Production scale rather than low labour costs has driven China's boom in manufacturing PV modules, according to a joint report released today by the National Renewable Energy Laboratory and the Massachusetts Institute of Technology.

Low labour costs and generous government subsidies have often been cited as the main reasons for China's dominance in PV manufacturing, views which formed the basis of the SolarWorld trade challenge that resulted in US trade levies on Chinese PV imports last year.

Assessing the Drivers of Regional Trends in Solar Photovoltaic Manufacturing was funded by the Department of Energy and published today in the peer-reviewed journal Energy & Environmental Science.

Alan Goodrich, NREL senior analyst told PV Tech: "In the future, the global PV industry will likely include some manufacturing activities that are local, in order to service local demand and avoid shipping costs, as well as large-scale centrally located manufacturing operations that exploit a region's inherent advantages for that product – eg, low-cost energy or labour, skilled workforce or proximity to innovation infrastructure."

The authors used a Minimum Sustainable Price (MSP) for monocrystalline silicon solar panels to predict factory location decisions. MSP estimates the long-term market-clearing price for the product assuming competitive equilibrium, or the minimum price of modules that will provide an adequate rate of return for a company and sustain growth without subsidies.

Excluding shipping costs, the team estimated that China-based manufacturers have a 23% MSP advantage over US-based manufacturers today, taking into account differences in the manufacturing costs of modules, wafers and cells within each country. But scale and supply-chain advantages account for the majority of a Chinese factory's MSP advantage and could be replicated by US-based manufacturers, the report found.

“We note that Chinese wages are no longer the world's lowest, suggesting that the additional factors investigated in this analysis may drive regional MSP differences,” said the report. “Scale and supply-chain advantages provide a Chinese PV factory with a significant MSP advantage of $0.22 per W relative to a US factory.”

In future, however, technology innovation could see production equalise between the US and China by making unsubsidised PV-generated electricity cost competitive, the report noted.

"But the scale of state-of-the-art crystalline silicon factories today bars entry for all but the most disruptive technologies," it said.

"Additional technical improvement pathways exist that may further lower costs while significantly increasing the typical performance of silicon PV devices," said Goodrich.

"If such innovations are achieved, then the cost of solar energy may be competitive with traditional sources of electricity in most locations, without subsidies. These are conditions which are likely to not only enhance demand for solar energy, but also mitigate a key investment risk factor – policy uncertainty – thus enabling improved access to capital for firms in most locations, and a scale of manufacturing that may dwarf even the largest firms today.

"As a result, further innovation is not only necessary to achieve widespread adoption of solar PV and to make solar energy a significant source of global electricity supply, but it also may levelise a key competitive advantage of leading production locations (ie China), including access to and cost of capital, manufacturing scale and the resulting supply chain benefits."

Tonio Buonassisi, associate professor at MIT and co-author of the study, said: "The 'Holy Grail' is an innovative PV module with high efficiency, low material costs, streamlined and scalable manufacturing, and unquestionable reliability.

"The PV modules you can buy today have a few of these attributes, but not all of them together. Thus, practical technological innovation is a key driver to accelerate the convergence between PV and traditional energy sources, both in terms of price and scale. This common goal, for the benefit of all nations, is an opportunity for international cooperation that leverages our complementary strengths."