Production scale, not lower labor costs, drives China’s current advantage in manufacturing photovoltaic (PV) solar energy systems, according to a new report by the Energy Department’s National Renewable Energy Laboratory (NREL) and the Massachusetts Institute of Technology (MIT). Although the prevailing belief is that low labor costs and direct government subsidies for PV manufacturing in China account for that country’s dominance in PV manufacturing, the NREL/MIT study shows that a majority of the region’s competitive advantage comes from production scale—enabled, in part, through preferred access to capital (indirect government subsidies)—and resulting supply chain benefits. The study’s findings suggest that the current advantages of China-based manufacturers could be reproduced in the U.S.

“Assessing the Drivers of Regional Trends in Solar Photovoltaic Manufacturing,” co-authored by NREL and MIT, and funded by the Energy Department through its Clean Energy Manufacturing Initiative, was published recently in the peer-reviewed journal Energy & Environmental Science. By developing manufacturing cost models, the team of researchers examined the underlying causes for shifts from a global network of manufacturers to a production base that is now largely based in China.

China’s historical advantage in low-cost manufacturing is reportedly mainly due to advantages of production scale, and is offset by other country-specific factors, such as investment risk and inflation. The authors also found that technology innovation and global supply chain development could enable increased manufacturing scale around the world, resulting in broader, subsidy-free PV deployment and the potential for manufacturing price parity in most regions.

“Innovation is critical to driving the technological advancements that can position the U.S. to gain greater market share in the global PV supply chain,” said David Danielson, assistant secretary, Energy Efficiency and Renewable Energy, Energy Department. “We believe that innovation could drive down costs and drive up efficiencies not only in PV manufacturing, but also in the production of other high-tech and high-value clean energy technologies, and position U.S.-based manufacturers to be leaders in one of the most important global economic races of the 21st century.”

For more information, visit www.eere.energy.gov.