China Heating Up Global Competition for Solar

June 24th, 2009 by Jennifer Kho

There’s no question that China is a force to be reckoned with in the solar industry. The country is the largest silicon-based solar-cell producer in the world, with Chinese and Taiwanese production accounting for 39 percent of global production last year, compared with 28 percent from Europe, according to a report the Worldwatch Institute released last week.

But while China had long been considered a potential game-changer in solar, companies’ growth had previously been slowed by a silicon shortage that hit newcomers more dramatically than incumbents. Even so, Chinese manufacturers overtook German and Japanese companies in 2007. Now that plenty of silicon is available, could the country’s dominance grow even larger? Or will some Chinese manufacturers struggle to differentiate themselves and suffer more than the rest of the market during an oversupply of panels?

One of the elements that will help answer those questions will be the growth of the Chinese market, which analysts say is likely to favor domestic producers. So far, solar installations in the country have remained fairly small, with the government estimating approximately 40 megawatts of new capacity last year. Some predict the market could finally be taking off as a result of new pro-renewable policies, while others expect it will take several more years to become significant.

Cost is another big factor. Now that panel supplies appear to be exceeding sales, European, American and Japanese companies are competing, said Gerhard Stryi-Hipp, head of energy policy for the Fraunhofer Institute for Solar Energy Systems, at a solar roundtable last week in advance of Intersolar North America next month. European and American companies are turning to more automation to counter China’s lower labor costs, he said.

Meanwhile, Michael Liebreich, CEO of research firm New Energy Finance, said China’s cost advantage is probably more related to lower cost of capital – it costs less to raise capital for new factories and other projects – than to labor costs. “The assumption that it’s always cheaper to manufacture in China because of lower labor costs is wrong, because as you manufacture for [higher] volume, you automate,” he said. “Excluding the cost of engineers, I have a feeling the cost advantage in China has more to do with the cost of capital than people think. You should be able to profitably manufacture in the United States.”

And the cheaper and more commoditized solar becomes, the more it will make sense to produce it where it’s used, reducing transportation costs, Liebreich added. “Once solar looks like glass – we don’t import glass for buildings from China,” he said.

Image courtesy of Philip Larson via a Flickr Creative Commons license.

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Tags: China, fraunhofer, intersolar, intersolar north america, kho, liebreich, New Energy Finance, Stryi-Hipp

About the Author

Jennifer Kho -- With more than nine years of reporting experience, Jennifer Kho has been covering green technology since 2004, when she started the cleantech beat at Red Herring magazine. She wrote for Red Herring until 2007, when she helped launch the Greentech Media site as its founding editor. She left Greentech Media in November. Her stories have appeared in such publications as The Wall Street Journal, the Los Angeles Times, and TheStreet.com. She also regularly contributes to Earth2Tech.