The New York Times recently reported that the over-investment by Chinese solar panel manufacturers has placed not only the future of Chinese manufacturers at risk, but also the future of rest of the world's manufacturers. Given that capacity is so over-built, market participants cannot realistically operate manufacturing facilities near the required levels of production to enjoy any sort of economies of scale. Since 2009, demand for solar panels has increased almost threefold. Typically, this would be considered a good thing?except that manufacturing capacity has increased by close to five times during the same time frame. This supply and demand imbalance has pushed prices so low that it is reportedly causing the Chinese to lose one dollar for every three dollars they make in sales. Clearly, this is not a sustainable condition.
So, how does this situation affect US manufacturers? By driving down prices to a point where the massively subsidized Chinese manufacturers cannot make money, the relatively unsubsidized US manufacturers cannot make money either. As...
The New York Times recently reported that the over-investment by Chinese solar panel manufacturers has placed not only the future of Chinese manufacturers at risk, but also the future of rest of the world's manufacturers. Given that capacity is so over-built, market participants cannot realistically operate manufacturing facilities near the required levels of production to enjoy any sort of economies of scale. Since 2009, demand for solar panels has increased almost threefold. Typically, this would be considered a good thing?except that manufacturing capacity has increased by close to five times during the same time frame. This supply and demand imbalance has pushed prices so low that it is reportedly causing the Chinese to lose one dollar for every three dollars they make in sales. Clearly, this is not a sustainable condition.
So, how does this situation affect US manufacturers? By driving down prices to a point where the massively subsidized Chinese manufacturers cannot make money, the relatively unsubsidized US manufacturers cannot make money either. As a result, the US has recently employed tariffs and trade restrictions to remedy the situation during this period of rapid change. Rapidly changing markets don?t make it easy for tariff setters to get it right; in fact, it is almost impossible to do so. This state of affairs does not bode well for any solar market in the world. Thus, this is an interesting time for solar market participants. Possibly, enough manufacturers will cease operations as they continue to see massive losses, helping to balance the market, or survival will be determined via protective measures wherein the winners and/or losers are determined by government fiat.
If past experience is in any way predictive of future performance, the government's selection process may not ensure survival of the most efficient producers?with winners selected by political expedients as opposed to just market realities. How many jobs are at stake, how much money banks have to write off, and how much new investment manufacturers need to continue to participate in the market will ultimately be the deciding criteria. Unfortunately, which company makes the best quality panel in the most efficient manner will likely have less of an impact in the survival process. Only the derivative results will be looked at once politics enters and determines the decision-making procedure.
Of course, ?we,? as a global society, are hoping for more market success and innovation not just for solar, but for all forms of renewable energy. We need the renewable energy process to work. Climate change is just one aspect of the need; we also need technology that captures the world?s imagination, whether it is solar, wind, biofuels or ocean tides. If we do not rally together and instead continue to fight each other through tariffs and trade restrictions, we will not conserve our dwindling natural resources. Without a dramatic increase in concern, the world will not be able to diversify its energy generation portfolio to include new technologies or even to make the correct long-term decision concerning the technologies that we know. We will continue to compare solar and wind to coal, and to select the short-run, low cost product that, for now, is the relatively dirty alternative: coal. In my best estimation, this path will not get us where we need to go. We shouldn't rush to embrace market solutions that are administered by those without the long term firmly in mind.
Back in the day, we had a saying: Short-term budget problems shouldn?t sink long-term goals and objectives. Historically, governments playing in the market only causes suspension and/or abandonment of logical processes. However, that may be the answer in this scenario, given the perceived time frame for a solution to emerge. Perhaps the sudden unilateral administrative action is the best path after all. Let?s go ahead and let China decide the correct path for them and for us. But until then, we?ll take one step at a time and deal with them each in turn, without looking ahead to the resultant market that is created. It?s clear the US is not comfortable with delaying action on its part. So, let?s just plow ahead and try to survive? Efficient markets be damned.
Source: http://energy.nationaljournal.com/2012/10/china-vs-the-us-whats-at-stake.php
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