Many assume that it’s cheap labor that gives Chinese companies an edge at producing solar panels that cost less than those that come out of Europe or the United States. But a new study says no.
Researchers from the National Renewable Energy Laboratory and MIT said a bottom-up cost model they developed shows that a plant in China can sustainably crank out solar panels at a cost of 91 cents per watt, compared to $1.19 in the United States.
The key advantages that yield this sub-buck minimum sustainable price (MSP): scale and its companion, a ready supply chain, with access to capital and a lax regulatory structure -- including less restrictive environmental standards.
“The study shows that the density of production and the cost-benefit of using local suppliers give a China-based manufacturer access to cheaper materials and machinery,” the researchers found, according to a news release. “These scale and supply-chain advantages provide a China-based solar panel factory with a significant MSP advantage of $0.28 per watt.”
With scale the issue, the suggestion is that, in fact, China could be beat. “These advantages, which are not indigenous to China, could be replicated by manufacturers based in other countries if comparable scale could be achieved,” Al Goodrich, Senior Analyst at NREL and lead author of the study, said in a statement.
The problem is, it takes a ton of money to build to scale. The Obama administration tried to help some new manufacturers in the U.S. overcome this hurdle through a loan guarantee program, but companies like Solyndra and SoloPower were unable to get up to scale before going off the cliff.
“There’s a chicken-and-egg problem: consistent demand is needed to provide manufacturers with access to the capital required to achieve large scale production, but large-scale production will be necessary for solar power to compete as an energy source without subsidies,” Goodrich added.
“Future innovations in silicon solar panels -- which may be most quickly and effectively realized through global collaborative effort -- have the potential to reduce key investment risks for manufacturers. This would enable manufacturing on an equivalent scale across most regions, bringing the benefits of high volume production to them all.”
In fact, the idea of a such a global effort to make solar cheap and pervasive was recently floated by former U.K. chief science advisor David King, as well as the economist Richard Layard.
One last note: The idea that labor isn’t a big reason China has a cost advantage over other countries in solar manufacturing was a claim made by the Coalition for American Solar Manufacturing in its trade dispute with China and Chinese manufacturers. CASM used that fact to build the case that illegal practices were giving Chinese manufacturers an unfair advantage in the market.
The full study, “Assessing the drivers of regional trends in solar photovoltaic manufacturing,” is available online from the journal Energy & Environmental Science as a PDF.