Manufacturing solar is a bad business. The only ways to generate any revenue are by requiring your residents to purchase pricey locally produced goods or by using cheap labor and massive scale, neither of which are available in Australia.
In order to unveil Solar Sunshot, a $1 billion initiative that would "supercharge Australia's desire to become a renewable energy super power at home and internationally," Prime Minister Anthony Albanese traveled to the Hunter Valley a week and a half ago with no fewer than five ministers.
The prime minister said in front of the cameras, "We can either be afraid of the future and do nothing like we did in the last ten years, or we can take advantage of the opportunities that come with the shift to net zero."
According to the press release, the Australian Renewable Energy Agency (ARENA) has been tasked with designing the program in collaboration with industry, which is more than willing to assist it in identifying methods to save taxpayers $1 billion. The opportunities will be taken advantage of through "subsidies and grants."
Eking out a portion of China's 99 percent market share would be the goal of any local solar panel company receiving subsidies.
Although the precise amount of money spent by the Chinese government to achieve its current global solar dominance is difficult to determine, it appears to have been US$70 billion in 2022 and US$130 billion in 2023, or more than A$300 billion over two years—300 times the amount the Australian government plans to spend.
Along with the evident futility, there is more than a hint of irony in all of this.
Shi Zhengrong, a young Shanghai engineering graduate who studied the craft in Sydney in 1989 as a foreign exchange student, founded Suntech, the first Chinese manufacturer. At the time, a research team from the University of NSW was at the forefront of solar cell efficiency research and developed a cell design that would eventually become the industry standard.
After completing a PhD and studying with the team at UNSW, Shi returned to China in 2000 to launch Suntech. "I have been asked a lot why I started the firm in China instead of Australia," he told the ABC. I was not at all confident in my ability to manage a business there. Additionally, labor costs are rather expensive in Australia.
At the time, BP Australia operated the biggest solar manufacturing facility in the Southern Hemisphere, located in Sydney's Olympic Park. When BP shut it down in March 2009, there was a mass flight of companies producing renewable energy. For example, the wind power company Vestas shut down a factory in Australia in 2008, while the solar thermal producer Ausra relocated from New South Wales to California.
Two decades after China's industry began with Australian research, we are now investing $1 billion to revive it, and the People's Republic is now investing 300 times as much money in it.
In a press release announcing the trip, US Treasury Secretary Janet Yellen stated that she was in China over the weekend to "press Chinese counterparts on unfair trade practices and underline the global economic consequences of Chinese industrial overcapacity" in an attempt to dissuade them from flooding the world with inexpensive solar panels.
"We do not want to be unduly dependent and they want to monopolize the market," she stated in a Wall Street Journal interview prior to her departure. We will not allow that to occur.
People like me were raised with the belief that you should always send a thank-you message when someone sends you inexpensive products. Standard economics essentially states that. Never again would I say, "Send a thank-you note."
Michael Pettis, a longtime China watcher and senior scholar at the Carnegie Endowment, summarized the strong, conventional economic case for the thank-you letter on Twitter in response to Yellen's interview: "People are not just customers." They are also producers, and their level of consumption is determined by their output rather than the affordability of consumer goods.
Economists are discovering that huge trade imbalances do not boost consumption of low-cost items. They mostly raise debt.
However, that is only effective if the people are able to generate anything in a sustainable manner.
Will Janet Yellen be able to stop the Chinese government from supplying the world with low-cost solar panels and thwarting the Biden Administration's efforts to use the Inflation Reduction Act to develop a renewable energy sector in the United States?
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