Panel Paper: Subsidies, Economies of Scale, and Innovations. Paths to Competitiveness in the Solar PV Manufacturing Industry

Saturday, November 8, 2014 : 9:10 AM
Enchantment Ballroom D (Hyatt)

*Names in bold indicate Presenter

Xiaojing Sun, Georgia Institute of Technology
The global solar photovoltaic (PV) industry has experienced fast growth since the turn of the 21stcentury. The installed solar PV capacity worldwide has grown from less than 1GW in 2000 to over 130 GW by the end of 2013. The exponential growth of the industry is mainly a result of two key factors: implementation of renewable-energy-friendly policies in Europe, the U.S. and Asia, and the rapidly declining of the cost of solar PV, mainly driven by products made in China. Just within the past three yeas, Chinese producers have driven the multicrystalline solar modules’ cost down by 54%.

However, tension is high among major industry players in recent years regarding means through which Chinese manufacturers achieved low-cost production. This study intends to unpack the cost of PV manufacturing in two major PV producing countries, China and the U.S. By looking at a total of eleven world leading PV firms from both countries, this study tests three hypotheses regarding manufacturing cost, aiming to shed light on the sources of cost competitiveness. It is hypothesized that government subsidies would  lower the PV production cost. Similarly, economies of scale would reduce the production cost as well. It is also hypothesized that innovation would increase the production cost in the short-run but create long-term market advantage.

Firm level data collected from publicly traded PV manufacturing firms’ financial filings were used as the main data source, complimented by macro-economic data such as country level GDP, labor productivity, etc.  Regression analysis results demonstrate two different paths to competitiveness pursued by Chinese and American PV producers. Unlike the what conventional wisdom would suggest, government capital subsidies have a greater impact on lowering the production cost of the American PV manufacturing firms than on the Chinese PV firms. Economies of scale put a significant downward pressure on production costs for firms from both countries although the relative impact is greater for the Chinese firms. Innovation, however, increases both the short-term and long-term production cost in both countries. Nevertheless, firms with higher R&D spending would in the long run gain more market share, relative to their competitors from the same country, even with slightly more expensive products.

The findings of this study highlight two different approaches employed by PV manufacturers from China and the U.S. in pursing market competitiveness. The former orients towards economies of scale while the latter takes the high route of improving innovation capacity. One key contribution of this study is that it quantified the impact of government capital subsidies on lowering PV production costs.