Do We have an Industrial Policy or what Price Stimulus?

In a Bloomberg report today the announcement was made that due to a concentrated effort on the part of the People's Republic of China (PRC) that the cost of solar energy is nearing grid-parity.

Grid-parity means that the cost of solar energy is as cheap as the retail price of grid-delivered electricity. In Europe there are forecasts that have parts of Italy, Spain and Germany achieving this in stages by 2015. There are also reports suggesting that parts of the USA will achieve this by 2013.

So far, so good. But how is this being achieved?

In the last six years Chinese manufacturers captured 43% of the global photovoltaic-panel market. Their pricing is as much as 20% cheaper than European offerings. This has been achieved by a cut in prices by as much as 50% by some Chinese producers over the last two years.

Now most commentators who choose to only see the cost-side of the equation for solar and other renewable energy sources will focus on the fact that the PRC has subsidised the production of Chinese solar panels to the tune of $24 billion in 2010 alone. Their argument is that this "hides" the true cost of solar energy.

I say who cares. The USA has subsidised alternative energy producers with over $18 billion through its' fiscal stimulus funds so far in 2010. That the state is subsidising renewable energy and thereby obscuring the true cost is irrelevant. If that's what it takes to promote these new sources of energy.

But what worries me is that the US government is also subsidising the installation of solar panels manufactured in China. We keep talking about employment opportunities in new industries. Producing solar panels is a relatively high-tech undertaking. Why aren't we subsidising our own domestic producers, or charging import tariffs to foreign suppliers to support our own industries and thereby putting America back to work?

I am not advocating selling our products to China. I couldn't be happier if the PRC subsidised the production of solar panels and installed them in China. What could be better for the environment than to have China, which has now overtaken the USA in energy consumption to focus on renewable energy sources? And would it be so bad if the PRC created a virtuous circle of production and consumption in its' own economy?

China is constantly being shown as the growth engine of the future. State subsidies through state-owned banks their are certainly playing a large "stimulus" role there. Conservative commentators in the West still argue about the value of stimulus as the US economy stalls, and China continues to chug forward.

Maybe they should reflect that an employed populace tends to be a happy populace. The Chinese are certainly aware of this.