#184 Subsidy War in the Solar Industry

In 2011, the bankruptcy of Solyndra, a high-profile solar panel manufacturer based in Silicon Valley, marked a significant turn in the global solar industry. Founded in 2004, Solyndra aimed to innovate by building solar panels without polysilicon, which were more expensive to produce but potentially cheaper to install. This strategy initially seemed viable, especially given the soaring prices of polysilicon, which peaked at over $400 per kilogram in 2008. Solyndra’s approach allowed them a competitive edge when polysilicon was scarce and expensive. However, by the time the U.S. government issued Solyndra’s $535 million federal loan guarantees, Chinese manufacturers had ramped up production, drastically dropping polysilicon prices to just over $50 per kilogram with the help of subsidies from Chinese government. Unable to compete with these cheaper alternatives, Solyndra along with two other U.S. solar panel manufacturers, Evergreen Solar and SpectraWatt, failed despite substantial subsidies from the U.S. government. This event raised critical questions about the effectiveness and fairness of subsidies in the solar sector. 

Subsidies have long been essential for governments to foster their domestic renewable energy industries. By reducing production costs and promoting research and development, subsidies are intended to support emerging industries in a fiercely competitive market. 

The subsidy war in the solar industry has since evolved, taking a more complex turn with the European Union’s recent accusations against China. The EU has claimed that Chinese solar manufacturers benefit from unfair state subsidies, allowing them to dump their products in European markets at artificially low prices. This accusation ties into broader concerns about China’s dominant role in the global solar supply chain, significantly controlling the production of raw materials and manufacturing capacity for solar panels. 

The controversy over subsidies and market distortion has become a focal point in international trade relations, bearing significant implications for global efforts to combat climate change. While designed to develop local industries and expedite the adoption of renewable energy, subsidies can also provoke trade disputes and protectionist measures if viewed as unfair or excessively aggressive.

Post written by Agassy Manoukian, American University of Armenia

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