Globelics Academy 2007

EVIDENCE FROM THE SOLAR

PHOTOVOLTAIC INDUSTRY

MANAGING TECHNOLOGY AND INNOVATION FOR RENEWABLE

ENERGY IN CHINA

Nicoletta MarigoCentre for Environmental Policy - Imperial College, Londonnicoletta.marigo02@imperial.ac.uk

OUTLINE

Objectives: what is this study about?

Gaps and relevance: why is this study potentially interesting?

Practical implications/challenges

Methodology and analytical framework

Preliminary results

WHAT IS THIS STUDY ABOUT? (Objectives and questions)

An empirical investigation of if, to what extent and how Chinese firms involved in one renewable energy (RE) technology: solar photovoltaic (PV), build up technological capabilities (TC): only TC necessary to adopt and assimilate externally developed technology or something more?

CAN THEY INNOVATE?

How advanced are the TC the Chinese PV industry is building up?

Have these TC been evolving through time and how?

What is driving the industry to develop and improve its TC?

What potential does China have to compete at the forefront of

innovation with the main international players?

WHY IS THIS POTENTIALLY INTERESTING? (gaps in the literature + overall relevance)

Developing countries (Dcs) as end-user rather than producers of technology: do we know enough about “indigenous technological effort”?

TC literature tend to focus on traditional industries (REF): opportunity to study TC in a high-tech new wave technology (Mytelka 2004) non traditional industry

RE specific IS literature exists but applied to EU only (Jacobsson et al., 2002; Jacobsson and Johnson, 2000; Foxon et al. 2005): anything different in DCs?

Indicators: do trade data + input/output measures offer a robust enough view of innovation in firms?

Conventional wisdom: China’s high-tech production is not very high-tech nor very Chinese! (Rosen, 2003; Steinfeld 2004)

PV needs innovation to drive down costs: what contribution from China? Market diffusion, cheaper technology thanks to cheap labour, more?

SOME PRACTICAL IMPLICATIONS

• Technology specific study: PV technology knowledge

• Measurement/study of: (a) the TC complexity (b) determinants of TC both with reference to PV

• Development of a customised questionnaire

• Collection of data at the firm + national level

• Identification of firms and actors + mapping of the IS for PV

SOLAR PV PRODUCTION CHAIN

PV is an high-tech industry with labour intensive steps along the production line

Modules

Feedstock

Wafers

PV productsPV systems

Cells

Technology intensive

Labour intensive

Focus of the analysis

COMMERCIAL MATURITY OF PV TECHNOLOGIES RELATIVE TO MARKET PENETRATION

R&D Pre-commercial Fully commercialDemonstration Supported commercial

Technology maturity by “stage”

Market penetration(indicative)

Thin-film amorphous

Conventional Mono-Si

and poly-Si

Thin-film CIS

Thin-film CdTe

High efficiency cells under concentration

Organic PV

93% of market share

METHODOLOGY

Analytical framework

Empirical analysis

Literature review IS for RES (Jacobsson and Johnson 2000; Foxon, et

al. 2005; Christiansen and Buen, 2002)

TC in firms in DCs (Lall, 1992; Romijn, 1999; Bell and Pavitt, 1995; Forbes and Wield, 2002)

In-depth interviews with key PV experts in Europe

Questionnaire survey (firm) Fieldwork in China to interview a sample of PV

wafer, cells & module producers

Semi-structured interviews (national) Chinese PV R&D representatives, policy

makers, NGOs, international organisations promoting PV in China (GEF, UNDP, WB, IT power, GTZ5; Forbes and Wield, 2002)

PRELIMINARY RESULTS

The whole PV production chain, from the most technological-intensive activities (i.e. wafer production) to the least (i.e. module assembly and system installation) is present in China

Manufacturers are planning to expand their business to the most high-tech activities of the value chain

All firms have progressed well beyond basic operational capabilities

All firms perform in-house R&D, ~ 5-10% of total annual turnover is for R&D

Some firms have design capabilities & have patented their innovations

TECHNOLOGICAL CAPABILITIES

Company In-house

R&D Collaborative

R&D R&D expenditure (% of tot turnover)

Personnel in R&D (% of tot labour force)

Own patents

Licensing own patents

A 10-15% 10% B More than 50% 40% C 10% ?? ?? D 10% 6% E 5% 6-7 people ?? ?? F 3-5% 15% G less than 10% 3% ?? H ?? 6% ?? ??

PRELIMINARY RESULTS (2)

Well consolidated domestic tradition of experimenting with (early ‘60) and producing (early ‘70s), even on a small scale, silicon solar cells

and modules.

New entrepreneurs (early ‘00s): strong R&D background + higher education abroad (in some cases) + can count on existing local expertise.

Knowledge is created primarily through in-house activities by companies at all levels on the production line. In-house R&D plays a strategic role in enhancing firms’ TC and competitiveness.

R&D in several universities and national research institutes but mainly in conventional silicon technologies.

KNOWLEDGE BASE

PRELIMINARY RESULTS (3) ACTORS, IS AND INTERACTIONS

Adapted from: ICEPT and E4Tech, 2003

PV process equipment (predominantly international)

Project developers & installers

Universities

NDRC

Wafer/Cell/module developers

CREIA

REDP(GEF/World Bank/NDRC)

Provincial institutions

local agenciesto develop and implement a training programs

GTZMunicipalities

International on-grid markets (80% of Chinese production is exported)

Domestic off-grid rural market

Niche application markets

Research institutes/Chinese academy of science

Other countries’ governments

Facilitation

Innovators

Demand

Policy support

Influence

Knowledge

Funding

ANALYTICAL FRAMEWORK

TC complexity

Internal External PV specific Educational/professional

background of manager

Nature of ownership

Firm size

Skill of workforce

Technological effort• R&D expenditure• Acquired licences• Learning by operating• Staff training• Acquisition of external

expertise• Search for new tech.

knowledge outside firm

Interactions with other agents

• Customers• Suppliers• Training institutions• R&D institutions• Industry associations• Intern. Org. for TC building

Proximity advantage

Institutional support (innovation specific)

Institutional support (PV specific policies for mkt development)

Strategies for cost reduction

• Increase efficiency• Material saving innovation• New non-Si PV tech.

Det

erm

inan

ts

- General economic climate- Degree of competition- Market structure- Government policies for foreign trade, fiscal and monetary measures- Government investment in R&D- Government expenditure on technical education

Romijn and Albaladejo, 2000

STUDY OF TECHNOLOGICAL COMPLEXITY

Process engineering Product engineering

Ba

sic Simple routine (Experience

based)

Debugging, balancing, quality control preventive maintenance,

assimilation of process technology

Assimilation of product design, minor adaptation to

market needs

Inte

rme

dia

te

Adaptive Duplicative (Search based)

Equipment stretching, process adaptation and cost saving,

licensing new technology

Product quality improvement, licensing and assimilating new imported product technology

Ad

van

ced

Innovative Risky (Research based)

In-house process innovation, basic research

In-house product innovation, basic research

De

gre

e o

f c

om

ple

xit

y

Lall's framework

FunctionsProduction

COLUMNS: represent firm-level TC by functionsROWS: represent firm-level TC by level of difficulty

Made specific for PV

Lall, 1992

QUESTIONNAIRE’S STRUCTURE

Entrepreneurial history

General Info about the company

Process

Product manufacturing

R&D Competition

Government support

Inputs to technological development

Relations with suppliersRelations with customers

Relations with universities (Cooperative R&D)

Obstacles and view for future development

Manpower skill Export and prices

INNOVATION CAPABILITIES: A DEFINITION AND NOTIONS

The ability to make substantial improvements and modification to existing technologies and even to generate completely new production process and products

““ ““

(Romijn and Albaladejo 2000; Mani 2003)

Two notions of innovation (Romijn 2002):(a) Effort to advance the technological frontier(b) Efforts to catch up or crawl along at some considerable distance

Skills required for (b) are generally less demanding then those required for (a)

Implications for the study of TC

AN INNOVATION SYSTEM APPROACH

system failures that constrain the RE sources' path can be identified and policies to allow the correct functioning of the

system can hopefully be identified.

Innovation as both an individual (at the firm level) and a collective act. Its success depends on the quality and correct functioning of the

whole system

Productive process

No.firms surveyed

Tot no. firms in productive

process (2004/early 2005)

% of population surveyed relative to Tot

no. of firms in that productive process

Tot. production capacity for productive process, MWp (2004/early 2005)

Significance of firms surveyed in terms of production capacity

(%) Wafer 3 7 42.9 71.5 12.6 Cell 5 7 71.4 199 94.0 Module 7 22 31.8 255 76.9

Population surveyed relative to total firms operating in that specific productive process and their significance in terms of production capacity

0

250

500

750

10001250

1500

1750

2000

2250

Feedstock Wafer Cells Modules

MW

p

2004

2005

2008

Fig. 1 China's PV production capacity along the manufacturing chain in2004, 2005 and 2008

425 MWp: EU cell productioncapacity in 2004

Source: compiled from data obtained from author’s interviews in China, May-July 2005. Data for EU capacity obtained from www.iea-pvps.orgNote 1: feedstock production capacity has been calculated assuming that 11 ton/MWp will be needed by 2008Note 2: the estimate for module production capacity was done by assuming the same rate of growth as solar cells between 2005 and 2008

Beijing

Nigbo

Suzhou

Shanghai

Wuxi

Baoding

Beijing

Nigbo

Suzhou

Shanghai

Wuxi

Baoding

FIELDWORK LOCATIONS

PHOTOVOLTAIC: WHAT IS IT?

Solar cell, or photovoltaic (PV) cell, is a semiconductor device, which, in the presence of sunlight is capable of generating usable electrical energy

Solar cells have many applications. Well suited to power remote areas where there is no electricity grid. Used also in Earth orbiting satellites, handheld calculators, remote radiotelephones, water pumping applications, etc. Solar cells (in the form of modules or solar panels) are appearing on building roofs

where they are connected through an inverter to the electricity grid Source: http://en.wikipedia.org/wiki/Photovoltaic#Manufacture_and_devices

Operation of a basic PV cell

http://science.nasa.gov/headlines/y2002/solarcells.htm

DETAIL OF S&E DEGREES

ALL 1st UNIV.

DEGREES TOTAL S&E DEGREES

% OF S&E DEGREES ON TOT 1st UNIV.

DEGREES Natural

sciences

Social & behavioural

sciences Engineering

Total, all regions

6,781,885 2,649,460 39 917,721 872,629 868,340

Brazil 245,401 78,049 32 32,556 27,421 18,072

China 440,935 322,769 73 59,804 67,611 195,354

EU 1,908,967 439,171 23 182,089 122,390 134,692

Hong Kong 11,362 5,425 48 2,370 1,233 1,822

India 750,000 176,036 23 147,036 NA 29,000

Japan 532,436 350,535 66 32,718 214,377 103,440

Malaysia 10,511 4,760 45 1,685 2,198 877

South Korea 204,390 91,296 45 29,527 16,624 45,145

Taiwan 87,421 34,722 40 12,911 5,173 16,638

United States 1,199,579 384,674 32 144,441 185,263 60,914

RATIO OF SCIENCE AND ENGINEERING DEGREES IN SELECTED COUNTRIES, 2002

So

ur c

e:

Na

tion

al S

c ie

nce

Bo

ard

(2

00

2)

In China S&E degrees represent 73% of total first university degrees

DOCTORAL S&E DEGREES EARNED BY CHINESE STUDENTS AT HOME AND USA UNIVERSITIES, 1987-1999

0

1000

2000

3000

4000

5000

6000

7000

8000

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Nu

mb

er o

f d

egre

es

Within Chinese universities

Within U. S universities

Growing capacity for advanced S&E education: more

students prefer to take PhD in China

Decline of foreign scientists in the United States might well accelerate: "… applications from foreign graduate students to research universities [in the USA] are down by a quarter […] partly because of the federal government's tightening of visas after the 2001 terrorist attacks" (New York Time, 2004).

So

urc

e:

Na

tion

al S

cie

nce

Bo

ard

(2

00

2)

R&D EXPENDITURE AND INTENSITY (R&D EXPENDITURE AS % OF GDP)

Worrying trends in R&D investment and innovation in Europe: growth rate of R&D intensity has been declining since 2000 and is now close to zero. Europe is on track to miss the objective it set itself to boost spending on R&D from 1,9

to 3% by 2010.

China’s R&D intensity (1.31% of GDP in 2003), grew at about 10% per China’s R&D intensity (1.31% of GDP in 2003), grew at about 10% per year between 1997 and 2002year between 1997 and 2002.. If these trends in the EU and China continue, China will be spending the same amount of GDP on research as the EU in 2010 – about 2.2%.

Europe is becoming a less attractive place to carry out research: US investment has been growing at a much greater rate in areas outside the EU –

about 8% per year in the EU and 25% per year in China.

http://europa.eu.int/rapid/pressReleasesAction.do?reference=IP/05/968&format=HTML&aged=0&language=EN&guiLanguage=en

HYPOTHESIS AND EXPECTATIONS

[1][1] If China’s high-tech exports is dominated by parts and accessories for finished PV products

China will be present in module assembly and solar PV installation only

[2][2] If Chinese companies remain incapable of serious high-tech production without a foreigner partner

There probably will be a number of joint venture to allow Chinese

companies to acquire the necessary technology

[3][3] If China is strong in parts and accessories for finished products

There will be mainly basic capability to do limited product and process modification,

[4][4] If China comparative advantage is on cheap labour activities

Competition will be on the basis of heavy discounting

FINDINGS FROM INTERVIEWS WITH CHINESE PV FIRMS (May-July 2005) (1)

The whole PV production chain, from the most technological-intensive activities (i.e. wafer production) to the least (i.e. module assembly and system installation) is present in China. However the industry is currently un-balanced and production capacity is mainly concentrated in module production.

Figure 2, China's PV production chain (2004)

64 MWp

120 MWp

15 MWp5 MWp

0

20

40

60

80

100

120

140

Feedstock Wafers Cells Modules

Ca

pa

cit

y (

MW

p)

Source: personal communication, Wang Sicheng, Beijing Jike Energy New Tech. Dev. Co., 29 May 2005.

Figure 2, China's PV production chain (2004)

64 MWp

120 MWp

15 MWp5 MWp

0

20

40

60

80

100

120

140

Feedstock Wafers Cells Modules

Ca

pa

cit

y (

MW

p)

Source: personal communication, Wang Sicheng, Beijing Jike Energy New Tech. Dev. Co., 29 May 2005.

FINDINGS FROM INTERVIEWS WITH CHINESE PV FIRMS (May-July 2005) (2)

However, if you ask to the companies producing modules and cells what is the importance they attach to the other activities along the production chain in terms of future investment, the answer is:

cells, wafers and, in two cases, feedstock production (i.e. to the most technology intensive activities of the solar industry supply chain

Figure 1, China's PV cell current and expected production capacity

0

200

400

600

800

1000

1200

1400

1600

2004 2005 2006 2007 2008

MW

p

Japan's production capacity (2004)

Germany's production capacity (2004)

Source: own data collected during fieldwork in China (May-July 2005)

Figure 1, China's PV cell current and expected production capacity

0

200

400

600

800

1000

1200

1400

1600

2004 2005 2006 2007 2008

MW

p

Japan's production capacity (2004)

Germany's production capacity (2004)

Source: own data collected during fieldwork in China (May-July 2005)

FINDINGS FROM INTERVIEWS WITH CHINESE PV FIRMS (May-July 2005) (3)

All the sampled firms have progressed well beyond basic operational capabilities and are strengthening their in-house R&D effort.

Some are able to design key equipment in the production line to meet their own production and product requirements.

All are able to customise products to meet the particular needs of export markets (on average 70-80% of domestic production is exported) and are successfully improving product quality by increasing solar cell efficiency and obtaining international manufacturing and product performance certifications.

There are no joint venture. There used to be 2, but since 2003 the companies are entirely domestic.

All are planning to expand their business to the most technology intensive activities of the solar industry supply chain (i.e. wafer and cell production).

These findings seem not to confirm prevailing widely-held assumptions that firms in China are concentrated primarily in low-end commodity manufacturing and tend to compete on the basis of heavy discounts because they are advantaged by an immense pool of cheap labour. Furthermore the evidence seems not to confirm the common view that developing countries are not associated with the dynamic use of technology because of the high risks involved or because they continue to employ and reproduce technologies that are generated elsewhere.

FINDINGS FROM INTERVIEWS WITH CHINESE PV FIRMS (May-July 2005) (4)

WHAT CHINA ALREADY DID FOR US

16th century1151Explosive

11901050Compass

(Gutenberg's Bible) 1456868Printed book

1709851Porcelain

1150105Paper

582 A.D.1300 B.C. Silk

Europe/AmericaChina

China’s technological contribution to the West

CHINA’S R&D SPENDING

http://www.reed-electronics.com/eb-mag/article/CA610433?pubdate=7%2F1%2F2005#It's%20the%20incentives

Chinese Yuan were converted at the official Bank of China exchange rate, 8.28 Yuan per US dollar

Source: Ministry of science and technology, People’s Republic of China

LEADERS POTENTIAL LEADERS

DYNAMIC ADOPTERS MARGINALISED

Rank Country Rank Country Rank Country Rank Country

1 Finland (2 hubs) 20 Italy 39 South Africa (1 hub) 64 Nicaragua

2 USA (13 hubs) 24 Hong Kong 40 Thailand 65 Pakistan

4 Japan (2 hubs) 27 Portugal 43 Brazil (2 hubs) 68 Kenya

5 S. Korea (1 hub) 29 Poland 45 China (3 hubs) 70 Tanzania

7 UK (4 hubs) 30 Malaysia 51 Tunisia (1 hub) 71 Sudan

11 Germany (3 hubs) 37 Chile 63 India (1 hub) 72 Mozambique

The technology achievement index introduced by the UN aims to capture how well a country is creating and diffusing technology and building a human skill base

THE UNDP’S TECHNOLOGICAL ACHIEVEMNT INDEX

Developing countries, like China, India, Thailand and Brazil are considered dynamic adopters of technology

Source: UN Human Development Report 2001

R&D INTENSITY IN THE EU, CHINA, JAPAN AND USA IN 2003

htt

p:/

/ep

p.e

uro

sta

t.c

ec

.eu

.in

t/c

ac

he

/IT

Y_

OF

FP

UB

/KS

-NS

-05

-00

2/E

N/K

S-N

S-0

5-

00

2-E

N.P

DF