China Has The Solar Edge

In the New York Times today has an article about China's dominance -- in the solar panel market. Washington has taken action to attempt to ensure that alternative energy would be the one area of manufacturing where the U.S. would lead the world. It looks like those efforts might not make much difference. I don't think that should really surprise anyone.

So what's China's advantage? The Times explains:

Since March, Chinese governments at the national, provincial and even local level have been competing with one another to offer solar companies ever more generous subsidies, including free land, and cash for research and development. State-owned banks are flooding the industry with loans at considerably lower interest rates than available in Europe or the United States.

And, of course, much, much cheaper labor. Engineers working on developing solar panels in China will make a mere $7,000 per year, according to the Times.

This graphic from the Times also helps show what's going on:

China Solar.jpg

China, of course, has an economy with far more state involvement, giving its companies a competitive advantage right off the bat. That, in conjunction with ultra-cheap labor is extremely difficult to beat. The Chinese are obviously also quite smart and have sufficient technology to make progress. It will be an uphill battle for the U.S. to compete.

At least one U.S. solar company doesn't find this surprising, via the Times:

"I don't see Europe or the United States becoming major producers of solar products -- they'll be consumers," said Thomas M. Zarrella, the chief executive of GT Solar International, a company in Merrimack, N.H., that sells specialized factory equipment to solar panel makers around the world.

U.S. would benefit from finding an area of manufacturing to dominate -- especially one with almost certain growth for the future. How could we become a major market player in solar if we wanted to? More U.S. government subsidization of the industry is probably the most obvious way. That's one of the tools China is using to make huge strides. Even then, however, such subsidization would have to be incredibly high to compensate for the difference in labor costs between the U.S. and China. Not to mention the deafening chorus Washington would hear from lobbyists in other industries wanting their cut.

But I wouldn't be too sad about the news. Ultimately, the U.S. will likely have access to solar panels for even cheaper than it could make them itself as a result of China's efforts in the market. While that may be little consolation for U.S. manufacturing, consumers will enjoy lower energy prices as a result.