What if China Stimulated Domestic Demand for Solar Photovoltaic Power?

Graphic credit The Washington Post

Manufacturing solar photovoltaic (PV) cells and modules in China has been a tremendous success, at least if you’re willing to put off profitability for job creation to help assure social stability. Sustainable over the long term? No, not likely, but in less than a decade, China’s manufacturers have captured 48% of the global marketof silicon PV cells, as the excellent graphic from the Washington Post shows.

During this period, global production of solar PV cells has expanded tenfold. Prices of solar grade polysilicon, the raw material from which solar PV cells are made, have dropped 94% in three years.

Most of China’s market share gain has come at the expense of the world’s other leading solar PV manufacturers, Germany, Taiwan and Japan, though US manufacturers are also being squeezed hard by the flood of supply coming out of China. And Chinese manufacturers are suffering, as well. Six Chinese market leaders are relying on government-arranged bank credit facilities to assure their survival.

The Chinese government has pursued the same mercantilist, export-driven policies in stimulating growth of domestic solar PV manufacturers that characterizes its approach to economic development since market reform took root in the late 1980s. It’s one that Japan used to build its domestic manufacturing base, but with a centrally-controlled political economy, a two-tier financial system with tight controls over foreign investment inflows and outflows and a foreign exchange system that pegs the value of the yuan to the dollar, it’s in a much better position to do so.

But what if China looked inward rather than outward, trying instead to develop a domestic solar power industry value chain instead of focusing so narrowly on exports? It’s estimated that Chinese solar PV manufacturing capacity is 32-times greater than domestic demand. If they were half as successful in stimulating domestic demand for solar PV, many of the current challenges and problems in the solar PV market globally would be worked out in relatively short order.

It appears the Chinese government is moving in that direction. The Chinese government has officially announced an additional 50% increase in its solar PV generating capacity target in its current strategic 5-year plan, from 10 gigawatts (GW) to 15 GW. That follows an announcement earlier this year that the 2015 target was being raised from 5 GW to 10 GW.

In its latest media release, China’s National Energy Administration also announced a wind power capacity target of 100 GW for the five-year period, which was in line with previously announced plans. 5 GW of that are to be installed offshore.

This is a clear sign that China’s leaders not only recognize the global productive imbalance of supply-demand of which they now play so large a part, but the critical importance a shift to renewable energy sources has for their own economy, society, natural resources, and environment. Now, if only they’d shift to a truly market-driven exchange rate regime by allowing the yuan to float against the dollar and other currencies.