By all accounts, Chinese solar panel manufacturers dominate the global market for modules. In a matter of years, the Chinese share grew from 1% to 40 % of the global solar panel market. The U.S. has a 6% share. Recently, data shows U.S. solar manufacturers ended 2010 with a net export value of $1.9 billion. Ninety-nine percent of the surplus consists of PV components. Solar heating and cooling equipment made up the remainder of the export value.
American manufacturers exported a total of $5.6 billion. Capital equipment and polysilicone feedstock came to $3.9 billion or 69% of total exports -- $1.4 billion and $2.5 billion respectively. Export trade partners include China and Germany. The United States imported $3.7 billion in photovoltaic products. About 65% of sales, or $2.4 billion, were solar modules.
In 2010, the two largest import trade partners were Mexico and China. The U.S. has more than a $240 million trade surplus with China, mostly as capital equipment and polysilicone. China's imports to the U.S. were mostly solar panels.
Pressure on U.S. Manufacturers
As the rest of the U.S. economy struggles to reach the lowest growth targets, the solar industry has continued its hot expansion. Last year, the industry grew over 60 percent, from $3.6 billion in 2009 to $6 billion 2010. Loan guarantees and tax credits provided a substantial amount of support to the market. However not all companies have been able to survive the steep drop in panel prices, which cut already thin margins even more.
The recent bankruptcy of three American solar manufacturers has heightened the call for trade sanctions against China by the World Trade Organization, from the United Steel workers and some politicians. The closings of Evergreen Solar, SpectraWatt, and Solyndra have reduced America's solar panel manufacturing output capacity by 20%. All three companies cite stiff competition from Chinese manufacturers as one main reason for their demise.
Several years ago, Evergreen Solar and Solyndra's solar modules used less solar cell material in their products. Processing panels with less polysilicone gave these initial competitive edges. However, increases in polysilicone output, and a subsequent 80 percent drop in silicone prices, eventually spelt doom for these companies.
First Solar, the largest thin film solar panel manufacturer in the world, has the resources needed to survive the current market. The company improved manufacturing processes, and one of the industry's lowest production costs in the industry -- $ 0.75 per watt, helps the company withstand the economic environment.
Some manufacturers have become solar project developers to generate additional revenue. Sungevity has established a partnership with Lowe's Home Improvement to enable homeowners to obtain estimates on leasing a solar system. Some industry experts say the long-term advantages for U.S. solar industry is in thin-film technologies and in utility-scale solar development.
The CEO of Solarworld, Germany's largest solar panel manufacturer, Frank Asbeck, said "It's not about a free market or good products anymore, it's about who gets the most political protection.” Asbeck announced the closure of plants in California and Germany. "That's not even industrial politics anymore. That's war."
China Dominates Capacity
As Western solar industry workers lose jobs, and manufacturers close doors in response to the current dynamics of the industry, it seemsChinese manufacturers inherent advantages -- low-interest rate loans and inexpensive or free land from local provincial authority, will entrench its position as the dominant player in the solar panel market.
Chinese companies determine market prices; other manufacturer must follow or risk annihilation. Chinese manufacturers have about 60% of the world's production capacity. The country's three largest solar module manufacturers are Suntech Power, Yingli Green Energy and Trina Solar. The companies have realized sales increases of 33 to 63 percent in Q2. China's largest polysilicom producer GCL-Poly, recently received a subsidy loan worth $713 million. A year ago, the company received $303 million.
According to David B. Sandalow, an assistant secretary in the U.S. Department of Energy, “Many of them say it is cheap capital, not cheap labor that gives Chinese companies the main competitive advantage.”
A COO of a Chinese clean energy investment company, states its subsidized or free land, tax breaks and other the assistance that gives China's solar module manufacturer's their market edge, not low labor costs. In 2011, modules have flooded the market prices have fallen as much as 30 to 42 percent per kilowatt
Many analysts point to U.S. and EU strategies that focus policies on building demand through subsidizing solar panel buyers and the use of solar power systems. In contrast, the Chinese government policy has been to support Chinese manufacturers by making the solar panel industry more competitive. U.S. and EU buyers increasingly purchase their solar panel from Chinese manufacturers. The Chinese manufacturers shipped overseas 95 % of the solar panels produced in their plants.
Chinese manufacturers must also navigate the tough economic environment, but lower production costs make larger firms better able to withstand price reductions.
Conclusion
The worldwide glut of solar panels has driven prices down, cutting margins and stock prices. The shakeout will continue as smaller less capitalized companies fail. Other will consolidates here in the U.S. and Europe. This also applies to the smaller Chinese manufacturers. Analysts expect the American market to continue its growth in installed capacity and make up for fallen demand in Europe. They also look for expansion of exports to continue.
Analysts state the U.S. will have to match the investments made by other countries China to grow a dynamic solar industry capable of competing with the Chinese. The wild card for U.S. manufacturers concerns the decision regarding the future of programs, such as loan guarantees and tax credits. The federal, state and local government may have to limit investment due to budget problems and the need to cut debt at both local and national levels.
The failure of Solyandra has created somewhat of a political “hot potato” for President Obama. The company received $535 million in loan guarantees. The President touted the company as an example of successful public-private partnership for job creation in the industry. Unfortunately, the company released 1,100 workers when it filed bankruptcy.
While some critics see it as an example of why government should not get involved in subsidizing the solar industry, others use it to point out the need to invest in American companies to help “level the playing field” for U.S. firms.