A study of the photovoltaic industries in the US and China shows that China's dominance in solar panel manufacturing is not driven solely by cheaper labour and government support, but by larger-scale manufacturing and resulting supply-chain benefits.
But the researchers say a balance could be achieved through future innovations in crystalline solar cell technology, which have the potential to equalise prices by enhancing access to materials and expanding manufacturing scale across all regions.
The study is published in the Royal Society of Chemistry journal Energy & Environmental Science.
Researchers at the US Department of Energy's National Renewable Energy Laboratory (NREL) and Massachusetts Institute of Technology (MIT) developed a bottom-up cost model to examine the underlying causes for the shift in the global manufacturing base of photovoltaics from the US and Europe to China.
Using industry-validated figures from the first half of 2012, they estimated an MSP of $1.19 per Watt for US solar panels, compared to $0.91 per Watt for Chinese solar panels, representing a price advantage of 23 per cent for a China-based manufacturer.
But when they examined country-specific factors for this price difference, they found that China's historical advantage of low-cost labour was counteracted by other regional influences, and that the dominant reason behind its success is primarily the scale of solar panel manufacturing in the region, enabled by access to capital and a less restrictive business and regulatory environment.
The study shows that the density of production and the cost-benefit of using local suppliers give a China-based manufacturer access to cheaper materials and machinery. These scale and supply-chain advantages provide a China-based solar panel factory with a significant MSP advantage of $0.28 per Watt.
Al Goodrich, Senior Analyst at NREL and lead author of the study said: "These advantages, which are not indigenous to China, could be replicated by manufacturers based in other countries if comparable scale could be achieved.
"But for solar power, there's a chicken and egg problem: consistent demand is needed to provide manufacturers with access to the capital required to achieve large scale production, but large-scale production will be necessary for solar power to compete as an energy source without subsidies.
"Future innovations in silicon solar panels - which may be most quickly and effectively realised through global collaborative effort - have the potential to reduce key investment risks for manufacturers. This would enable manufacturing on an equivalent scale across most regions, bringing the benefits of high volume production to them all."