China's solar sector steams ahead of EU and US

The US and Europe just can't compete with China in producing solar modules. That's the stark message from a new report. The US and Europe can no longer compete with China after the cost of producing solar modules there dropped by 42% in 2023 to $0.15 (€0.14) per watt. That gives Chinese manufacturers an enormous cost advantage over international rivals, according to a new Horizons report from consultancy Wood Mackenzie.

In 2023, China's domestic solar additions were double those of the US and the EU combined. China, the world's solar module powerhouse, now holds 80% of global manufacturing capacity. By 2050, it will account for over 50% of the global power supply, according to Wood Mackenzie.

"China is the lowest-cost solar module manufacturer in the world. Solar module prices in dollar per watt tallied in December show China's cost of $0.15 well below Indian ($0.22), European ($0.30) and US ($0.40) manufacturing rates," said Steven Knell, vice president and head of Power & Renewables Consulting, EMEA, at Wood Mackenzie.

"The enormous cost advantage China holds imply international rivals' efforts to displace incumbent Chinese suppliers in renewable value chains may well be futile. The outlook for available component supply in the market is bullish given the capacity race that's underway, but China's rivals are unlikely to win on cost. China's already won the green technology capacity race," Knell told DW.

Not just cheaper labour

In 2022, solar made up 5% of domestic Chinese power generation and 13% of total installed capacity.

"A study of the photovoltaic industries in the US and China shows that China's dominance in solar panel manufacturing is not driven solely by cheaper labour and government support, but by larger-scale manufacturing and resulting supply-chain benefits," said Knell.

Researchers at the US Department of Energy's National Renewable Energy Labouratory (NREL) and the Massachusetts Institute of Technology (MIT) say that using industry-validated figures from the first half of 2022, they estimated a price advantage of 23% for China-based manufacturers.

Big in scale and less restricted

Explaining the price difference, they found that China's historical advantage of low-cost labour was not the main reason. The dominant factor was the scale of solar panel manufacturing, enabled by access to investment capital and a less restrictive business and regulatory environment.

Al Goodrich, a senior analyst at NREL and lead author of the study, said: "These advantages, which are not indigenous to China, could be replicated by manufacturers based in other countries if comparable scale could be achieved."

Tonio Buonassisi, an associate professor at MIT and co-author of the study, added: "The holy grail is a photovoltaic module that gives the biggest bang for its buck, with high efficiency, lower materials costs, streamlined and scalable manufacturing, and unquestionable reliability. The photovoltaic modules you can buy today have a few of these attributes, but not all of them together."

The EU and US have made huge strides in renewable energy policy in the past two years. But reaching critical mass in the solar module production sector, like in China, requires commensurate commercial application, the experts agree. And this is where centralized state capitalism seems to offer certain advantages.