Today an analysis, “Assessing the drivers of regional trends in solar photovoltaic manufacturing“, was published in Energy and Environmental Science journal. This was a result of a collaboration between U.S. Department of Energy’s National Renewable Energy Laboratory (NREL) and Prof. Tonio Buonassisi’s Photovoltaic Research Laboratory at Massachusetts Institute of Technology (MIT).

If you have read our Photovoltaic Research Laboratory review (click here to read the review), you may recall that Prof. Buonassisi has a very strong “Low Cost / High Efficiency” vision and he focuses in every aspect of solar cell production; from research at the molecular level to marketing & production processes. That is why it was no surprise for us to see his signature in this complete analysis.

This paper explains, in great detail, the reasons behind the 23% cost advantage Chinese PV factories had over American PV factories in the first half of 2012. Moreover, a near-future prediction is made based on current trends.

Regarding the cost advantage Chinese PV factories had, the single most interesting finding, in our opinion, was about the cost of labor. When the team created a list of main factors that impacted the cost of production, they realized that the cost of labor was not the key player. As demonstrated in the graph below, the team categorized the factors in 3 groups. Under the Indigenous Factors group, the Cost of Labor advantage (7 cents) of Chinese PV factories was neutralized by the Inflation and Cost of Equity components that China suffers from compared to United States.

Solar Energy - Buonassisi MIT

Based on the results, the key player in this 23% cost advantage was the economies of scale & well established supply-chain in China. On the contrary to common belief, the Cost of Labor, even without the neutralizing components in Indigenous Group, was negligible in the big picture.

Since the Scale and Supply-chain were the main drivers behind the cost difference, the team indicates that, with innovation, this gap can be closed in near future. The following graph explains the team’s prediction and the reasoning behind it.

Solar Energy - Buonassisi MIT

Finally, it is worth mentioning that the paper focuses on a comparison and does not touch the fact that U.S. imposes duties up to 250% for Chinese PV imports since 2012. That was, of course, a decision made as a result of many American companies going bankrupt due to being unable to compete with the cheap Chinese imports. With these duties, even now, it’s significantly more cost effective to use American PV products in United States.