SAN FRANCISCO – Not so long ago, China’s solar industry was at the top of the global renewable energy heap, knocking out millions of solar panels while steadily driving down their price - to the delight of U.S. consumers. For U.S. competitors, of course, it was a different story: squeezed profit margins were driving many U.S. companies out of business or to offshore manufacturing locations like China.
We toured at a big North American solar exhibition here recently and were immediately struck by the sheer number of well-heeled Chinese solar manufacturers exhibiting at the event. But lately there are clear signs that even Chinese solar manufacturers are suffering as their own profit margins have been whittled down to the thickness of a polysilicon wafer.
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Reports out of China indicate that key segments of China’s renewable energy infrastructure like photovoltaic technology are nearing collapse. In August, the head of a Chinese solar company leapt to his death when he realized his company couldn’t pay off a government loan. Other Chinese solar panel manufacturers have recently cut production.
All this as oil futures continue to rise and gasoline prices remain above $5 a gallon in key markets like California.
With trade tensions rising between the U.S. and China, some Chinese vendors at the Inter Solar North American exhibition here also evinced a growing awareness of how the global trade system operates when rival economies are hurting. One Chinese vendor prominently display at its booth a key passage from a U.S. International Trade Administration ruling that the company did not dump solar panels on the U.S. market.
Growing trade tensions between China and the U.S. along with the exodus of solar manufacturing to China have placed solar politics at the forefront in a presidential election year. One of candidate Mitt Romney’s so-called presidential debate “zingers” accuses the Obama administration of surpassing the old GOP saw about “picking between winners and losers” with picking only losers -- a not-so-subtle reference to last year’s Solyndra debacle.
Factors like climate change, the drive for energy independence, access to capital, technological advances and plain-old politics are constantly reshaping renewable energy markets. We offer a snapshot of that market and where it might be headed.
SolFocus' concentrator photovoltaic panels use optics technology to capture sunlight and concentrate it hundreds of times on a solar cell.
China's strategy of investing massively in solar panel production in order to dominate the industry globally doesn't seem so hot now. A recent NY Times article quoted a Chinese bureaucrat with the country's top economic planning agency saying that it would be good for China if two-thirds of its solar panel producers died out and only one third survived.
That's likely if China can't generate more global demand. In the final analysis, China grabbed a market by the throat, flooded it with cheap panels, then the market went south. The central planners in Beijing probably never considered persistent cheap and plentiful natural gas supplies, which are really hurting solar sales.
"The central planners in Beijing probably never considered persistent cheap and plentiful natural gas supplies, which are really hurting solar sales"
Photovoltaics supply electricity, but while natural gas is used to fire many of the generating plants that produce electricity, oil is a negligible factor and I believe the majority of plants are still coal fired.
The issue in terms of electricty cost in the US isn't the fuel used to turn the generators - it's the ferocious cost of building and operating the plant, and building and maintaining the grid over which power is distributed. It's a classic capital intensive business, where a lot of the costs that determine the price at which you must sell are amortization of the cost to build the production capacity to begin with.
Beijing's central planners suffered the critical blind spot unsurprising in an economy shfiting from "domestic command" to "international market". Lots of Chinese companies saw an opportunity in photovoltaics, jumped in to produce them, and glutted the market. Prices fell to where they are below production costs, even for China. Chine is seeing the boom and bust cycle common to semiconductor electronics. (DRAM, anyone?)
If you are only concerned with a totally planned domestic economy, you know exactly what demand and supply will be, because you stipulate both as part of your planning. In an international market economy, you *don't* know what demand will be, and you make your best guess as to what you must be able to produce. The Chinese are still figuring out forecasting demand that *isn't* government mandated, and many of those solar firms will go belly up or be acquired as competition continues.
Welcome to competition and market based economies, China. It will be a learning experience for you.
Solar is another example of "second-generation innovation" by China in which huge amounts of resources were poured into what central planners believed was a profitable market. Too many Chinese solar panel makers got too much money from Beijing, and now, as you point out, they are paying the price.
Yep, they are, and investment by the government may not be really relevant. The same problems would occur if they were doing things entirely with private capital. In any new market like this, a bunch of people will jump in seeing an opportunity, but some will fail and go under or be acquired.
We've seen the pattern over and over here, as markets shake down till there are a few dominant supplies and a batch of smaller niche players. The Chinese official quoted unhappy at the prospect that 2/3s of the current Chinese suppliers will go belly up arguably should not be - it's simply the way the markets work, and the ones that survive will be better for the experience.
"I believe the majority of plants are still coal fired."
On the US West coast, over 50% of electricity comes from natural gas. Coal is negligible--the few plants left are being phased out.
Wind supplies 5% of California's electric power. More than twice as much as generated by coal.
I think putting solar panels on roofs makes a lot of sense--it puts the power right where it is used. Most government solar energy numbers don't even count the rooftop panels and end up underestimating the amount of solar power generated by a very large percentage.
Yes, what fuel is used by the plants will depend on location. On the East Coast, I believe coal still largely rules, given the closeness of supply. Hydroelectric will also be a factor, if there are places nearby that *can* be dammed to produce power. (Most locations that can be, *are*, so there isn't a lot of growth from hydro power possible.) Nuclear has a tiny slice of the pie that is likely to rise as demand does. Oil essentially isn't used - I heard of one generating plant that had oil as a backup for natural gas, but dropped it when gas supplies proved stable enough it would never be used.
But basically, the fuel used to boil the water to generate steam to spin the generators that make the electricity isn't really a huge factor in electricity costs. I was involved in a government sponsored project to push alternative energy back in the 70's when OPEC was in first flower and gas prices were rising above $1/gallon. The issue wasn't electric power costs, it was heating and cooling, as many places used oil to fire the boilers that produced heat. We pushed solar hot water heating, which accounted for about 20% of the average residential energy bill, and had a relatively fast payoff. We were certainly *aware* of other forms of alternative energy, like photovoltaics, but what would get used would ultimately be what was cheapest, and most alternatives were just too expensive with too long a payback period.
For the most part, oil still *is* cheaper overall, which is why alternatives have an uphill fight. People forget that electricity is only one form of energy used, and is about 25% of the total US energy budget.
Thinking that a few years is "persistence" is what is dooming us in the long run. What happens when the fracking boomlet dries up? We will have burned our bridge fuel in a gluttonous rush rather than milking it slowly as we transisition to something that can last.
I think you mean $500 *million*, which is what Solyndra got from the US government, and is not even visible on the government's bottom line.
You can argue the government screwed up by extending the loan at all, but the amount is relative chicken feed.
Solyndra funding wasn't even loans, but loan guarantees, i.e. insurance. Solyndra had flawed business model, and perhaps the risk was mispriced---but the deal worked as designed. We do understand the need for insurance, and the idea that the insurer can lose on any particular transaction, and only has to come out ahead in the long term?
The solar power industry’s problem is not China, it’s economics. It costs too much. It’s not competitive. Its survival depends on government subsidies. Governments are beginning to recognize that solar is not nor will be competitive and are gradually reducing subsidies. The solar power industry assumed the cost of electricity would increase with the addition of carbon pricing coupled with tight fossil fuel supply. In other words, environmental costs and fuel costs would increase the cost of electric power to the point where solar would be competitive. The problem with this reasoning is that it ignores the benchmark for clean electric power, nuclear. Safety concerns notwithstanding, nuclear power sets the bedrock price for clean electric power. Even if the cost for the solar cells were zero dollars/watt, solar compared to nuclear is too expensive.
Solar can be cost competitive in some areas and applications.
But despite the advantages posed by nuclear power, it will have problems simply because it *is* nuclear power, and there is a huge amount of entrenched resistance to the notion, and an awful lot of ignorance about the safety of nuclear power. (The Fukashima reactor disaster in Japan did not help, even if the real lesson is that Fukashima was set up wrong to begin with.)
Solar is the answer, not nuclear. Both Germany and Japan are shutting down nuclear power plants. SCE has decided to forego adding a third reactor at San Onofre and the other two are still shut down. Solar power plants are cheaper to set up and run than ANY alternative, at less than $2 per watt.
I'd call that stupid, all told.
The net effect is to drive up the cost of photovoltaic installations and slow the growth of photovoltaic use.
From where I sit, the opportunities for US businesses are in sales, installation, and support, and the cheaper the components are that they build solar installations out of, the better a price they can offer and the faster they will grow.
Let the Chinese plants that failed to correctly forecast demand go bust turning out panels they can only sell below cost. That's an *opportunity* for US outfits installing photovoltaics, because they can get the parts cheap.
The pitiful state of the grid is going to be the largest barrier, beyond tariffs or even batteries. Renewables tend to be available only in specific places, rarely where demand is.
Here in Washington State you would think our plentiful wind and water should play well together, since water is an ideal storage system with rapid demand scaling. However, we have times of high wind where we idle the mills and use hydro, because our grid works for hydro but is not able to deliver wind power to where it is needed.
The building of grids however is capital intensive and a long term return. Which is not a good match to new technology like wind or solar which is rapidly changing. Perhaps in a few places the investments in grids make sense because they pay off under multiple scenarios, but those which involve long spurs (like the Pacific coast for wind) for single purpose are going to make any investor nervous.
I did assume that operators like Bonneville Power had a better handle on how to integrate hydro and wind into the NW grid. Sounds like most of these outfits are unwilling to take a risk in order to upgrade the grid.
The problem for the operators is that they are generally regulated utilities. The sorts of upgrades required cost a lot of money, and the money will have to come out of the prices charged for power.
Getting regulator approval to make the upgrades, permit the bond issues needed to finance it, and raise the rates to pay for it will be very difficult and a political nightmare.
It will cost a lot of money, and everyone will say someone *else* should pay for it.
Things like that are a major reason why ConEd in NYC is pushing conservation and energy efficiency as hard as they can. The last thing they want to do is build new generating capacity because of all the problems involved in doing it.
I'm in Manhattan, but no surprise. As mentioned, the last thing ConEd wants to do is build new generating capacity. Anything they can do to promote more efficient usage of what they already generate is a no-brainer yes notion.
Let's analyse things objectively. We should not bring in international politics and turn this topic dirty.
The market wants cheaper and quality solar panels. China is satisfying this demand with competitive cost down with generally acceptable quality. If US can do the same, why not?
Many things today are made in China. We should not perceive China as making low quality products. This is very biased views that you see in Hollywood movies. If you still see things this way, you are very unprofessional.
There are also quality products at reasonable price made in China and if this is what the market is looking for, let the market force decices.
David Patterson, known for his pioneering research that led to RAID, clusters and more, is part of a team at UC Berkeley that recently made its RISC-V processor architecture an open source hardware offering. We talk with Patterson and one of his colleagues behind the effort about the opportunities they see, what new kinds of designs they hope to enable and what it means for today’s commercial processor giants such as Intel, ARM and Imagination Technologies.