zondag 26 september 2010

A growing solar cell and module industry in China will help Europe

The Chinese solar pv industry is growing rapidly. In less than a decade, starting with a few small module manufacturers, China today turned into the leading upstream manufacturer of silicon, wafers, solar cells and modules. More than half of all solar cells and modules produced in the world are now from China. The share is likely to increase with huge investments and factory expansions coming up.

Factories are built where no markets are...
Where are most factories being built these days? Actually, not where the biggest markets are... First Solar modules come from Malaysia, REC produces in Singapore, Sunpower in The Philipines and China isn't a big market as well. The reason is simple: the factories are built where the incentives are the highest. Tax holidays, investment subsidies, cheap land and other incentives are offered to seduce companies to build a cell or module factory in their country. There seems almost a competition going on among countries. Someone has to pay for that and in the end that will be the tax payers.

The Chinese PV industry built with German tax money
The pv industry and market is considered to be small and still in its infancy. In the coming decade the global revenue pool for solar pv will increase to more than 200 million euro. More then once, it can be heard that government and industry people complain, that this huge Chinese solar pv industry complex has been built with European/German tax money.

With a very small domestic market, the majority of all Chinese solar modules are sold on the subsidized leading European markets, with Germany by far the most important. At the same time, the German solar industry is facing hard times with tougher competition from China. The German market is booming, meaning German rate payer will have to pay a higher premium on their electricity bill and at the same time Chinese brands are increasing their market share in Germany. Is it fair that a big part of the German rate payers money goes to China?

In other countries, like France, government people and advisors are questioning whether incentives like a Feed-in Tariff actually help to develop a domestic solar industry...Isn't it only helping the Chinese with the development of their PV industry?

German equipment in Chinese factories
A few thing can be said. First, it does not have to be bad if mass manufacturing of solar cells and modules will have its base in China. To start, let's not forget that in most factories in China, German equipment is installed to produce the cells and modules. Upstream, German companies have achieved a leading position in high-tech equipment manufacturing.

Germany is in the driver's seat
Secondly, the Chinese companies, in their aim to achieve a bigger market share, will have to bring down cost of cell and module production. Like in 2011, Germany will decrease its FiT in 2012 again. With the expected further market boom in 2011, Germany will cut back its FiT's with another 22%, as described by the latest regulation. The Chinese solar industry, being completely dependent on the German market, will have no other choice than to bring down cost accordingly in 2012. In other words, Germany is fully in control, and will steer and drive down the cost of (Chinese) solar modules faster and faster towards grid parity. Even sooner than expected, Germany will achieve a market situation where FiT incentives are no longer needed. Solar energy, based on very cheap Chinese solar modules, will then be able to compete with electricity from the grid. Solar cells and modules will become a mass and commodity product. Produced in huge factories, this mass production will result in tiny margins. For comparison, look at the current situation of flat screen production. Fully automated mass production, tiny margins and job cuts more than new job generation. Only interesting for a few big industrial multinationals. With the high-tech jobs related to the installed manufacturing equipment. In this scenario, it makes more sense for European countries to be positioned more upstream in high-tech equipment manufacturing.

Jobs, jobs, jobs: the future will be downstream
Secondly, talking about job creation. As mentioned above, the most jobs will not come from automated mass cell and module production. Besides high value and high-tech jobs in equipment manufacturing, the large numbers of jobs will be created down stream. Like the design and installation of solar pv systems based on Chinese modules. Global leader and front running Germany is the example for other markets: most of the thousands of new jobs are created downstream. Development of projects, sales, engineering, roof and electrical installation and financing and insurance of PV systems. Market development is the real job generator, not industrial mass production.

Downstream business is the real job generator
And let's not forget the expected industrial opportunities for local product development. As mentioned in one of my previous Blog postings, every market will offer new business opportunities for new solar (roof) products. Based on imported cheap standard solar cells from Asia, products can and will be invented to fulfill local market needs. Hence, this will offer new high value jobs, which require creative, smart and well skilled local people.

Europe: help yourself and start more FiT's!
My conclusion for now is and advise would be to the French and other governments: don't be afraid for the Chinese module invasion based on a generous FiT program. Don't bother that you don't see a solar cell and module industry emerge in your country. Let China have this piece of the cake. You will only help yourself more. Then, even sooner French and other European companies will be able to import the best and cheapest cells and modules to create new and more profitable local downstream solar business. That will create a bigger revenue pool and the most jobs! Let China produce the fireworks and let's do the party in Europe!

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