A few weeks ago I read an industry newsletter announcing the demise of Evergreen and Solyndra – two US solar manufacturers, who blamed Chinese solar companies for part of their profitability problems. In the same newsletter, several publicly-trade Chinese manufacturers reported quarterly results showing continued growth and profitability. Why are US solar manufacturers failing where Chinese companies are succeeding?
The pedestrian explanation to this dichotomy is that labor rates are lower in China, therefore the Chinese are more competitive. But, the facts don’t bear this out. PV modules are generally manufactured in the same way worldwide and the methods and technology are widely distributed. Labor is a very small factor in the total cost of production. Components and equipment for PV modules are broadly traded and most of the costs are publicly known.
I think supply-side economics are to blame – basically, the Chinese are practicing it and the Americans (and Europeans) are not. America subsidizes the consumption of solar modules through a variety of incentives that have made it one of the most attractive solar markets in the world. China subsidizes manufacturers through a variety of incentives that make it the most attractive place in the world to build solar modules. As a result of these incentives, US subsidy money quickly flows back to Chinese manufacturers, whose country is practicing supply-side economics – encouraging the means of production to encourage economic growth and employment.