China Changing the Solar Market

In its latest five-year plan, released in March, the Chinese government set forth its goal to construct 235 gigawatts (GW) of power generation capacity from clean energy sources over the next five years….5 GW of which are expected to come from solar power. Accordingly, China subsequently announced a nationwide feed-in tariff that could make China the undisputed leader in global solar power. On the demand side, China has a growing economy and huge population with an equally large appetite for energy that the government is eager to satiate. So government sponsorship of solar energy only makes sense.

On the supply side, China is already having a significant impact on solar manufacturing and that impact is expected to grow. As of 2010, there were six Chinese manufacturers ranked in the top ten solar manufacturers, according to Bloomberg New Energy Finance. Now, there are currently only two non-Asian manufacturers in the top ten, and those companies — First Solar and Q-Cells — have shifted a lot of their production to Asia.

How has China done this? According to an article in The Guardian, China’s strategy is essentially national predatory financing with the idea of squeezing every other solar manufacturer out of the market with lower costs.

The primary mechanism is Chinese Development Bank (CDB) which raises most of its money via long-term bonds allowing the CDB to make longer term loans as those that invest in those bonds cannot get their money back until the term is up. And according to The Guardian:

“CDB also gives borrowers very low interest rates, and, if the borrower cannot pay back the loan, it may be back-stopped by the Chinese government….This makes it easier, cheaper, and a lot less risky for solar companies to obtain financing.”

According to The Guardian, the CDB has provided over $30 billion to the top 5 Chinese solar manufacturers in 2010 alone. This allows these companies to scale their operations up very quickly and cheaply. And since scalability is critical to keep the cost of solar manufacturing down, Chinese manufacturers that receive such cheap funding are able to continue to drive the costs of their solar panels down, way below their non-Chinese competition.

The impact on U.S. solar manufacturers could be substantial. Already the U.S. has seen Solyndra and Evergreen go under for a variety of reasons but not the least of which is that their manufacturing costs were too high in comparison to their competition. Without investments in technological innovation or protectionist trade policies in the U.S., the U.S. solar manufacturing market could disappear altogether. According to Suniva’s Bryan Ashley: “If something isn’t done, no one will be making solar PV in the U.S.”