The Solar Photovoltaics Technology Conflict Between China and the United States
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A Duel in the Sun The Solar Photovoltaics Technology Conflict between China and the United States AN MIT FUTURE OF SOLAR ENERGY STUDY WORKING PAPER A Duel in the Sun The Solar Photovoltaics Technology Conflict between China and the United States1 John Deutch Department of Chemistry Edward Steinfeld Department of Political Science AN MIT FUTURE OF SOLAR ENERGY STUDY WORKING PAPER Energy Initiative Massachusetts Institute of Technology Copyright © 2013 Massachusetts Institute of Technology. All rights reserved. Incorporated in the cover art is an image of the Gemasolar solar thermal plant, owned by Torresol Energy. ©SENER http://mitei.mit.edu/futureofsolar ISBN 978-0-9828008-8-1 MITEI-WP-2013-01 i AN MIT FUTURE OF SOLAR ENERGY STUDY WORKING PAPER Executive Summary A debate is raging among government officials, In this paper, we consider the competition industry members, technologists, and trade from three vantage points: (1) the structure of specialists about the nature of the competition the PV industry in each country, (2) the recent between the United States and The People’s trends in trade, and (3) the pattern of govern- Republic of China (PRC) in developing, ment assistance to the PV industry in each deploying domestically, and selling interna- country. We expect that it will take several years tionally solar photovoltaic (PV) electricity- for the global PV market to regain profitability generating technology. Over the past three and its forward momentum. The recovery years, China has dramatically expanded its time will depend on some shrinking in world- manufacturing capacity for crystalline silicon wide PV device capacity, expansion in demand PV modules, 90% of which are exported at with subsidies for deployment (whether by steadily declining prices to Europe and the feed in tariffs or renewable portfolio standards), United States. and a firming of device prices to a level that is sustainable financially. One view characterizes Chinese behavior as a state-directed effort to dominate the global We conclude that the US–China PV competi- PV market by “dumping” product at below tion is best understood not in terms of a bilateral cost.2 In November 2012, the United States clash between government-led policies, but imposed an import tariff of up to 30% on instead in terms of a global PV industry struc- certain Chinese PV manufacturers to compen- ture within which US and Chinese firms play sate for unfair trade practice; the European roles consistent with their strengths. Each Union (EU) has similar trade action under country extends different assistance mecha- consideration. The alternative view is that nisms and each country has conflicting Chinese new entrepreneurship, driven primarily purposes for such assistance. Both countries by private equity investment, explains the rapid lack a transparent, quantitative evaluation expansion of Chinese PV module production. methodology to assess the cost effectiveness of the assistance. We suggest some policy changes However, overexpansion of production to make government assistance more consis- capacity combined with dampening of subsi- tent with the global character and long-term dized demand, mainly from Europe, has led in opportunity of this important technology. 2010–11 to an oversupply of product, a collapse in PV prices (in contrast to cost), and massive financial losses for Chinese companies. These different views need to be resolved to avoid a lengthy trade conflict, which is important if the United States and China wish to encourage cooperation in Research and Development (R&D), technology transfer, investment, and trade in renewable technologies, goals that both governments frequently state are in their common interest. Executive Summary 1 production quality, continuous product Differing Views improvements, and steady cost reductions.3 of the Issues However, in the face of plummeting European Informed observers in the United States hold demand, the Chinese PV industry now faces two widely divergent views of the development overcapacity, negative margins, and a pending of the Chinese PV industry. One view argues shakeout. It is only at this point that the Chinese that Chinese PV development is best understood central government, previously indifferent to the in terms of a deliberate central government sector, has begun moving tentatively to bail out decision to establish global dominance for this producers and stimulate domestic PV demand. industry through a wide range of subsidies and unfair trade practices. The consequence of this policy is that Chinese PV module sales Importance of Resolving compete unfairly in the international market the Issues (importantly in Germany, Italy, and Spain), and have destroyed the prospects of domestic Cooperation between the United States and US PV manufacturers. The current collapse of China on energy technology has been a promi- PV module prices, attributable to overcapacity nent part of the dialogue between the two primarily in China, is seen as a tactic to accept countries in the context of common efforts on short-term economic loss in order to drive out climate change and in the broader discussion competition and establish long-term dominance. of liberalized conditions for technology transfer, investment, and trade.4 A second view argues that Chinese PV develop- ment is the product of technology entrepre- In both countries, public officials and private neurship under competitive market conditions. firms see energy technology, especially “green” From this perspective, the industry’s advance technologies such as PV, as an important has been driven not by top-down support opportunity for investment and sale of prod- from the central government, but instead by ucts into some part of the value chain. During bottom-up actions by private entrepreneurs. the late 2000s, global PV installations grew at These entrepreneurs — mostly returnees from an annual rate of 50% to 100%, although a overseas with considerable experience in the sharp decline in annual growth is projected, global semiconductor industry — were able to in the range of 10% to 20% to 2016.5 Global PV establish and rapidly expand manufacturing installation grew to 69.7 Gigawatts (GW) by facilities by accessing private capital and the end of 2011.6 state-of-the-art production equipment in global markets. The public support they It is not surprising that the two countries have received comes from municipalities and contemplating such forecasts will be keen provinces rather than the central government, to encourage the growth and competitive provided via the sort of tax concessions, loan success of their respective national industries. guarantees, and land grants routinely used by Acrimonious differences over the “fairness” local governments worldwide, including in the of each other’s government subsidization and United States, to attract business. The industry trade practices, if left unattended, will infect boomed largely because of engineering and the entire technology and commercial rela- manufacturing competence — the ability to tionship as both countries pursue growth and scale rapidly in the face of surging demand global competitiveness. The effects are likely to from European markets, while maintaining be felt far beyond just PV. 2 AN MIT FUTURE OF SOLAR ENERGY STUDY WORKING PAPER Shedding light on this issue must start with The Chinese PV industry, by contrast, is focused a clear and thorough side-by-side comparison primarily on the manufacturing of PV wafers, of the circumstances of the PV industry in cells, and modules, largely for crystalline each country with regard to (1) technology silicon production devices. China today has focus, (2) the products and markets that are limited capacity for new technology creation being addressed, and (3) the nature of public and relies substantially on imports for produc- assistance for technology development and tion equipment, high-quality polysilicon international trade. Such a comparison is not feedstock, and high-end components. In sum, easy for several reasons. the US content of Chinese PV manufacturing is significant. THE PV INDUSTRY HAS DEVELOPED DIFFERENTLY IN EACH COUNTRY COMPARISON BETWEEN THE TWO COUNTRIES IS DIFFICULT BECAUSE Both the United States and China have firms THE MECHANISMS THAT EACH COUNTRY arrayed across the solar PV value chain, yet USES TO SUPPORT THE INDUSTRY ARE industry capabilities and competitive strengths QUITE DIFFERENT differ substantially.7 The US PV industry has been focused on upstream, R&D-intensive In neither country are they transparent or are efforts to develop next generation technologies their public costs easily tallied. PV, with its that over the long term hold the promise of promise of essentially infinite and affordable being more cost effective than traditional energy from the sun, is a popular technology crystalline silicon. In the near term, though, with the public and government officials. But, such technologies face substantial economic it is by no means clear what assistance mecha- and technical hurdles to commercialization. nisms are most cost effective for achieving desired, and at times, quite divergent, goals. The United States has also been a global leader in several parts of the contemporary PV value Both the United States and China have chain. US firms lead the world in the provision firms arrayed across the solar PV value chain, of PV manufacturing and test equipment and integrated manufacturing solutions. Several US yet industry capabilities and competitive firms today are also major