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NREL, MIT: Chinese Solar PV Manufacturing Advantages Not Set in Stone

Chinese solar photovoltaic (PV) manufacturing, specifically crystalline solar PV, have dominated the industry's total global production for the past several years. But a new report co-produced by NREL and MIT suggests the real reasons for regional price differences are not indigenous -- meaning China's current competitive advantages can be matched.

Their new study, hot off the press in the latest issue of Energy & Environmental Science, calculates a minimum sustainable price (MSP) for solar panel manufacturing in both the U.S. and China, taking into account not just the technical costs to make a PV module but how to do so with a profit. The MSP includes other factors like labor costs, equipment depreciation, R&D, taxes, and other strictly nontechnical factors.

Looking beyond manufacturing steps and associated costs more accurately represents how companies have to exist in the real world, explained Tonio Buonassisi, report co-author and associate professor of mechanical engineering at MIT. "You can survive as a company selling below that [minimum price] if you ignore depreciation of capital equipment or other expenses, or present a best-case scenario of uptime, but that ignores reality," he said. The report addresses the PV industry's problem of unsustainably low panel prices.

Adding up all production factors (except shipping costs) the researchers found Chinese-based manufacturers have a 23 percent advantage in MSP over U.S.-based manufacturers, about $1.19/W vs. $0.91/W. What makes the most difference by far, they found, is how the Chinese PV module makers have scaled up: Chinese factories being several times larger than those in the U.S., and certain supply-chain advantages including extensive discounts on materials and equipment (often from domestic sources). Regional incentives, low-cost debt, and other country-specific factors do help enable that scaling, but they have less affect on the MSP equation, they show.

One takeaway from the report is that solar PV scaling isn't an inherently Chinese advantage; it can be replicated elsewhere. The flip-side of that thinking, though, is that regional advantages do exist even if they're less influential to the MSP. So multinational companies who can spread themselves globally and take advantage of various regional benefits will clearly be in the best position.

The other takeaway is that today's low-cost advantages could be neutralized by future solar PV technology improvements. Higher efficiency translates to lower costs everywhere else, from balance-of-system requirements to project development (same output/smaller footprint, more output/same footprint). Thinner silicon and glass will save costs in materials and processing.

Put scaling and technology improvements together and the aforementioned MSP advantage practically evaporates -- narrowing to just $0.64/W in China vs. $0.62/W in the U.S. Ultimately that nexus will push total costs down and make subsidies obsolete, which will further entice private investments.

"The main takeaway is that innovation will continue," chimed NREL's Ted James, another report co-author. "Current manufacturing competitive advantages are not inherent to a region. The final chapter has certainly not been written."

Lead image: Balance, via Shutterstock

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