The solar power industry in Asia and other key growth markets is struggling in a competitive bloodbath. Companies are producing far more solar cells and panels than they can sell.

However, demand for solar power has been stimulated by the 70 percent fall in panel prices in the ast 2½ years, increasing solar’s competitiveness against fossil fuels.

Is this how a renewable energy technology will finally be able to compete with electricity generated by burning coal, oil and natural gas, which produce global warming emissions? If so, we may come to see it as a process of creative destruction triggered by both state capitalism in China and so-called free-market forces in the West.

One beneficiary of plunging solar photovoltaic power costs may be Japanese consumers if the government in Tokyo decides to press ahead and replace at least some of country’s nuclear industry output with renewable energy.

Meanwhile, as prices plummet for the assembled cell panels that capture the sun’s heat and turn part of it to electric power, solar company losses around the world are mounting. Some in the United States and Europe have closed or are on the brink of bankruptcy, prompting calls for protection against lower-cost Asian producers, particularly in China, now the world’s top solar panel maker. Its share of global output has risen from just 6 percent to 60 percent in the past few years.

Both China and the U.S. are vying to capture the commanding heights of the renewable energy industry because of its high-technology content, clean operations, and capacity to create new jobs.

In the U.S., where one in nine adults is jobless, the solar power business,including manufacturing, installation and service, employs over 100,000 people, twice as many as it did two years ago and more than the steel industry or coal mining.

Clean energy is already big business. Recent figures from Bloomberg New Energy Finance show that global investment in renewable power generation is expected to reach nearly $400 billion annually by 2020, double the level in 2010.

Offshore wind projects and solar energy development are forecast to get most of the cash. Solar panels are mainly arrayed on roof tops, or in big clusters on land as solar power “farms.”

In the struggle for clean-tech preeminence, China is projected to spend $50 billion each year on projects by 2014, the most of any nation,including all of Europe combined. The U.S. is not expected to catch up with Chinese spending before 2020, if then.

Solar energy generates less than 1 percent of U.S. electricity. But the amount of new solar wattage installed in the U.S. has been increasing by more than 70 percent a year since 2008, as federal and state incentives encourage green energy growth.

With falling panel prices, some commercial installations in the U.S. are already being done at $3 per watt. One industry consultant estimates that at an installed cost of $4 per watt, nearly 50 gigawatts (GW) of electricity demand in the U.S. could be met economically by solar. Present installed solar capacity is just 4 GW.

If prices were to fall to $3 per watt, solar could account for some 300 GW of capacity, or 11 percent of total U.S. electricity demand. If panel costs fall further, a much greater share could open up.

This is what the U.S. and China are vying for, a green-tech job producing machine to help replace dying or unwanted industries.

China’s domestic market for solar power is also tiny but its potential growth is vast. To beef up, China has promoted solar panel production,exporting the surplus mainly to the U.S. and Europe. Other solar producers have been doing the same, to the point where global capacity of 30 GW worth of panels a year exceeds demand of around 18 GW.

Germany, Italy and some other leading solar industry markets in Europe have been sharply curtailing user incentives, as panel costs fall and pressures mount to reduce government spending.

With the competitive squeeze tightening, the U.S. Commerce Department announced recently that it was investigating complaints by solar panel manufacturers in the U.S. that Chinese rivals were dumping products there to gain market share. If the complaint is upheld, punitive tariffs will be imposed. Meanwhile, China on Nov. 25 announced its own probe of U.S. subsidies and support policies for the renewable energy industry, including solar power.

As trench warfare between the main solar panel producers sets in, it raises two big questions: How many more companies will fall and in which countries? And will the plunge in solar costs stimulate enough new demand to sustain recovery for survivors?

Michael Richardson is a visiting senior research fellow at the Institute of Southeast Asian Studies in Singapore.

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