Subsidies and Low Labor cost not the reason for Chinese Solar Competitiveness

NREL and MIT don’t think that low wage costs and generous subsidies are driving the Chinese advantage in solar panel manufacturing. They think that the massive scale of Chinese silicon panel factories is the main reason for their competitiveness. NREL thinks that the close proximity of suppliers plus the scale has led to the Chinese capturing the global market of solar module. In the future they think that the 22c/watt Chinese advantage over current US solar panels can be bridged by technological innovation. However they don’t think it is likely, given the scale of the Chinese factories which are growing bigger by the day.

Read more about Chinese Solar Industry here.

Chinese Solar Companies are Performing at Different Levels

This destroys the whole US argument for imposition of duties on Chinese solar panel imports. The US ITC had imposed the CVD and AD duties citing Chinese government subsidies. There is no doubt that the Chinese government had played a major role in the development of the massive solar panel industry. But the huge losses being made by the companies show that subsidies alone have not been enough. These companies are now showing differentiation in terms of margins and growth as the weaker ones are weeded out. If subsidy and support was the only driver, then you would assume that most of these Chinese companies such as Jinko Solar (JKS) and Suntech (STP) would have been doing equally well. But that is not the case now.

Low cost Labor not the Driver Anymore

Chinese wages are also not the lowest in the world anymore. The Chinese currency is amongst the few EM currencies which has been appreciating against the dollar in recent times. Also wage inflation has made Chinese labor more expensive than Bangladesh, India and Vietnam. However, solar panel industry is still being dominated by China which indicates labor is not a big driver anymore.