Solar Made in China -- Opportunity (Not Crisis) for American Solar Industry

03/18/2010 05:12 am ET | Updated May 25, 2011

When I started working in the photovoltaic (PV) industry in late 2002, the Chinese were nowhere to be seen. On a recent trip to China, my executive team and I were blown away by the number of billboards for solar cells and modules while traveling between Shanghai and Wuxi. I'm going to go out on a limb and say there are more billboards for solar cells and modules between Shanghai and Wuxi then there are in all of North America. We thought the U.S. was the new hub of solar innovation today, but we couldn't recall ever seeing this many billboards advertising solar in the U.S.

As one of the larger developers of solar PV projects in the U.S., we felt like we knew all of the players. It is rare that we encounter a module manufacturer that is not already on our radar. What was amazing about the drive outside of Shanghai is that we came across so many advertisements for solar companies that we had never heard of. Although we already believed this to be true, this trip proved to us that China has taken the lead in solar cell manufacturing.a position the country will NOT be giving up any time soon.

As I mentioned, less than a decade ago, China was not a player in the global solar industry. Although companies like Suntech and Yingli did exist, we never saw any of their products in the marketplace. In the early days, the Japanese providers dominated the market, and a few years later the German manufacturers -- supported by tremendous government incentives for both system installation and manufacturing -- were able to move to the top of the heap. Even as late as 2007 the Chinese were not considered major suppliers in the U.S. Now, two years later, the Chinese boast the largest manufacturer by capacity as well as at least four other companies that are generally considered to be top-tier global suppliers of PV modules. Behind them, there are reportedly hundreds of second-tier solar cell and module manufacturers trying to export their products to Europe and North America. The solar center of gravity has shifted from Europe to China.

There are a number of causes for China's rapid ascension. First is the simple manufacturing cost advantage that the Chinese have over Europe and the U.S. Chinese companies have an extremely low cost for both skilled and unskilled labor. Conversations I had in China revealed that the salary of a Chinese engineer is about one-tenth of that of an equivalent employee in the U.S., and factory workers in China earn salaries that are an even smaller percentage than that of their U.S. counterparts.

Second, the Chinese government appears to have committed 100 percent financially to becoming the world leader in solar manufacturing. Chinese banks have been aggressive about lending to companies up and down the solar supply chain. For example, there have been a large number of investments in very expensive polysilicon manufacturing plants, which is the basis for most solar cell technologies. These would not have been possible without major backing from Chinese government-controlled banks. More recently, when the global demand for solar modules took a big dip in late 2008, the Chinese government stepped in and quickly created an incentive program in order to drive domestic demand. Over the last five quarters, this support has allowed these companies to continue to focus on growth while many other companies across the globe were focused on survival.

Ultimately, I believe it is important that the U.S. accepts that China is going to manufacture the majority of the world's solar cells and modules. That said, the U.S. is still well-positioned to benefit from the growing demand for solar energy. For example, two of the most innovative and successful solar companies in the world are still based in the U.S. First Solar (headquarters in Arizona) is the largest (by market cap) pure-play solar company in the world and has developed a thin-film technology that has a cost advantage over all of its competitors. Sunpower (headquarters in California) has developed the highest efficiency cell on the market. Although neither of these companies do the majority of their manufacturing in the U.S., they are going to be among the greatest beneficiaries of the growth in global solar demand.

There is also an incredible opportunity to create domestic jobs, lower carbon emissions and lessen our nation's dependence on foreign energy by stimulating the construction of solar PV systems in the U.S. The model of creating domestic demand and then creating service companies that become exporters of solar services has been a tremendous success in Germany, which is home to the largest solar service providers in the world. Overall, the U.S. is well-positioned to be a world leader in the rapidly growing PV industry. We have the innovation machine, financial community and domestic solar resources to make it happen. We just need to choose our battles, and devise a strategy that plays to our strengths.