Sunday, May 19, 2013

Global Solar Industry Failing Because We're Subsidizing The Wrong Side

Bad news looms for California buyers of solar panels: the economic malaise that's devastating U.S. manufacturers of photovoltaic panels is hitting the Chinese industry hard as well. Bolstered by aggressive government subsidies, Chinese companies have built far more production capacity than short-term market demand justifies.

This has pushed solar panel prices to record lows in the short term. Unless the Chinese government continues to prop up its country's solar manufacturers, though, Chinese companies may be pushed into the same cycle of consolidation and bankruptcy that their American and European counterparts now enjoy. This would lower production capacity, cutting down on the supply of available panels, and making it more expensive to add those panels to your rooftop.

According to a report Thursday by the Financial Times' Leslie Hook, Li Junfeng -- deputy director of China's National Development and Reform Commission's energy research institute -- Chinese solar companies will have to play a role in the decommissioning of at least half the planet's photovoltaic manufacturing capacity. Worldwide, the industry has about 100 gigawatts' worth of production capacity, with annual demand at just 30 to 50 gigawatts.

The United States has placed steep tariffs on Chinese solar modules, and the Euro zone has threatened to do likewise. According to Hook, though, Li called the trade sanctions "the straw that broke the camel's back."

"According to him," Hook writes, "the real culprit was the rapid, credit-fuelled expansion in Chinese solar capacity that has contributed to today's global production [over]capacity."

Li told Hook that China's central government would not be bailing the manufacturers out anytime soon, and he criticized cities and other local governments in China who had made recent offers of financial assistance to keep their factories open. "If other local governments follow the policies in Xinyu and Wuxi [the cities that gave bailouts], it is like giving solar firms poison to quench their thirst. It will only quicken their death," Li told the Financial Times.

It's another example of how the market is ill-adapted to meeting the needs of a global environmental crisis. We need to install as much PV as possible so that we can shut down fossil-fuel-fired power plants, and yet demand is low because the more destructive forms of power are, for the moment, cheaper. Some of that price difference is due to unbalanced government subsidies, and some due to coal and gas's environmental costs being paid under a separate check.

It would seem the solar industry's crisis is too big and too important for the free market to fix. Li may well be correct in saying that subsidies to manufacturers may just prolong the companies' metaphorical agony. Perhaps it's time to ramp up government subsidies on the demand side, by making solar installation even more affordable than the overcapacity has. There's no question that we'll need every bit of that 100 gigawatts of annual photovoltaic module production capacity in the coming years, as we'll need to install terawatts' worth of renewable energy generation capacity in the next decade.

Governments ought to make sure there's enough demand to keep those factories running at full capacity, and even expanding. Buying the total possible output of those factories and then giving it to homeowners, schools, government agencies and qualifying commercial. With PV prices at $1 a watt and dropping, the governments of the world could make sure those factories are running at peak capacity by spending $70 billion or less. That's less than companies spent on TV advertising in the U.S. in 2011, and less than half the amount Wall Street banks and securities firms paid in bonuses in 2009.

And if we increased PV module demand this way, typical California households could have between $30 and $300 extra in their discretionary income each month.

Just a thought.


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