China’s PV dominance driven by production scale, not lower labor costs, study finds

A new report released today by NREL and MIT suggests that China’s current advantage in the PV manufacturing market is not due to lower labor costs as previously thought, but rather its vast scale of production, which has resulted in manifold supply chain benefits.
The study also suggests that China’s advantageous market conditions could be reproduced for the U.S. and other markets provided sufficient technological innovation was implemented.
The report, titled "Assessing the Drivers of Regional Trends in Solar Photovoltaic Manufacturing", has been published in the peer-reviewed Energy & Environmental Science journal, and was funded by the Energy Department in the U.S. Its team of researchers examined the causes that have resulted in a shift from a production base spread globally to one largely centered in China.
In contrast to prevailing opinion, China’s dominance has little to do with low labor costs and is instead rooted in the advantages of production scale and offset by country-specific factors, such as inflation and investment risk.
Encouragingly for other markets, China’s conditions can be replicated elsewhere, the authors found. By investing in technology innovation and global supply chain development, broader, subsidy-free PV deployment and manufacturing price parity in most regions is possible.
More specifically, their analysis indicates that greater innovation in crystalline silicon solar cell technology could trigger further investment – something that could significantly augment access to capital for manufacturers in those regions that enable scale-up. The result? An equalizing of PV prices from manufacturers in China and the U.S., for example.
"Our analysis finds that investments in technology research and development are critical not only to the widespread deployment of solar PV in most locations, without subsidy, but also may equalize factors that affect regional competitiveness, thus creating opportunities for U.S.-based manufacturers," said NREL Senior Analyst Alan Goodrich. "The race for cost-competitive clean energy from the sun is far from over, and incredible growth opportunities remain."
"Innovation is critical to driving the technological advancements that can position the U.S. to gain greater market share in the global PV supply chain," added David Danielson, Assistant Secretary for Energy Efficiency and Renewable Energy at the Energy Department. "We believe that innovation could drive down costs and drive up efficiencies not only in PV manufacturing, but also in the production of other high-tech and high-value clean energy technologies, and position U.S.-based manufacturers to be leaders in one of the most important global economic races of the 21st century."
The researchers behind the report took industry-validated cost models to reach a minimum sustainable price (MSP) for monocrystalline silicon cells manufactured in both China and the U.S. The idea was to assess – based on the MSP – how a global manufacturing firm would choose to locate its factories.
Based on conditions including the differences in manufacturing costs of modules, wafers and cells, the researchers estimated that China-based manufacturers have a 23% MSP advantage over those located in the U.S. (excluding shipping costs). They concluded that scale and supply-chain advantages give Chinese manufacturers their MSP edge.
These advantages, however, are not inherent to China, and could be replicated elsewhere if comparable scale could be achieved.
Tonio Buonassisi, associate professor at MIT and co-author of the study, said that in order to motivate serious U.S. capital investment to manufacture PV at scale, the technology must become low-cost, subsidy-free and truly innovative.

"The Holy Grail is an innovative PV module with high efficiency, low material costs, streamlined and scalable manufacturing and unquestionable reliability," said Buonassisi. "The PV modules you can buy today have a few of these attributes, but not all of them together. Thus, practical technological innovation is a key driver to accelerate the convergence between photovoltaics and traditional energy sources, both in terms of price and scale.
"This common goal, for the benefit of all nations, is an opportunity for international cooperation that leverages our complementary strengths."