China’s cost advantage in solar power is mainly from economies of scale with factories four times larger than in the US

A detailed bottom up analysis of all costs associated with PV (solar photovoltaic) production shows that the main contributors to that country’s lower PV prices are economies of scale and well-developed supply chains — not cheap labor.

As of 2011, manufacturers in China accounted for 63 percent of all solar-panel production worldwide.

The lower cost of labor in China provides an advantage of 7 cents per watt, relative to a factory in the United States, but that amount is countered by other country-specific factors, such as higher inflation.

The biggest factor contributing to China’s ability to make solar panels for about 23 percent less than U.S. companies, Buonassisi says, turned out to be economies of scale. Typical Chinese PV factories are four times larger than those in the United States, the study found. That leads to economies in several ways: Those factories can negotiate better contracts with suppliers. Also, their manufacturing equipment can be used more efficiently, since machines can be scheduled to run more of the time by allowing flexibility in matching up the production rates of machines at different stages in the process.

The key to making solar panels competitive is to bring the cost of installed panels to a level competitive with the current cost of electricity from the grid, without subsidies or tax benefits. Once that goal is achieved — which the researchers estimate will likely occur by the end of the decade — then much larger PV factories will become economically viable worldwide.

Improvements under way in every step of the PV manufacturing process — from thinner silicon wafers to greater cell efficiency to better ways of mounting the cells in a panel — could end up making them highly competitive with other sources of power.

Thin solar panels that are integrated into roof shingles can be a lot more efficient and would not increase the deaths from falling off of roofs. The shingles have to be put on rooftops anyway so there would not be an increment in risks from falling. Roofing is the sixth most dangerous occupation.

A crucial parameter is something the researchers call the minimum sustainable price, or MSP, which represents a cost of manufacture plus a sustainable profit margin to companies. To arrive at that, Buonassisi says, the team included estimates not only of the costs of producing silicon wafers, making those into PV cells, and mounting the cells in panels, but also estimates of such indirect costs as research and discount rates for the manufacturers.

These nontechnical costs associated with running a business “aren’t always included in other analyses,” Buonassisi says. Today, the average MSP is higher than the market price of solar panels, which is not sustainable long term. That’s why improved technology is essential.

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