In the dear dead days of the old Australian Research Grants Committee, when I was the Chairman, a name that kept coming up was a young chap at the University of New South Wales called Martin Green. He was a whiz at solar cells, and was rapidly improving their efficiency. We in the ARGC were conscious of the need to show that at least some projects we funded could have a pay-off, and he looked a winner. Our Minister, Barry Jones, also approved, and Martin Green and his work were well funded by us, then and later. He went on to do great things, to have his own Centre of Excellence in photovoltaic research, to win prizes and medals, and to be one of those who did indeed take university research out into the commercial world. Sometimes we did get things right.
Along the way Martin Green picked up a Chinese postgraduate student, Shi Zhengrong, who had been given up for adoption by his parents because they were destitute. He was plainly highly intelligent, focussed and hard-working. He picked up his PhD quickly, and in 1995 was appointed deputy research director of a UNSW spin-off that was developing next-generation solar technology. In 2001 he left all that, and moved to the Chinese city of Wuxi to head a solar-cell start-up company there.
With $6 million in backing arranged by the Wuxi government, plus the assistance of former colleagues at UNSW, and his own drive, Shi soon had his first factory operational. The market for solar technology rapidly expanded, stimulated in part by Germany’s new renewable-energy legislation. In 2005, Shi organized a buyout of his Chinese investors by U.S. firms, and in December that year Shi’s firm, Suntech Power, became the first private Chinese company to list on the New York Stock Exchange. He became a billionaire, and one of the wealthiest men in China or, for that matter, in Australia. In 2011 Suntech scored sales of $3 billion, and was the world’s largest maker of solar panels.
Two factors suddenly made things difficult. First, Chinese culture emphasises the importance of successful imitation, and Suntech was not the only company producing solar panels, even if it was the biggest and had some clever technology. Before long there were solar-panel companies everywhere in China. Some were at the bottom of the market in both quality and price, but Suntech also had serious rivals. And the total production of solar panels in China could probably have satisfied world demand all by itself.
Second, demand came not from within China, but from the Western developed world, especially Europe, where attractive subsidies were the order of the day. But the recent Government Debt Crisis there has caused a change of heart about subsidies for alternative energy systems. Germany is returning to coal-fired power stations, because it has ample coal, and has cut the subsidies to solar. Spain did likewise, and others are following. What was the response in China? Rather like the wheat-farmers in Australia during the Great Depression, who kept growing more wheat as prices fell, until wheat was almost unsaleable, the solar-cell producers in China kept making more product and lowering the price. Memory tells me that this is called a backward-sloping supply function.
Suntech’s revenue halved, the company quickly went belly-up, and has now been declared bankrupt. It seems to be the case that none of the solar cell companies had made any real money. Like Suntech, they were all kept afloat on loans from banks, and were in trouble the moment demand slowed. And demand is slowing in most places. Australian governments too have lowered their subsidies, and in China itself there is no great demand. The basic truth is that solar power is not economic unless there are subsidies, and it is the level of subsidies that determines how attractive it is for the householder to invest in solar. Typically, solar panels carry a 20-year warranty, but what that is worth depends on whether it is the company or the utility that carries the responsibility, and in Suntech’s case the warranty is not worth much — because it might go out of business. And that prospect dampens enthusiasm even further.
Suntech was also unlucky, or perhaps unwise. One of its sources of funds turned out not to exist (yes, these things do happen), and now there are fraud investigations going on in both the USA and Europe. What happened to Shi? you ask. Well, he lost his job as CEO, moved to be executive chairman, and then was ousted from that. It seems that travel restrictions may have been placed on him. Bob Carr hasn’t yet been asked whether or not the Australian Government will intervene, since Shi is an Australian citizen. Shi says that what has happened ‘is a necessary rite of passage for our industry’, and in a sense he is right.
I have no doubt that in the long run solar energy will be harnessed, when we have learned how to store the energy gained during the day, and when the efficiency of collection is even higher than it is now. Then it will make good economic sense, and subsidies will not be necessary. What has happened to Suntech and to Shi Zhengrong is a warning that any enterprise that requires subsidies from governments is in trouble, since governments change, as do their priorities. The rite of passage Shi mentioned may last a long time.