Tech companies love green energy. So why are lawmakers not following suit?

The view from the Hong Kong headquarters of the government-run Electrical and Mechanical Services Department. WiNG/Wikimedia Commons CC BY-SA 3.0

By Ron Leung | November 22, 2016

Green business is good business

US President Barack Obama, in his eighth and last State of the Union address, urged Americans not to “pass up the chance for American businesses to produce and sell the energy of the future”. The future, as is becoming increasingly evident, belongs to clean energy. As world energy consumption grows 3% a year, existing oil and gas reserves will be depleted in the next 25 years or sooner. And, while new recoverable reserves may be brought into production, they will be increasingly expensive.

On the other hand, the cost of photovoltaic (PV, or solar) energy has steadily declined, leading to an observation known as Swanson’s Law. As an analogue to Moore’s Law for microchips, Swanson’s Law states the price of solar PV modules will drop 20% for every doubling of cumulative shipped volume, i.e. costs are expected to halve roughly every decade. Perhaps not a surprise, then, that according to SolarPower Europe’s Global Market Outlook for Solar Power 2016-2020, “many of the top PV companies were sold out and have continued to run at full capacities in the first months of 2016”.

It is in this context that China has seized the opportunity to position itself as a global energy power, thanks to a serendipitous combination of enabling state policies and vibrant entrepreneurialism. Since the 2008 financial crisis, Europe and the US have been hampered in their efforts to transition to a greener economy. Europe has struggled to emerge from a protracted series of adverse financial shocks, with new capacity installations peaking in 2011 at 21 GWh, while the US has grappled with political and fiscal constraints on infrastructure spending and public scepticism of renewable energy. In the meantime, China has invested heavily throughout the renewable energy value chain.

Macro trends for solar energy

There is extensive literature on the relative production costs of different energy sources such as coal vs natural gas vs solar, and the variables and assumptions are broad:

  • Who invested in existing transmission lines and how will future lines from solar and wind farms to energy consumption centres be financed?
  • What are the expected medium- to long-term capital costs for building gas pipelines and liquefaction and regasification facilities?

However, there are major known unknowns on technology, and tipping points. While the cost of utility-scale solar in many countries is increasingly lower than conventional power plants, it does not account for the variable nature of solar power. At the same time, distributed solar power in many countries has been cheaper than retail electricity.

Hence the questions: What will the future mix of centralised vs decentralised energy production look like? What are the costs and challenges of rolling out national and regional smart grids?

While there is evidence that, on average, coal and natural gas remain less costly, long-term macro-trends increasingly favour solar. Indeed, in Figure 1 we see successful solar bids have in recent years surpassed those relating to wind power and are now competing with coal.

Figure 1: PPA Price Offers for Solar PV and Wind Onshore Power Plants in Different Countries, 2012-16 ($/MWh)

Figure 1: PPA Price Offers for Solar PV and Wind Onshore Power Plants in Different Countries, 2012-16 ($/MWh)

Source: International Energy Agency, 2016

One reason is the steady decline in winning bids for utility-scale power supply contracts. In these power purchase agreements, the government or national utility agrees to a long-term price per kilowatt hour. For the supplier, this needs to be enough to recover all capital, operational, and maintenance costs. As such, this helps determine the circumstances under which solar is cheaper than conventional energy. In 2016, a record-low solar bid for Dubai Electricity and Water Authority projects will see PV power supplied at $30/MWh – one-third lower than the $45/MWh for electricity to be generated by a coal plant commissioned by Dubai in October 2015 under a 25-year power purchase agreement. It is predicted that by 2017, solar power will achieve ‘grid parity’ for more than 80% of global markets.

China’s green economy

Imaginative government policies, enabling markets, and a strong entrepreneurial ecosystem have propelled China into green, clean-tech power. In the past 20 years, the country has transformed from a supplier of unskilled labour to a fast follower and, in recent years, an innovator across a broad spectrum of goods and services. While international companies such as Panasonic and Siemens are listed as the major suppliers of PV modules and solar farms and plants, most of their hardware is manufactured in China. It should not come as a surprise, then, that many Chinese companies, given their learning trajectory, are pushing up the solar power value chain to provide design, engineering, and implementation solutions for solar plants.

Solar power modules

In 2015, China became the leader in installed solar capacity, surpassing the US, Japan, and Germany. By the end of the year, its total solar power capacity reached 43.5 GW, 19% of the global total. This trend appears to have accelerated in 2016, as installations in the first half of the year were 20 GW – indicating a 300% year-on-year increase.

China is well poised to become the global leader in a market that is expected to reach $180bn in annual shipments by 2020. As the cost of PV modules continues to fall, they will constitute a smaller and smaller share of the total capital costs of solar installations and of the overall share of the power value chain. Looking ahead, and buoyed by government support, Chinese companies have accumulated the know-how to compete over other segments of the value chain, such as the balance-of-system module and international contracts to design and build solar farms. With the collective experience of more than 50 GW of solar plants back home, Chinese companies are some of the most experienced solar power engineering procurement and construction contractors in the world. In Africa, they have developed two of the 10 largest PV plants.

Declining Cost of PV Solar Modules, 2005-15 ($/GW)

Declining Cost of PV Solar Modules, 2005-15 ($/GW)

Source: International Renewable Energy Agency, 2016


The battery market burst into the mainstream in 2015 when Tesla announced its Powerwall vision. This extension of Tesla’s battery technology from electric cars to homes showcased Silicon Valley entrepreneurialism. However, this may not be enough given China’s battery entrepreneurs can build on favourable government policies. Until as recently as the first quarter of 2015, the top manufacturers used to be Japanese (such as Panasonic and AESC) and Korean (LG and Samsung), commanding a 60% share of global capacity (5.4 GWh). China, which has increased its production capacity to more than 10bn GWh, equivalent to 400,000 electric vehicles a year, plans to change that.

Chinese state support for electric vehicles has been a linchpin of the country’s push into electric vehicles and batteries. More than 300,000 electric vehicles were produced in 2015, and the country aims to have 5m on the road by 2020. Certainly, China’s experience as the dominant producer of batteries for laptops and mobile devices is significant, with local companies having leveraged this opportunity to transform themselves into international players. With a new market that is expected to reach $10bn in the next four years, Chinese companies are looking to dominate. One example is BYD, the world’s second-largest electric vehicle battery maker, which has now expanded into the US and UK. In 2016, BYD won a contract to supply a county in north-west England with electric buses that can travel 240-300 km per day.

Green tech for all

In 2007, co-founder and ex-CEO of Google Larry Page predicted that within 20 years solar power would supply all of the world’s energy needs due to accelerating growth in silicon technology. At the time, Google launched an initiative known as REC, aimed at developing renewable energy sources that were cheaper than coal power plants. While this end goal now looks like it will become reality, it seems the innovations that will make Page’s prediction come true are likely driven by China: From the ideas, to the know-how, to the ‘can-do’ attitude.

That is, unless, US and European policy-makers commit themselves to a solar-powered future.

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