News and Outreach: John Deutch

May 30, 2013
Vicki Ekstrom, MIT Energy Initiative

In the past decade, the massive expansion of China’s production and export of silicon photovoltaic (PV) cells and panels has cratered the price of those items globally, creating tension between China and the United States, and, more recently, China and the European Union. In a new study (see PDF), MIT researchers explain why these tensions could harm the broader solar industry and have spiraling effects for China-U.S. trade relations.

“China and the U.S., and China and the E.U., are in the midst of a blame game as the solar industry is on the brink of collapse — and the tensions could infect technology and commercial development globally,” says John Deutch, the lead author of the study and Institute Professor at MIT. “All the players should understand that the PV industry is globally linked, and jobs and profits are available for those who manufacture and for those who innovate. Given the complex but productive relationships, nations need to find a way to better work together rather than flirt with protectionist measures.”

Over the last decade, manufacturing of PV cells and panels expanded in China, boosting supply globally. The flood of solar panels, combined with a slipping subsidized demand for solar energy (especially in Europe), lowered the global market price to unsustainable levels, the study shows. Between 2009 and 2012, the price of crystalline silicon panels decreased from more than $2.50 per watt to less than $1 per watt, as China supplied 30 to 50 percent of U.S. PV imports.

The result? PV manufacturers globally haven’t been able to compete, Deutch and the study’s co-author, MIT professor of political science Edward Steinfeld, explain. In response, the U.S. Department of Commerce and the International Trade Commission imposed substantial anti-dumping duties — tariffs imposed on low-priced foreign imports — on some Chinese manufacturers last November, following complaints from U.S. PV manufacturers who alleged that the Chinese were selling their products below fair market value. Around the same time, Europe issued an anti-dumping inquiry; it has also threatened to announce tariffs by June 6.

China has responded with its own allegations, also threatening to issue tariffs — this time, on the materials and technology imported to make the panels. Many of those imports come from the United States. China threatens these tariffs as its PV industry also faces trouble, according to the study: Net margins of panel suppliers in China fell to double-digit negative values in 2011 and remain there now, more than a year later. The study reports that Suntech Power Holdings — the largest PV-panel maker in the world — posted a loss of $495 million in 2012. (The company declared bankruptcy at the end of March.)

Deutch and Steinfeld explain that the two nations — China and the United States — are interdependent and form a “potentially productive global ecosystem for innovation.” When one side declines — as is happening in China, with its PV manufacturers — so will the other side, as is happening in the United States, with its technology and manufacturing tools, the study says. The researchers explain that there are opportunities for the two nations to together accelerate the worldwide deployment of solar PV for electricity generation.

“The two countries have different strengths and weaknesses,” Deutch says. “The U.S. is creating the technology and manufacturing tools and China is successfully, but not profitably, manufacturing devices based on today’s technology. If both countries look at the big picture, choose to focus on their strengths, and put aside the blame game, they have a real opportunity to boost global deployment of solar.”

Arun Majumdar, the vice president for energy at Google and former director of the Department of Energy’s Advanced Research Projects Agency-Energy, says, “Deutch and Steinfeld’s factual and data-driven analysis shows that in the interdependent global market and supply chain of the solar industry, policies of individual governments that foster and leverage their domestic strengths to openly and fairly compete in the global market are better off in the long term to reach national goals of economic growth.”

Majumdar adds, “On the other hand, policies that distort the market via undue protectionism or disproportional investments to reach national goals could backfire and produce opposite outcomes.”

The study will become part of a larger report on the “Future of Solar,” to be released by the MIT Energy Initiative at a later date.