China’s Solyndra Problem

by on October 5, 2012 at 10:58 am in Current Affairs, Economics, Science | Permalink

The NYTimes reports that China has a much bigger Solyndra problem than the United States ever did:

…China’s strategy is in disarray. Though worldwide demand for solar panels and wind turbines has grown rapidly over the last five years, China’s manufacturing capacity has soared even faster, creating enormous oversupply and a ferocious price war.

The result is a looming financial disaster, not only for manufacturers but for state-owned banks that financed factories with approximately $18 billion in low-rate loans and for municipal and provincial governments that provided loan guarantees and sold manufacturers valuable land at deeply discounted prices.

China’s biggest solar panel makers are suffering losses of up to $1 for every $3 of sales this year, as panel prices have fallen by three-fourths since 2008. Even though the cost of solar power has fallen, it still remains triple the price of coal-generated power in China, requiring substantial subsidies through a tax imposed on industrial users of electricity to cover the higher cost of renewable energy.

This bit also seemed familiar:

Mr. Li said in an interview that he wanted banks to cut off loans to all but the strongest solar panel companies and let the rest go bankrupt. But banks — which were encouraged by Beijing to make the loans — are not eager to acknowledge that the loans are bad and take large write-offs, preferring to lend more money to allow the repayment of previous loans. Many local and provincial governments also are determined to keep their hometown favorites afloat to avoid job losses and to avoid making payments on loan guarantees, he said.

RPLong October 5, 2012 at 11:02 am

We are all Solyndra now.

Andrew' October 5, 2012 at 3:45 pm

Confucius say, “man who claims to have superfluous solar panel should stick it where sun don’t shine.”

Rich Berger October 5, 2012 at 11:02 am

Time to find some alternative suppliers. I hear that there’s excess capacity in Europe.

Sammler October 5, 2012 at 11:04 am

Is it fair to surmise that Solyndra might well have prospered, except that it was “out-Solyndra’ed” by more aggressive subsidies to similar firms within China?

Adrian Ratnapala October 5, 2012 at 11:36 am

Not really, they also made a bet on an underlying technology which didn’t pan out.

That said, part of the reason was that silicon prices fell. Perhaps that in turn happened because China was creating economies of scale for silicon.

Careless October 5, 2012 at 12:15 pm

Yes, it sounded like a really stupid bet. Who could have guessed those factories that were being completed would start producing?

Mark Thorson October 5, 2012 at 2:04 pm

Yes, and many of those economies of scale occurred right here in the U.S. China imports a large amount of the solar-grade polysilicon used in their solar panels from the U.S. and Korea. They make some of their own polysilicon too, but their quality isn’t as good as ours.

http://www.businessweek.com/news/2012-07-20/china-probes-u-dot-s-dot-south-korea-solar-grade-polysilicon

Chinese retailiation against the high U.S. tariff on Chinese solar panels will cost U.S. jobs making polysilicon. The Chinese also use a lot of U.S. equipment in their solar panel factories, but that equipment has already been purchased and they aren’t likely to buy more anytime soon.

Silas Barta October 5, 2012 at 5:59 pm

Right. Silicon — found in sand — had been used for decades in the foundation of large American banks. No longer needing such a firm grounding anymore, what with Uncle Sam stepping in to prop them up, they were able to flood the market and drive down the price of that precious element.

John Thacker October 5, 2012 at 2:59 pm

Except that at the time of the investment in Solyndra, one of the arguments given was “China is already aggressively subsidizing even more, and we don’t want to be left behind!” Solyndra has its own flaws, as well, separate from the broader solar market.

But yes, it’s certainly true that China’s massive subsidies were a reason not to subsidize ourselves (our money should go to, if anything, something that others aren’t doing); too bad the Administration argued exactly the reverse.

Tomasz Wegrzanowski October 5, 2012 at 11:13 am

Is this really so bad? It’s just another way to subsidize faster switch to renewable energy. If you compare cost of this subsidies with benefit of less global warming, what’s the score?

RPLong October 5, 2012 at 11:32 am

Well, on the one hand, you have billions of dollars ripped out of the pockets of ordinary individuals in order to fund an environmental fantasy, misallocating resources from serious problems like human starvation and healthcare to feed into an irrational, neurotic wish that government money can magically overcome the laws of physics.

On the other hand, you have energy that is called “green” despite not making an appreciable dent in atmospheric CO2 content.

Gee, sounds like a draw!

Adrian Ratnapala October 5, 2012 at 11:41 am

It’s a bet. The losses are not so bad if the world ends up using lots of solar energy anyway in the next 30-odd years. In that case the bubble generated experience in how to get large(er) scale solar working.

Also the panels produced at a loss now will do useful work for their buyers for many years to come. So we might look back and see that companies went bust, not because their products didn’t have utility, but because consumers bagged it all.

RPLong October 5, 2012 at 11:53 am

So how much solar energy will make up for foregone food and healthcare production? How many iPods does it take to make up for one malnutrition death?

The thing I don’t get about this issue is why people think that energy inefficiency doesn’t correspond to real and tangible loss of human life. I’m not being melodramatic, it’s true. Those solar panel factories could have been anything: farms, pharmaceutical manufacturing facilities, factories that make prosthetic limbs. Those resources could have been put to use to improve the lives of human beings already alive and already suffering.

Instead, we get cheap solar panels that some environmentalists think will improve the atmosphere’s carbon profile despite all evidence to the contrary.

So, yep. It’s a bet alright. Just not one I, personally, prefer taking.

david October 5, 2012 at 12:30 pm

… because people actually have honest non-imagined disagreements with you about AGW, and assign a heck lot of real and tangible human losses under those?

Lars October 5, 2012 at 12:40 pm

I’m glad to hear you endorse raising taxes to subsidize food and healthcare. At least I assume you are. The alternative would seem to be that you use the suffering of human beings as a convenient argument to selectively argue against positions you dislike.

John Thacker October 5, 2012 at 3:04 pm

I’m glad to hear you endorse raising taxes to subsidize food and healthcare. At least I assume you are. The alternative would seem to be that you use the suffering of human beings as a convenient argument to selectively argue against positions you dislike.

I think that he merely has a stronger view of the importance of economic efficiency than you do, and under that argument, subsidies do not ease the suffering of human beings.

David October 5, 2012 at 3:41 pm

I think Lars hit the nail on the head.

Lars October 5, 2012 at 7:06 pm

Please, explain how subsidies can never ease suffering. What in the concept of economic efficiency means that any money spent on solar energy research is offset by a decrease in prosthetic limb and pharmaceutical manufacturing?

Lars October 5, 2012 at 7:09 pm

Does such an iron economic law exist? Or are you inventing theories of convenience to absolve your political preferences of their negative consequences?

Tom West October 6, 2012 at 10:05 am

Well, from what I gather about China, if it wasn’t for the solar power obsession of their leaders, those subsidies could have been put to their proper use: subsidizing real estate purchases.

(Only partly joking)

Bernard Guerrero October 5, 2012 at 12:39 pm

Does not compute. You could make the same case for the excess houses produced during the housing bubble. It only holds if you live in a world without scarcity, that is, with unlimited resources, particularly in the short-run. Also a world where capital goods don’t depreciate over short periods of time. But we don’t live in that world, so resources devoted to building solar panels without a market at existing prices are, by definition, taking resources away from stuff that humanity _does_ want to do _right now_ at existing prices. And neither the panels nor the capital goods built to produce them will last as long as the Pyramids, so even the possible recoveries in the future are questionable.

This last point also holds for housing to some extent; unoccupied houses deteriorate, while tastes for housing (ranging from location to size to energy efficiency to counter-top materials, etc) change over time, which means that a good chunk of that “accelerated” investment in housing during the Bubble was wasted.

Lars October 5, 2012 at 12:38 pm

To what laws of physics are you referring? And why on earth do you think a switch to solar wouldn’t reduce atmospheric CO2? Does this have something to do with your new discoveries in physics?

John Thacker October 5, 2012 at 3:02 pm

And why on earth do you think a switch to solar wouldn’t reduce atmospheric CO2?

Probably because he’s thinking that if it still has to be massively subsidized, then the energy inputs required to manufacture all the panels might make it not worth it. Consider, for example, corn ethanol, which was subsidized on nearly the same basis and arguments by environmentalists until they turned against it when it didn’t work.

Sure, there’s an argument that subsidizing right now is worth it. But isn’t there also an argument that prematurely wasting a lot of energy building today’s inefficient solar panels might net increase atmospheric CO2 rather than waiting until the technology (or perhaps something of a dramatically different nature, though still likely using the sun) is ripe and economical?

Premature optimization can be an evil.

Lars October 5, 2012 at 7:03 pm

Probably because he’s thinking that if it still has to be massively subsidized, then the energy inputs required to manufacture all the panels might make it not worth it.

That’s a separate argument. He’s claiming that switching to solar wouldn’t lower CO2 emissions, which is just false.

But isn’t there also an argument that prematurely wasting a lot of energy building today’s inefficient solar panels might net increase atmospheric CO2 rather than waiting until the technology (or perhaps something of a dramatically different nature, though still likely using the sun) is ripe and economical?

There isn’t a good argument. As best as I can tell, you seem to be claiming that the potential existence of some future better alternative means our currently available option doesn’t reduce CO2. RPLong makes up his own laws of physics, you declare war on causality. Just man up and admit your preferred policies can have negative consequences. This style of argument is destructive to your thought processes.

Tom West October 6, 2012 at 12:30 pm

Premature optimization can be an evil.

:-)

Slocum October 5, 2012 at 2:18 pm

It’s not just the cost of the panels. Because of the rest of the infrastructure costs, it’s not clear that solar would be viable even if the panels were free:

http://www.greentechmedia.com/articles/read/evolution-or-revolution-in-solar-cell-technology/

And then there’s the potential environmental impact of giant ‘solar farms’:

http://green.blogs.nytimes.com/2009/08/05/battle-brewing-over-giant-desert-solar-farm/

What’s the over/under that one of the environmental problems we’ll be hearing about in a decade or two is the cost of dismantling abandoned industrial-scale wind and solar installations?

NK October 7, 2012 at 11:30 am

What global warming?

Dana October 5, 2012 at 11:22 am

Supply-side market transformation. Lots of tobacco farmers lived lifetimes of indebtedness to turn Europe into a continent filled with nicotine addicts. As prices fall we may yet wallpaper the world in photovoltaic sheets.

mulp October 5, 2012 at 11:35 am

Two ways of looking at this:

Do savers lose their money deposited in banks, or does the government cover the losses of the banks on the solar plants? Which is cheaper, bailing out the solar plants individually to preserve jobs and prevent total write offs of loans, or liquidating solar companies and bailing out the depositors of the banks and the workers so they don’t lose everything, or force individuals to suffer financial losses from corporate and government policy to create fast growth to prevent revolution?

And what should China’s own electric power strategy be:

Coal train rail service, copper and aluminum, stringing power lines, are all free in China?

Or has big government built power lines to every corner of China with coal rail lines to every logical nexus for a coal power plant?

The argument against big government circa 1930 would been “the free market is innovating and providing wind power generation and storage to farmers and the big government Rural Free Electricity is preventing the market from working by picking the government winner.”

In Africa and much of Asia, solar power is the cheapest way to provide electric power to rural villages, unless a big government program to build electric grids everywhere is implemented like the US did in the 30s. China has favored the big government solutions following the big government model the US did to develop. Nothing China has done in the past three decades is inconsistent with US big government going back to President Washington and President Jefferson and virtually every president since.

Which is cheaper, imposing taxes/surcharges on industrial electric users to run power lines everywhere like the US did from 1935-1985-1995-2005??? or to taxes to subsidize putting solar power into rural locations without running power lines?

Or should China just hope that ignoring hopes and dreams of hundreds of millions of Chinese in rural areas (requiring electricity) will not lead to revolution?

Do political economists describe individual self-interest behavior or dictate individual self-interest behavior? (positive v normative)

Mark Thorson October 5, 2012 at 11:38 am

“Chinese solar company executives blame their difficulties partly on US decisions last spring to impose tariffs on solar panel imports, and on the European Union’s recent decision to start its own anti-dumping investigation.” What a shame our government and the EU let an ailing German solar panel company push for tariffs. We should be taking advantage of poor planning in China and buying all we can while the price is low. Solar panels are only one part of a solar energy system. There is considerable added value in the batteries and electronic control systems, as well as in the labor-intensive installation of these systems at the customer’s site. To protect one uncompetitive company, we are sacrificing a much larger number of jobs in other areas.

This reminds me of how sugar price protection has devastated the U.S. candy industry. U.S. manufacturers have moved to Canada and Mexico because raw sugar in the U.S. is about 2-4 times higher than the world price. Without price protection, the U.S. beet sugar industry wouldn’t be able to compete against cheap cane sugar from the Third World, but to protect this one commodity we’ve sacrificed other industries with high added value.

Benny Lava October 5, 2012 at 12:42 pm

I have to wonder if this isn’t a form of dumping by Chinese central planners. Direct a huge amount of loans. Flood the market. Bankrupt the competition. Eventually China will be the only game in solar manufacturing.

Doc Merlin October 5, 2012 at 1:05 pm

You are behind the times. They basically are.

Benny Lava October 5, 2012 at 4:36 pm

Touche!

sourcreamus October 5, 2012 at 1:26 pm

That would be insane. If the prices for solar panels went back up after all the other businesses went out of business then solar energy would be uncompetitive with other forms of energy. China would have spent billions of dollars to become the worldwide leader in a product no one wants.

John Thacker October 5, 2012 at 3:06 pm

However, just because it would be remarkably stupid doesn’t mean that they aren’t trying it.

After all, our Administration made exactly those stupid arguments in favor of solar subsidies.

Benny Lava October 5, 2012 at 4:35 pm

“solar energy would be uncompetitive with other forms of energy”

It is my observation that solar doesn’t compete purely on price per watt but on other things (which is why it is a niche product).

Brett October 5, 2012 at 4:23 pm

The only problem is that they eventually have to raise prices to actually make money, unless they’re willing to let the whole sector continue to be a black hole for subsidies and badly mismanaged state bank loans indefinitely. And when they do that, the doors open to potential competitors again.

In the mean time, things are pretty good for consumers. We get cheap solar panels courtesy of the Chinese taxpayer and deposit holder.

Lord October 5, 2012 at 12:46 pm

Sounds like a good time for clean air laws in China.

Paul October 5, 2012 at 1:48 pm

Many past technological revolutions have been accompanied by massive overinvestment and bankruptcy. But in their wake they left infrastructure and technological advances that boosted productivity for decades.

The article about the Chinese solar sector reminds me the most of the U.S. railroad boom in the late 19th centuries. On average investors lost their shirts, and by any measure there was massive overinvestment in railways. And yet this “overinvestment” left behind lower transport costs for firms across the country and was the foundation of decades of growth.

The dot com boom is similar. Companies massively overinvested in communications infrastructure, and investors lost their shirts in the bust. But the price of communication was permanently lowered. Without this massive infrastructural investment, bandwidth costs would have been higher for all of the ’00s, and we might not have Youtube, or MRU for that matter.

Certainly there is a bubble in the Chinese solar sector. But there has also been massive research and falling costs in the only truly sustainable energy source on the planet. It won’t be clear for some time whether this is really a bad outcome.

John Thacker October 5, 2012 at 3:09 pm

The kind of thinking that got us the SynFuels corporation and the corn ethanol subsidy and mandate, I see.

Brett October 5, 2012 at 4:26 pm

In that case, we all get to double- free-ride of the Chinese, both in the form of cheap solar panels courtesy of the Chinese taxpayer, and in the form of subsidized solar panel research that its competitors can then acquire (tech transfer doesn’t just flow into China).

collin October 5, 2012 at 2:12 pm

Is Solar the microchip of decades ago? One wonders without all that defense and NASA government spending in the 50s, 60s and 70s, if the microchip would have developed as quickly. Solar supporters point to Moore’s Law here but it takes a lot of investment to reach the break even point. And outside of Cali where the power companies are a bad combination of govern. rent seeking and private profit seeking, solar is not there yet.

I do wonder if the best to develop the technology is sort of the Bell Labs of years ago but when it is nearly market ready then break up the telephone monopoly. Most cell technology has around for years but it needs to nearly market ready to where competition drives the innovation.

One wonders is the best thing is to consolidate all the Solar companies with Chinese manufacturers.

Benny Lava October 5, 2012 at 7:12 pm

I think solar is still at the “transistor” phase. New research from UCLA and others might bring solar to the microprocessor phase.

http://newsroom.ucla.edu/portal/ucla/ucla-researchers-create-highly-236698.aspx

So far China has demonstrated more imitation than innovation. The next thing in solar will probably start in America before manufacturing moves to China (I am skeptical of the “jobs here” sloganeering in politics).

Andrew' October 5, 2012 at 3:31 pm

Thank goodness The Fed doesn’t have a dial on the sun.

JasonL October 5, 2012 at 4:52 pm

I’m trying to figure out how to label my retirement funds “infrastructure investments”, because apparently once you say those magic words, the whole concept of negative return evaporates and you get to simply assume a transformatively fantastic life in your later years.

Ronald Brak October 5, 2012 at 6:16 pm

Point of use solar is the cheapest source of electricity currently available to consumers in Australia, so overall we’re pretty glad that China has pushed down solar panel prices. I don’t expect bankruptcies in China to push up the price of solar panels as the solar panel manufacturing equipment will still exist and in general I’m sure it will give better return producing solar panels than selling it for scrap, so whoever ends up owning it will continue to use it to produce solar panels.

maguro October 5, 2012 at 6:24 pm

Is that so? Grid electricity in Australia must be ridiculously overpriced, then.

Ronald Brak October 5, 2012 at 6:59 pm

Grid electricity is very expensive here in Australia. But on the bright side I am getting an 8.1% reduction in what I pay for electricity starting next year and part of that is due to solar pushing down electricity prices. While retail electricity prices are much lower in the US, at Australian installation costs, or better yet German costs, point of use solar should be cheaper than grid electricity in large parts of the US. Australia is rapidly catching up with Germany on installation costs and the US only seems to be about a year or so behind Australia. Actually, once the US catches up, it should be able to install solar at a lower cost than Australia or Germany because of lower labour costs.

Yancey Ward October 5, 2012 at 7:29 pm

The problem for the Chinese, in addition to their own subsidization of oversupply, is that a lot of the demand outside China was also subsidized, and with the declining economies and budgets, especially in Europe, the customers for solar have been disappearing.

TR W October 6, 2012 at 12:58 am

China will baffle the public. Since the recession of 2007-08 people have been predicting an imminent housing, credit or trade collapse in China. Those things will eventually happen but not when people think it will happen and not by China taking the first steps. The Chinese public supports what it’s government is doing. So there is no internal pressure from the Chinese public to have honest numbers. The only way China will change course is if the EU breaks up which will cause a global depression and give China cover for it’s own economic chaos or if foreigner investers/ companies start pulling out. Otherwise China will stay on course. It’s all about trust. Money is printed with the assurance that it’s worth what the government says it’s worth. I strongly believe China distorts it’s economic statistics. I think it can continue on it’s current path even with issues like solar panel pricing because distrust is not high enough to force change. These things are outside of numbers and in the social realm. People have to consider Chinese nature and how “face” plays a part.

Duracomm October 7, 2012 at 9:09 am

I want to emphasize a critical point RPLong made above

Well, on the one hand, you have billions of dollars ripped out of the pockets of ordinary individuals in order to fund an environmental fantasy, misallocating resources from serious problems like human starvation and healthcare to feed into an irrational, neurotic wish that government money can magically overcome the laws of physics.

On the other hand, you have energy that is called “green” despite not making an appreciable dent in atmospheric CO2 content.

Gee, sounds like a draw!

China has real and pressing environmental problems.

The money spent on solar would have provided far more real, tangible, and permanent environmental benefits if applied to these areas. Small example of the harm misallocation of resources causes shown below.

Link to more information in next comment. Or search “documentary project Pollution in China.”

“At the junction of Ningxia province and Inner Mongolia province, I saw a tall chimney puffing out golden smoke covering the blue sky, large tracts of the grassland have become industrial waste dumps; unbearable foul smell made people want to cough; Surging industrial sewage flowed into the Yellow River…”

Duracomm October 7, 2012 at 9:23 am

The money China has squandered on solar would have provided far more benefits if it had been spent improving industrial processes and pollution control.

That is the problem with government misallocation of resources and one that is rarely recognized by proponents of more government intervention in support of their favored widgets.

Link below shows real problems the resources China wasted on solar boondoggles could have helped fix.

http://tinyurl.com/yly2v5r

fluoxetine prescriptio nonline October 24, 2012 at 2:24 am

I am totally agree with your thoughts. Keep doing these type of work.

Comments on this entry are closed.

Previous post:

Next post: