The solar industry has come a long way in recent years, but now companies around the world are grappling with a solar photovoltaic (PV) industry in rapid transition, with significant oversupply and prices in rapid decline. Dominant players are struggling; emerging players are seizing market share. Each company is trying to turn the current upheaval into their opportunity to emerge as the new top player.But what do policymakers do to ensure the top players are located in their country? Which public sector strategies are successfully supporting local industries? World Resources Institute (WRI) previewed early research on the sidelines of the Rio+20 Conference on Sustainable Development that suggests policymakers do play a critical role in ensuring the private sector builds a robust solar industry. Working with partner research institutions in Japan, Germany, China, and India, WRI is exploring not just who is drawing the most investment (the US and China) or has deployed the largest amount of solar PV (Germany), but who has the largest industries and the lowest domestic costs for solar PV.Public sector goals for solar PV development include supporting the success of the industry, enabling the related economic development benefits, and lowering the cost of solar energy. Policymakers, who focus on the near term, typically worry about anything that might raise electricity bills for consumers and hurt the competitiveness of other sectors, as well as the pressure public-backed industry support may put on taxpayers. Building an internationally competitive solar industry cannot be done at the expense of energy prices overall.The early results show that Germany and China have the lowest domestic costs for solar power systems and the largest scale of annual deployments. They have created a positive feedback loop whereby relatively low and declining solar system prices are fueling further deployment and this, in turn, is helping their domestic solar industries to continue to reduce costs. Both countries still provide subsidies to deployment, but these are declining rapidly. Some of the recent increase in deployment has developed as subsidies did not fall as fast as technology costs making new installations very attractive—but generous subsidies are hardly the story. Both are deploying solar systems at a significantly lower cost than the Japanese and United States industries do, which in turn saves consumers money.Successfully, building a domestic manufacturing sector, the upstream portion of the solar PV value chain, appears to be only loosely related to domestic deployment policy. Both Japan and China have created substantial export-driven solar manufacturing sectors with relatively small annual domestic deployment in recent years. However, both nations are now encouraging more local deployment efforts to support their own solar industries. In Germany, for example, domestic deployment helped spawn the rise of significant manufacturing. But a successful and sustainable manufacturing industry also requires a broad public-private partnership and a strategy to build a competitive advantage either based on price or on high-quality, high-performance products.On both measures, industry size and system cost, the U.S. is lagging. With the smallest manufacturing capacity for solar modules among the countries reviewed (although the U.S. does have leading market share in other parts of the value chain such as in polysilicon), a relatively high cost for installed solar systems, and a significantly smaller annual rate of deployment than China or Germany—the U.S. economy seems to be losing out on both the economic development opportunities and the potentially lower costs of solar energy. Where its competitors take more deliberate and active policy approaches, the U.S. has relied on a patchwork of sub-national incentives for deployment policy (some of which are very successful) and a hands-off approach to support manufacturing. In the midst of a volatile global competition, this approach seems to be less effective at delivering on the potential benefits of solar.In such a dynamic sector, which is in the midst of a particularly dramatic price decline and industry upheaval, it is difficult to pinpoint a single reason a country or company was successful. There are a myriad of complex reasons for each country’s relative position, but our preliminary research indicates that it’s possible to deliver both economic development and declining clean energy prices. In such a win-win scenario, policy clearly plays an important role.Proving that some countries have delivered the benefits of green economy deployment to stakeholders and being the next country to actually do it are two different tasks. As India undertakes its National Solar Mission, prices are falling and installations are largely on schedule, but developing world-class manufacturing capacity is proving much more difficult. The strategies of the past successes may provide a sound guide, but given the rapidly changing landscape, India, like other countries, will also have to improvise and experiment to find their own road to success.
Letha Tawney is a Senior Associate in the World Resources Institute, a global environmental think tank that goes beyond research to put ideas into action. Her work focuses on the need to build an innovative and successful global renewable energy industry that delivers low-cost, low-carbon power. Letha holds a Master’s of Public Administration from the Harvard Kennedy School and a Bachelor’s in Business from George Fox University. Follow Letha on Twitter at ltawney.