Solar Musings

At <$0.1 per watt FOB Shanghai, solar panels are now the cheapest electricity generation in history by a wide margin. Five years ago, utility scale modules were around 25-30 cents per watt. The price has dropped by 70% and is still falling. At these prices Chinese manufacturers are selling at or below cost of production.The full lifecycle cost isn’t in the price. Polysilicon production, metallurgical processing, panel manufacturing – energy intensive, chemically intensive, and largely coal-powered. The carbon and environmental cost is real. The West gets clean electrons. China gets the pollution and the break-even or worse returns. Essentially we are being paid to export our pollution to China, and yet we complain and want to build our own solar factories.The embodied carbon payback is around 7 years for the full solar system: panels, inverters, mounting, balance of system, all logistics costs and disposal. Not the 18 months the solar industry claims. But the economic replacement cycle is also 7 years, because efficiency gains are so rapid that ripping out 7-year-old panels and replacing them with current technology improves the IRR of the whole installation even after replacement cost. You’re carbon-neutral exactly when you’d rationally replace them. Nobody planned that.China’s oversupply isn’t by policy. It’s the emergent outcome of provincial governments and their local banks each rationally backing their local champion to be in the top ten where state support flows. No individual actor is making an irrational decision. The collective result is a structurally loss-making industry producing panels at below cost of production, indefinitely underwritten by fragmented public capital with no coordination mechanism and no ability to self-correct. The intermittent government consolidation policies designed to fix oversupply makes it worse because it gives every manufacturer the incentive to scale fast enough to survive the next cull.The accidental beneficiary of all this is the global energy transition. Adam Smith couldn’t have designed it. But he would have recognised it immediately.