September 5, 2013 – A study of the photovoltaic industries in the U.S. and China shows the latter’s dominance in panel manufacturing is not driven solely by cheaper labour and government support but—according to a study is published in the Royal Society of Chemistry journal “Energy & Environmental Science”—by larger-scale manufacturing and resulting supply-chain benefits.

The study’s researchers say a balance could be achieved through future innovations in crystalline solar cell technology, which have the potential to equalize prices by enhancing access to materials and expanding manufacturing scale across all regions.

Researchers at the U.S. Department of Energy’s National Renewable Energy Laboratory (NREL) and Massachusetts Institute of Technology (MIT) developed a bottom-up cost model to examine the underlying causes for the shift in the global manufacturing base of photovoltaics from the States and Europe to China.

To carry out their economic analysis, they adopted the perspective of a multi-national firm evaluating locations for a solar panel manufacturing facility in either the U.S. or China. They predicted how the firm would decide by examining a factor called Minimum Sustainable Price (MSP) for monocrystalline silicon solar panels manufactured in each region. MSP represents the minimum price at which a company can sell its products while providing an adequate return for the company.

Using figures from the first half of 2012, they estimated an MSP of $1.19/W for U.S. solar panels, compared to $0.91/W for Chinese panels, representing a price advantage of 23% for a China-based manufacturer.

But when they examined country-specific factors for this price difference, they found that China’s historical advantage of low-cost labour was counteracted by other regional influences, and that the dominant reason behind its success is primarily the scale of solar panel manufacturing in the region, enabled by access to capital and a less restrictive business and regulatory environment.

The study shows that the density of production and the cost-benefit of using local suppliers give a China-based manufacturer access to cheaper materials and machinery. These scale and supply-chain advantages provide a China-based solar panel factory with an MSP advantage of $0.28W.

“These advantages, which are not indigenous to China, could be replicated by manufacturers based in other countries if comparable scale could be achieved,” said Al Goodrich, senior analyst at NREL and lead author of the study. “But for solar power, there’s a chicken and egg problem: consistent demand is needed to provide manufacturers with access to the capital required to achieve large-scale production, but large-scale production will be necessary for solar power to compete as an energy source without subsidies.”

Goodrich added future innovations in silicon solar panels have the potential to reduce key investment risks for manufacturers, thereby enabling manufacturing on an equivalent scale across most regions.

“The holy grail is a photovoltaic module that gives the biggest bang for its buck, with high efficiency, lower materials costs, streamlined and scalable manufacturing, and unquestionable reliability,” said study co-author Prof. Tonio Buonassisi, associate professor at MIT. “The glass industry between the 1880s and the 1950s underwent innovations that streamlined the process to one integrated tool, where you put feedstock in one end and get one product out at the other end. We envisage a similar evolution for solar panel manufacturing.”