Will China’s 50 GW goal create a solar bubble? No.

In fact, the dramatic scaling of solar manufacturing capacity is just what’s needed to keeps costs dropping

The renewable energy industry is central to addressing many national problems:  Climate change, national security, and job growth.  Its biggest international challenge is the Green Giant – the competition from China’s full-court press into clean energy.

Seemingly every week there’s another story about how China is upping the U.S. in the race to develop clean energy. This week’s news is in the solar sector, where Chinese officials say they plan to deploy 50 GW of cumulative capacity in the country by 2020. China only has about 1 GW of solar PV installed today (and no concentrated solar thermal power). But assuming it can meet those targets and continue scaling manufacturing (the country currently holds 57% of global solar cell manufacturing in the world), China is poised to become a vertically-integrated solar leader – not just an exporter of technology.

This story on the Forbes blog seems to have misunderstood the implications of China’s strategy:

“The epic expansion planned for the latter part of this decade may create the world’s first solar-energy bubble. The existing solar supply chain is likely too shallow to sustain growth on this scale. Unless the industry develops scalable infrastructure over the next four years, China’s planned installation of 8 GWs of solar capacity annually between 2015 and 2020 is likely to create severe bottlenecks in the solar supply chain. These bottlenecks could radically inflate the price of basic materials like silicon and create labor shortages that would affect the costs of manufacturing solar modules, designing and installing new solar systems and operating and maintaining already installed systems.”

So are we really going to see a solar energy bubble? That’s extremely unlikely, says Shayle Kann, a leading solar analyst with GTM Research.

“It’s actually nothing crazy,” he says. “I have a hard time seeing this creating a global undersupply – we’ll have 50 GW of module manufacturing capacity by the end of this year. The goal is doable.”

That’s a pretty amazing feat. When one of the fastest growing, energy-intensive countries in the world decides to build 50 GW of solar in a relatively short period of time, and the solar industry can keep pace with it – you know the industry has begun to reach true scale.

In fact, Kann sees prices continuing to fall due to a structural oversupply of modules – exactly the opposite of what the Forbes piece suggests. In 2011, we could see a 10% decline in module pricing and another 15% decline in 2012. While that’s ultimately a good thing for consumers and installers, it puts the squeeze on manufacturers – but that also forces producers to continue innovating and dropping costs, thus benefiting the industry overall.

And for anyone who doubts that the cost-curve for solar is not coming down, take a look at this chart from a recent IPCC report outlining the possibility of a 77% global clean energy target by 2050:

PV curve IPCC

Experience curve in logarithmic scale for the price of silicon PV modules….  Reductions in the cost or price of a technology per unit of capacity understate reductions in the levelized cost of energy of that technology when performance improvements occur

As an aside, Steve Sawyer, Secretary General of the Global Wind Energy Council, says of this figure, “I was there in Abu Dhabi. The US numbers come from Ryan Wiser, and the Danish from the Danish Energy agency, so I think they’re reasonably accurate. The way these cost figures are tabulated, the hangover from the price spikes of 2007 and 8 are reflected on installation costs in 2009, 10 and to some extent 11. The (sales) price indeed dropped a little in 09, a lot in 10 and 11, but these aren’t reflected in these data.”  Back to China.

So what about the competitiveness angle? Can the U.S. keep up with China? In manufacturing, it looks like China will continue to dominate. But in installation, where job creation is higher, it appears that the American market will indeed keep pace with its strongest competitor.

In comparison, the U.S. currently has about 2.6 GW of solar PV capacity installed. This year, we may see anywhere between 1.5 GW and 2 GW of installations and, according to analysts at GTM Research, the U.S. could see about 20 GW of cumulative capacity. (Given the scattered, local, on-again/off-again nature of the U.S. market, it’s difficult to project out beyond 2015. However, the Solar Energy Industries Association says it’s not unrealistic to assume the American market will put 10 GW each year online by 2020.)

While it’s impossible to make any definitive predictions in the constantly-changing solar sector, one thing is clear: The industry is poised for radical growth and the supply chain is maturing enough to keep up.

“” Stephen Lacey

JR:  One more point.  The Chinese target appears to be for all solar, not just PV.  Let’s not forget concentrated solar thermal power.  It has great potential in China (see this 2009 thesis).  And the good news is that China is now pursuing CSP:  Last year, a U.S. solar thermal firm made a deal for 2 GW project with biomass.  So I would not be surprised if a substantial fraction of the 50 GW target were met with CSP.


15 Responses to Will China’s 50 GW goal create a solar bubble? No.

  1. prokaryotes says:

    China possibly, is going to sell a lot of solar & wind etc, to japan now, after japan realized that nuke plants suck.

  2. Andy says:

    Forbes doesn’t make sense. Maybe you could explain. I thought a bubble occurred when a product (like housing) was overpriced and oversupplied and then suddenly plunges in price when the bubble pops. Yet Forbes seems to be saying that the PV product will be undersupplied and so become overpriced. If this sort of thing occurs with PV, whose raw material is the most common mineral on earth, sand; then supply will be ramped up and everyone is good to go.

  3. Leland Palmer says:

    It might be hard to create a true shortage of silicon, since it makes up something like 27% of the earth’s crust.

    There can of course be shortages of solar or electronic grade silicon which is highly refined to remove as many impurities as possible. Given that silicon makes up a big percentage of the earth’s crust, and that there are several alternate and competing processes to refine it, a true long term shortage of solar or electronic grade silicon seems unlikely.

    If a short term shortage develops, the prices rise temporarily, which stimulates production, of course, and prices then drop again. Also, China may be less dependent on market forces for supply- if they need more solar grade silicon, they could likely just order more produced, in their command economy.

    According to the mainstream media, anything that threatens the fossil fuel corporation domination of energy production becomes laughable, impractical, or very difficult, it seems.

    One suspects that the MSM is biased. :)

  4. MarkF says:

    the silver lining of the fukishima cloud. maybe this is the turning point that I had hoped would be reached with hurricane Katrina, and then the gulf oil spill.

    Not coming in the USA, but, that no longer matters.

  5. mozi says:

    all you need for a bubble to develop is a good idea and lots of easy money

  6. _Flin_ says:

    You say
    “In 2010, we could see a 10% decline in module pricing ”

    I guess that is supposed to spell “2011”, isn’t it?

  7. nyc-tornado-ten says:

    If china were to actually achieve a “solar bubble”, they would simply use less fossil fuel, as the solar is free once installed. A solar glut is actually a glut for any fossil fuel that competes with solar.

    I suspect that at some point around or after 2020, china’s electric demand will not rise nearly as fast as it has been for decades, while at the same time they will be installing large amounts of renewable energy, at a competetive cost. At that point in time, china’s consumption of fossil fuel for electric could begin to fall. If america chooses to continue to lag, we may be the last nation heavily dependent on fossil fuel.

  8. Matter says:

    8 GW/year will make a bubble?

    World solar cell production is already above 20 GW/year and prices have dropped by about a third in the past 3 or so years.

    I don’t see it. I’m pretty sure that the demand certainty provided by this target, combined with a 4 year heads up should be enough. Markets aren’t completely stupid.

  9. Stephen says:

    Flin — Yes, 2011. Thanks!

  10. Mulga Mumblebrain says:

    The Chinese use ‘market mechanisms’ like supply and demand, but at the service of rational objectives, worked out by technocrats, including the political leadership. In market capitalist economies, like the US, in contrast, the objectives are based solely on profit maximisation, capital accumulation, the enrichment of the capital owning class and, for the last forty years, and currently accelerating, the comparative impoverishment of the vast bulk of the population. What’s more, China doesn’t leave research to the vagaries of the infallible ‘Market’, but rationally deploys resources to achieve the greatest return. The same is true of infrastructure. The US only seems to do research and infrastructure construction capably any more in regard to the military. China will pass the US in scientific and technological prowess soon, and appears, despite increasing threats, not to be prepared to blow over one trillion a year on military expenditure, like the US. In all honesty, which is the more rational system, and which would you trust to pull the greatest weight in getting humanity out of our current impasse?

  11. Bill Woods says:

    “In fact, Kann sees prices continuing to fall due to a structural oversupply of modules –”

    Isn’t this what a bursting bubble looks like?

  12. David says:

    Mulga, 10. Google “China’s ghost cities” and see if it qualifies as “rational deployment of resources for the greatest return”.

  13. Stephen says:

    Bill — While it’s a fast drop, it’s not exactly sudden. Many of the leading manufacturers are consistently lowering costs to meet these price reductions. In fact, what we’re seeing in both installation and manufacturing is an increasingly diversified, healthy industry.

  14. Mulga Mumblebrain says:

    David #12, I think that the ‘ghost cities’ will one day be populated, but I doubt that a rational use, or a humane one, will ever be found for Predator drones, F35s or twelve nuclear attack aircraft carriers. One thing about the Chinese, too, is that they seem to learn from their errors, which, in my opinion, cannot be said of Western societies in thrall to the voodoo economics of market fundamentalist neo-feudalism.

  15. monk says:

    Never mind silicon. Just think of petrochemicals, copper, and other resources.