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January 27, 2011

Response to Chinese Subsidies for Solar Panel Manufacturing

Most of the market for solar photovoltaic panels was artificially created by subsidies and mandates in the United States and way above-market rates paid to generators of solar electricity in places like Germany and Spain (now drastically reduced). Whoever makes such decisions in China noticed this growing market and directed a portion of their industrial machine to making solar panels. They don't install solar panels to any significant extent in China since installation is losing proposition from an economic point of view, and the last thing China wants to do is drive its energy costs up. But selling solar panels to the West is just good business.

Allegedly because of government subsidies and generous loans from state-directed banks and low labor costs, solar panels from China are so much cheaper than those made in the West that sellers of panels who want to stay in business are moving their manufacturing to China. This famously includes the manufacturing which used to be done in a state-subsidized plant in Massachusetts. Few people, even those who are most concerned about carbon emissions, are praising the Chinese for making solar less expensive. Some people think that the US ought to subsidize solar panel manufacturing even more than it does or has to keep the jobs here.

Here's another idea:

Let's drop all the mandates and incentives for installing solar photovoltaic panels (along with all other subsidies for all forms of energy including oil, coal, and nuclear). Then the Chinese will have four choices, all of which are good for the rest of the world:

  1. Subsidize further to lower the price of solar photovoltaic panels to the point where they are a practical alternative for generating electricity;
  2. Innovate to lower the price of the cells;
  3. Install more photovoltaic cells domestically;
  4. Make something with better economics in their factories.
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