Cheap Solar (Part 1): How Globalization and Government Commercialized a Fledgling Industry

This piece is part of a series. Click to read Part 2 and Part 3.

After decades of failed promise, solar photovoltaic (PV) technology has finally taken off and is set to disrupt global energy markets. Solar is now generating some of the cheapest electricity in history (see Figure 1), making it a cornerstone technology for achieving zero emissions targets.

Figure 1. Cost of Utility-Scale Solar Projects Has Declined Dramatically ($/kW)Source: IRENA.

None of this happened overnight. From the earliest attempts to harness photovoltaic power in the 1800s to large-scale commercialization of solar panels in the past decade, it took almost two centuries for solar energy to become a commercially viable and politically palatable choice. Through it all, government support was central.

In this three-part series, we look at 1) how the solar industry got to where it is today; 2) the role China in particular played in making solar affordable; and 3) where the industry is headed as renewed focus on climate change puts more pressure on fossil fuels. We begin with how the industry developed over the last several decades.

From Oil Shock to China Shock

When America’s Bell Labs created the first modern silicon solar cells in 1954, they were so uncompetitive with abundant and cheap fossil fuels that there was virtually no market for them, except for NASA’s satellites. The oil shock of 1973, however, helped propel the industry forward as energy security became a larger concern and environmental issues rose in prominence.

But solar enthusiasm was short-lived in the United States—best captured by President Jimmy Carter installing panels on the White House rooftop—as federal government support for the industry waned under the Reagan administration.

Yet the solar industry was globalizing beyond America. The oil crisis made an impression on other advanced economies, chiefly Japan and Germany, both of which were already manufacturing powerhouses with burgeoning solar sectors.

Japan launched an ambitious decades-long R&D program in the 1970s that benefitted national champions like Sharp, Sanyo Electric, Panasonic, and Kyocera. Nonetheless, PVs remained limited to niche markets: the average consumer’s only experience with solar were the tiny panels on calculators. When Japan launched a solar rooftop subsidy program in 1994, however, that created unprecedented demand, with the cost of installations falling more than 65% over the subsequent decade.

Meanwhile, political factors in the 1980s were converging in Germany in ways that would prove crucial to solar’s growth. In addition to energy security concerns, skepticism of nuclear energy in the wake of the Chernobyl disaster of 1986 and growing environmentalism prompted Germany to adopt a rooftop solar program and the Feed-in-Tariff (FiT) in the early 1990s.

Germany’s FiT, a subsidy that provided long-term contracts to renewable energy producers at above retail price, was raised substantially in 2000 and 2004. That policy soon led to a quadrupling of its renewables market and directly contributed to an explosion of solar installations in Germany (see Figure 2). 

Figure 2. Top Ten Countries by Share of Installed PV Capacity in 2009  Source: IRENA.

Technology, knowledge, and supply chains flowed around the world in ways that ultimately achieved cost reductions and scale. Policy ideas, too, spilled across borders. The FiT became a favored policy instrument to support renewables, as countries from Italy and Spain to India and South Africa adopted it. That led to a surge in demand for PV modules and created opportunities for manufacturers well beyond Germany. Eventually, China also adopted the FiT, creating the largest solar PV market in the world (see Figure 3).

Figure 3. Installed Solar Capacity in Select Countries, 2009 vs. 2019 (MW)Source: IRENA.

Industrial Policy and National Interest

Cheap solar appears to have arrived just in time as the world renews its attention on climate change. But globalization, government incentives, and state-driven R&D facilitated the industry’s growth over several decades.

The industry’s development path, however, is not without controversy. For example, the FiT is a demand-side industrial policy that is agnostic about national industry and has benefitted Chinese solar panel manufacturers when they were cheaper than the domestic alternative. This means that European taxpayers were effectively subsidizing the import of Chinese solar panels for much of the mid-2000s rather than their own industry, invariably creating some political backlash.

While Chinese producers have been accused of undermining solar manufacturing in other countries—even leading to antidumping tariffs—the scale of Chinese production has been instrumental. Between 2000 to 2016, for example, Chinese manufacturers were estimated to have scaled up solar module production 500 times, bending the cost curve while also enabling the rapid expansion of solar installations globally.

It is difficult to imagine that solar prices would have fallen so dramatically without China’s presence, making it possible to meet the numerous net-zero emissions pledges that countries have made over the past few years. Still, these conflicts between domestic industry and broader climate interests will persist, and China sits in the middle of it all. Its role in the global solar industry will be the subject of the next installment in this series.

Ilaria Mazzocco is a Senior Research Associate at MacroPolo. You can find her work on energy and climate here.