Solar
(an extract from Sustaining
U.S.-China Cooperation in Clean Energy by Merritt T. Cooke and forthcoming
in late December 2011 from the Kissinger Institute of the Woodrow Wilson Center
for Scholars)
see http://www.scribd.com/doc/74298679/Sustaining-U-S-China-Cooperation-in-Clean-Energy-Cover-Table-of-Contents-Intro
Interestingly,
the market picture for the photovoltaic solar industry in China is almost the
reverse image of what we have just seen for wind energy. With wind energy, China has a domestic market
to fall back on if it is rebuffed in its market entry into the U.S. With solar, China is entirely dependent on
continued access to Western export markets because China has not yet, to date,
established any domestic market for its solar production.
To
start from a broad perspective, it should be noted that the solar industry
worldwide is divided into two major sectors.
The largest, and most commonly thought of, sector is photovoltaic (PV) solar. This technology employs 'micro-chips' on solar panels that
manage the direct photovoltaic conversion from sunlight to transmission-ready
electricity. Photovoltaic is the
technology commonly seen on the rooftops of private homes as well as in
utility-scale arrays in ‘solar-farm’ fields.
The second sector of solar technology which offers comparable long-term
promise as a source for renewable energy is thermal solar. In contrast to PV, thermal solar technology
uses the direct energy of sunlight for various heating and/or electricity
conversion processes. These can range
from simple solar-heating units on rooftops to heat the water for building
occupants to extraordinarily complex and precise arrays of mirrors that can
redirect tens of thousands of beams of light to superheat synthetic fluids
which in turn boil water to power
steam-turbines for large-scale electricity conversion.
We
will be focusing mostly in this section on dynamics in the global photovoltaic
industry. But before leaving the topic
of solar thermal, we should note in passing that China is already the world's
largest market for installations of simple and inexpensive solar-heating
rooftop units. Under cloudy conditions,
these units do not always provide occupants the most satisfying temperature for
their hot showers but they conserve a significant amount of energy that would
otherwise have to be generated by coal or other carbon-based sources. At the other end of the spectrum of
sophisticated thermal technologies are the vast arrays currently under
experimentation in some of the world’s biggest deserts. The grandest of these experiments, Desertec,
is currently under construction in North Africa as a German-led, EU- and World
Bank-backed effort that could potentially supply Europe, via a
trans-Mediterranean high-voltage transmission line, with 15% of its energy
needs. A step-down in scale from Desertec, a California start-up, eSolar,
backed by $40 million of funding from GE, has a licensing deal with Chinese
power equipment maker Penglai Electric to build 2GW of solar thermal projects
in Shaanxi Province and other locations over the next ten years. Solar thermal power is promising but still at
an early stage of development.
PV solar is where the strongest global
competition is currently taking place with China in the thick of the
action. This is, in fact, a boom
industry in China. As an investment sector, it enjoys relatively low barriers
of entry compared to other high technology fields, can take full advantage of China’s relatively
low labor and facility costs, and can piggy-back on the global primacy Asia has established in the related
manufacturing field of low-cost memory chips for the computer industry.
To
illustrate this point, a single city in Shandong province, Dezhou, alone is
home to more than 100 PV manufacturers. The recent high profile issue of tight
polysilicon supply in global markets shows clearly the government support
backing this industry sector in China.
In late 2010, when this critical supply input for the industry dried up
in global markets, the full state apparatus of the PRC central government went
into gear to assure supply for the sector, a story well described by the Wall
Street Journal in November 2010. With supply being ramped up by 'investor
euphoria' factors and with domestic demand limited by the State Grid's ability
to integrate new PV-generated power into its national grid, prices in China
started dropping precipitously. But with state support for the industry evident
in unclogging the polysilicon bottleneck, Chinese solar producers took
heart. The plight for the plethora of
start-ups in China was no longer an existential question of “Will I survive” but
now a more zero-sum question of “How much market share can I grab under current
conditions.” As reported by RenewableEnergyWorld.com in
September 2010, "the late-August round of bids for utility-scale solar
power projects in China yielded a new milestone in the economics of solar power
in China: a sub-Yuan/kWh price for solar power. To achieve this impressive
number, the Chinese government has used the state-owned sector (and
particularly enterprises under the direct control of the central government) to
help subsidize the price of solar power, to the point where the economics
appear to be unsustainable."
What
makes this ‘Chinese story’ problematic in a global sense is that, unlike the
wind sector, China has, relatively speaking, no established domestic market for
PV solar production. This is readily
shown by a graphic representing the size and growth prospects of the PV solar
market in comparison with the wind energy market.
What
this means is that the output of China’s recent hyper-production needs to be
absorbed in export markets. Because
cost-of-production is less important to Chinese manufacturers than sales
volume, the oversupply situation in China leads to falling prices in
international markets.
By
the end of 2010, this situation had already yielded a 30% global share for
China and a growing international backlash as P&L-driven companies in the
U.S. and other export markets
succumbed to this wave of imports from China.
The global ranking of PV manufacturing expansion in 2010 tells the story
clearly with Chinese companies occupying seven of the ten ranked slots.
As a
result, the Obama Administration is under increasing pressure in 2011 to
broaden its trade actions against China in the renewable energy category to
include PV solar products.
However, despite these pressures, the U.S. industry is
demonstrating remarkable innovativeness
and resilience at the higher value end of the market. The U.S. Government has funded a new national
Energy Innovation Hub for Solar Technology led by CalTech. There is currently no major bilateral effort
on-going between the U.S. and China in the PV solar area, either at the level
of U.S.- China Clean Energy Research Center (CERC) cooperation or non-official public/private partnership channels.
At the private sector level, some
high-profile efforts have managed to withstand these whipsaw pressures and to
find partnership common ground with China. The most notable of these is the
plan by First Solar Inc, headquartered in Arizona, to cooperate with China
Guangdong Nuclear Solar Energy Development Co. Ltd. to develop the world's
largest solar power plant in Ordos, Inner Mongolia. The memorandum of
understanding for this project, signed in January 2011, envisions a
2,000-megawatt solar power plant for
thin-film transistor (TFT) solar PV modules to be built in phases over the next ten years.