Solar’s China problem (and mine)

Today I met Terry Wang, the CFO of Trina Solar, a fast-growing company that has come out of nowhere to become a player in the solar power industry. Launched in 1997, Trina Solar is the world’s second-biggest solar power company (behind First Solar), as measured by its market capitalization of about $4.3 billion. Revenues were $301 million in 2007, $831 million in 2008, $845 million in 2009 (a bad year for everyone because of the global recession) and about $700 million for the first six months of 2010.

Terry grew up in China, went to college at Brown and earned an MBA at the University of Wisconsin, after which he took a series of jobs in Silicon Valley. Today, he divides his time between Trina Solar’s headquarters near Shanghai and Fremont, CA. He needs to spend time in this country, he said,  because Trina wants to be part of the growing U.S. solar market and because its shares are traded on the New York Stock Exchange. On a panel I moderated at the Solar Power International conference in Los Angeles, Terry said that Trina Solar will consider setting up a manufacturing plant here if the U.S. market, which doubled in size in 2010, continues to grow.

Terry also acknowledged — not that he had any choice — that Trina Solar has benefited mightily from support from the Chinese government, including a whopping $4.4 billion line of credit from the China Development Bank.

So here’s the question: Should environmentalists, and others who want to see the solar industry thrive, be cheering the success of Trina Solar?

After all, companies like Trina Solar — as well as other big Chinese PV manufacturers, such as Suntech Power and Yingli Solar — are part of the solution to the climate crisis. Every new solar panel generates low-carbon electricity. Low-cost panels made in China lead to wider adoption of the technology.

Trina Solar panels on a roof...in Atlantic City, NJ

Trina Solar, for example,  is a key supplier to Solar City, which is installing panels on 30 Walmart stores. Trina is also a supplier to Standard Solar, whose CEO, Tony Clifford, also spoke on the SPI panel. Trina’s modules could find their way onto a 300-megawatt (i.e., big) solar facility that Standard Solar is developing in Ohio. (It’s essentially replacing a proposed new coal plant which was blocked by environmental opposition.)  If I were to call Tony Clifford, whose firm is based in Rockville, Md., and ask him to put solar on my house in Bethesda (unlikely because we get very little sun), I might wind up with a Trina Solar panel on my roof.

So what’s not to like? Well, there’s the fact that manufacturing jobs in solar (as well as  wind) are growing a lot faster in China than they are in the United States. The United Steelworkers union last month filed a complaint with the Obama administration, charging that China unfairly subsidizes its clean energy industries, in violation of World Trade Organization rules.

More worrisome is the possibility that China’s subsidized solar companies will choke off innovative U.S. competitors. Todd Woody, my former colleague at FORTUNE, had an excellent story today in The New York Times describing how thin-film solar companies like Solyndra, Nanosolar and MiaSole, which raised vast amounts of money from venture capital firms, are now finding that their plans for low-cost solar technology may be undermined by lower-cost competition from China. He reports that a startup called Innovalight abandoned its manufacturing plans altogether, and instead licensed its technology to the Chinese:

“How do you fight against enormous subsidies, low-interest loans, cheap labor and scale and a government strategy to make you No. 1 in solar?” said Conrad Burke, Innovalight’s chief. “Innovation will be the heart of the U.S. strategy, and although it might not create the same scale, we’re exporting well-protected technology to China and creating well-paying jobs here.”

All of this is more complicated than it seems at first glance. On the jobs issue,  Standard Solar will hire more installers if Chinese efficiency (and subsidies) drive down the costs of solar. You can’t outsource the jobs of people who put their boots on the roof. What’s more, the Chinese firm Suntech opened a small manufacturing plant just last week in Goodyear, Arizona. It’s expected to employ 150 people by the end of next year.

And, China isn’t the only country to subsidize its  solar industry. The Japanese, German and Spanish solar industries grew up because those countries created solar-friendly regulatory regimes. Solyndra, one of the company featured today in The Times, got a $535 million loan guarantee from the U.S. government. California and New Jersey subsidize rooftop solar.

I’m not sure what to make of all this. Since I’m not running for office, I’m not particularly concerned if China, rather than the U.S., creates clean-energy manufacturing jobs; it’s still a poor country, after all. If China wants to subsidize solar panels that wind up on Walmart’s roofs, or mine, great.

On the other hand, true competition and innovation in clean-energy requires free trade and fair markets. Innovative U.S. clean tech firms should be able to sell their products in China and protect their intellectual property. Right now they can’t do either. I wish I knew what could be done to remedy that.

Your thoughts?

Comments

  1. Lewis Ward says:

    Very thought provoking. Subsidize our own.

  2. The answer — the only answer — is to have a nationwide California-style solar subsidy and, of course, a price on carbon (ideally via a hard cap on carbon emissions). Demanding that China decrease its subsidies to level the competition would be pure folly.

    We clearly need to subsidize solar, mainly because we are dealing with two types of externalities: the negative one, in form of socializing costs of pollution; and a positive one in form of spillover effects of R&D investments. The first is best addressed with a price on carbon; the second with direct subsidies.

    Another key point is that there’s nothing particularly sacred about solar energy. We think we know that it provides part of the answer to cheap, clean energy. But there may well be other, cheaper, cleaner forms of energy lurking on the horizon. That’s where the price on carbon comes in: it motivates entrepreneurs and tinkerers to experiment with all sorts of different energy sources. A directed solar subsidy alone limits that search quite significantly.

  3. True the Chinese subsidies are harmful in the long term as the Chinese suppliers are reactive to Markets and not truly innovative but good at copying (sometimes at less than adequate quality standards – which we know are important for long term reliability). Supporting and encouraging local manufacturing can only enhance the industry and the overall economy. Why not push “Buy American” even if there is a slight premiun?

  4. The Chinese have been known for creating low cost products. May they be solar panels or solar inverters… they have some how obtained a hold on this because of the cheap man power available. I cannot say anything about quality though but lets keep our fingers crossed.

    Finally when it boils down to capturing market share, who knows who’ll do what??

Speak Your Mind

*