policymakers outlined in the report is to embrace solar as a globalizing industry. This means devising policies aimed at enhancing U.S. advantages rather than punishing and defeating China.
The final priority is to focus the federal government on R&D and deployment. “Solar manufacturing is unlikely to produce large numbers of U.S. jobs, because it is an increasingly automated process,” state the authors. “The majority of solar jobs are in areas other than manufacturing: in sales, installation, operation, and R&D.”
The report translates those priorities into a wide range of specific policy recommendations, covering R&D, manufacturing and deployment. The recommendations include:
- A big increase in R&D spending for solar, particularly in storage and transmission technologies that address the intermittent nature and delivery challenges of the technology.
- Broadened international solar R&D efforts that include China. “For the United States, cooperating with China on solar R&D poses real and important challenges, including concerns about the protection of intellectual property and national security,” the authors note. But failing to cooperate with China has even bigger risks, including not benefiting from China’s advances in silicon-focused research.
- Reforms in federal policy that require recipients of R&D funding to manufacture their technologies primarily in the U.S.
- A focus of solar manufacturing support on products that are expensive to import to the U.S.; that can be exported at scale and produced cost-effectively because of cheap natural gas; and export products developed and initially manufactured in the U.S. in small amounts but later shifted overseas for large-scale production.
- To bolster deployment, the report argues for a “significant” U.S. price on carbon, a continuation of the Clean Power Plan, resolution of state-level net-metering disputes and ongoing support of state renewable portfolio standards (RPS).
The Trump factor
It’s difficult to read the policy recommendations in The New Solar System and not think of the Trump administration’s hostile attitude toward clean energy and policies to curb climate change. The authors of the report don’t ignore this reality, and they quote extensively from Trump’s 2015 book, Crippled America: How to Make America Great Again.
In it, Trump dismisses solar as too expensive and requiring too many subsidies. Trump’s attitudes toward China and tougher trade measures also make it difficult to foresee greater collaboration on many issues, particularly solar energy.
Still, in an opinion piece in The New York Times, two of the report’s authors, Jeffrey Ball and Dan Reicher, find a sliver of hope in the president’s own words in Crippled America. In the book, Trump says that when solar is affordable and reliable, it may be worth discussing. We've already reached that point, argue Ball and Reicher.
“That time has arrived. A smarter solar policy -- one with a more nuanced view of China -- is something the new president ought to like,” they state.