Dr Andy Xie: China should consider jump-start the economy with solar power push

Dr Andy Xie

In a recent article for South China Morning Post, Dr Andy Xie tackled how solar energy could be helpful for China’s economy.

Here are some highlights:

This is likely to be another tough year for China’s economy. The path forward is to focus on productive and competitive economic activities. If stimulus is pursued, it should go into renewable energy like solar, given that technologies are coming together to make near-zero electricity costs possible. Solar singularity – the point at which solar power becomes so cheap it is the default choice for new power generation – seems within reach.

The next productivity revolution will be in energy and China is in a perfect position to be the first to capitalise. In four years, solar cell prices have dropped by over 80 per cent to below 7 US cents per watt.

The key technology in solar power – the solar panel – is becoming almost irrelevant to the total cost. The price of solar cells has come down so much because production happens at a massive scale.

Innovation at scale is very powerful in pushing productivity. Other components of solar investment haven’t experienced the same price decline. Distributed and project-based solar investment in low-tech components doesn’t offer economies of scale.

Even at 70 US cents per watt – the overall development cost of solar power last year – China has a good case for scaling up solar power. It could deliver electricity to the power-hungry east from the sunny west at an even lower cost, not including the price of local distribution. Solar power is competitive against coal.

Nevertheless, solar accounted for only 4.7 per cent of the 8,388 trillion terawatt hours electricity output in 2022. And electricity from the grid only accounts for 27 per cent of China’s energy consumption. Despite its rapid growth in the past two decades, solar power remains insignificant in China’s overall energy picture. That shouldn’t be the case.

Dr Andy XieDr Andy Xie 謝國忠is an independent economist, director of Rosetta Stone Advisors and is one of the few economists who has accurately predicted economic bubbles including the 1997 Asian Financial Crisis and the more recent subprime meltdown in the United States.

He was a part of Morgan Stanley in 1997 and the Managing Director and Head of the firm’s Asia/Pacific economics team until 2006. He also spent two years with Macquarie Bank in Singapore, an associate director in corporate finance and five years as an economist with the World Bank.

Dr. Xie earned a PhD in economics in 1990 and an MS in civil engineering in 1987 from the Massachusetts Institute of Technology.

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