2011-10-17 | Editor : John Landers 3383 pageviews
China’s Road to Solar Panel Manufacturing Dominance
Ten years ago, a survey of solar industry analysts would have likely identified Japan or the United States as the nation poised to become the dominant player in solar cell production and panel manufacturing. At the time, many considered Chinese companies as marginal players in the burgeoning industry. Chinese companies like Suntech Power and Yingli Green Energy did not even exist. Trina Solar had only been in business three or four years.
A report by the China Battery Industry Association, released in September 2007, states China produced 460 megawatts (MW) of solar panels in 2006 - a 200 percent increase over the previous year. The country's primary export trade partners were Germany, Spain, Japan, Belgium, and the United States. These countries combined for 20 percent of its production.
Today, Chinese manufacturers have more total production capacity than any other country. According to some analysts, Chinese firms have locked up at least 70 percent of the worldwide market for solar modules.
Its pricing strategy has driven the price of modules down to historic lows. This pricing strategy played a significant role in the demise of three American manufacturers in recent months -- Solyndra, Evergreen Solar and SpectraWatt. These three companies comprised and contributed an estimated 20 percent of America's solar module manufacturing capacity.
With a combination of inexpensive labor and aggressive state programs, this nation has built a viable industry from scratch. Its approach in the solar market has been no different from itsbroader strategy use in other sectors of the global economy - from cheap clothing, toys or other products.
Chinese solar technology rates behind some of its U.S., EU and Japanese competitors. However, it's the solar panel segment where Chinese firms have honed their market advantage through aggressive pricing.
Low- interest rate loanshave helped push Chinese manufacturers to the top of the solar panel industry. Companies also benefit from extremely cheap or free land agreements with local and provincial government agencies throughout the country.
In the last few years, these companies have created manufacturing capacities, which gives thema huge advantage in “economies of scale.” Thisand other costs advantages have been instrumental in making them the dominant players in the maturing market for electricity generation.
The Chinese government has been clear about the intent to support the solar industry on itsascension to becoming the bench mark other countries set their sight on. This includes loans and credits to companies up and down the solar industry supply chain, especially solar cell and solar panels companies.
For example, the economic collapse of 2008 resulted in a decline in worldwide demand, the government started an incentive policy designed to stimulate domestic demand. The top-tier Chinese firms with deep pockets were able to focus on growing their business. While many of their global competitors fought for survival. Reports have estimated Chinese solar manufacturers have received $30 to $40 billion dollars, in loans and credits, from 2010 to September 2011.
New Feed-in Tariff
As the second largest consumer of oil in the world, -- the United States is number one, China relies on fossil fuel for 90 percent of its energy supply. The country must grow electricity generation capacity 15 percent a year to keep pace with economic expansion. While China has focused itsresources on achieving supremacy in the solar panel manufacturing sector, until recently, domestic demand has not receivedthe same level of attention.
At the end of 2010, China had around 700 MW of installed solar capacity, which ranked the nation seventh in the world behind France. Germany leads all nations with 7.74 GW followed by Italy with 3.74 GW. The United States rank fifth, with 9.50 MW of installed solar capacity.
The country's first nationwide feed-in-tariff policy (FIT) represents a significant step for the development of the demand side. The new scheme offers a strong incentive for enticing solar project developers with a minimum payment of 15 cents per kilowatt-hour. The new FIT, which has a guarantee of payback period of seven years, also promises cash yields for 20 years.
A similar FIT put in place several years ago has been instrumental in making the country's wind farm operations the largest in the world.
Market watchers believe the solar FIT signals intent by the nation to focus on renewable energy in lieu of further nuclear development. In addition, manufacturers have been clamoring for an effective policy to help develop the largest market in the world for Chinese-made solar panels - in their own back yard.
Renewable Energy Policy Revisions
While media outlets in the U.S. and around the globe focus on the recent bankruptcy of the Solyndra, the Chinese State Council -- China's national cabinet, has undertaken a review of its 12th Five Year Plan for Renewable Energy Development, which covers the period 2011 to 2015. This comprehensive plan outlines strategies for the country's solar, wind, and other renewable energy developments.
Smaller and medium size developers will receive more benefits under the revised plan. Previously, huge state-owned operations won bids for utility-scale PV projects because they possess the resources to undercut the competition and bid under market costs. As a result, the qualities of the projects were sub par.
From all accounts, this plan places a significant emphasis on solar. Leaks have the plan setting a goal of nine gigawatts of installed solar capacity for photovoltaic and another one gigawatt from solar thermal electrical power plants.
If the country reaches its intended goal of 10 GW by 2015, it will achieve a phenomenal 1,000 percent rate of growth. The country intends to have 50 GW of installed solar-generated electricity capacity by 2020.
What had begun as a murmur has picked up steam in recent week. Competitors, organizations and politicians - especially in the U.S. and Europe, have become increasingly vocal about the “unfair advantages” Chinese manufacturers enjoy in the marketplace.
Last year, the United Steelworkers union filed a decree asking the U.S. government to investigate China subsidies and preferences, which give Chinese companies an advantage in overseas markets and prohibit competition in its domestic market. The decree with exports credits, discrimination against foreign companies and restrictions place on the export of rare minerals required in the solar cell/panel production process.
SolarWorld AG (SWV) and other manufacturers intend to file a case at the United States Department of Commerce and with the U.S. International Trade Commission in Washington D.C. Some competitors contend subsidies offered by the government to Chinese solar manufacturers constitute a breach of international trade regulations. The funding provides Chinese firms with an “unfair advantage.”
As fallout of the Solyndra bankruptcy, two ranking members of the Congressional subcommittee investigating the firm's collapse sent correspondence to the Chairman of the Oversight and Investigations Subcommittee lamenting the plight of U.S. solar companies. The letter calls for an examination of U.S. polices and incentives to determine if American manufacturers operate at a disadvantage to their global counterparts.
A Senator from the State of Oregon, Ron Wyden, sent a document to President Obama, asking the administration to slap a tariff on Chinese solar panel. The senator cites a provision in the based on a World Trade Organization Trade Act, which allows a country to tax imports that undermine its economy.
“The American solar industry is facing unparalleled challenges, and without the leadership of your administration this industry may disappear,” wrote Senator Ron Wyden in his letter to the President.
Although China has been accused of predatory tactics, some have likened the Chinese government's support of their solar industry to the help American railroads received during the mid-1,800s. This seemingly unwavering sponsorship support has entrenched solar manufacturers into an enviable position and makes it conceivable that China continues to make most of the world’s solar cells and panels. It seems that the Chinese government has been forward-looking when it comes to ensuring its manufacturers compete in global markets compared to other governments.