Just as China is scrambling to consolidate its overgrown, export-driven photovoltaic solar industry in the face of dropping global demand , ironically, just across the Himalayas, officials are going big guns to boost investment in the same sector.

We’d previously noted the massive overconstruction of industrial capacity for PV solar in China and how it had become painfully exposed by the economic/financial crisis, which has ushered in an unforeseen drop in demand overseas markets — where as much as 98 percent of the Chinese industry’s output has been sold. According to this article in the state-run China Daily, titled a bit overdramatically, “Sun is Setting on China’s Solar Industry,” global supply will exceed demand by 168% in 2009. (It was quoting a report from the US-based research firm iSuppli Corp. Report abstract here.) China came into the crisis the world’s biggest producer of PV solar modules, the core component in solar panels, with the east coast province of Jiangsu, accounting for one-quarter of the global supply.

Beijing is reportedly responding to the situation by actively sanctioning industry consolidation — i.e. encouraging larger players with economies of scale to snap up less efficient smaller counterparts. Taiwan’s DigiTimes reported that the government is making available 2 billion yuan (USD291 million) to facilitate the mergers. (Only DigiTimes subscribers can access the original report, but SeekingAlpha.com summarized in this article.) Beijing is also calling on the smaller players who wish to remain independent to allow “leading” makers to “arrange their production and shipments” for them. Not clear what means, but this policy approach is nothing new. China’s economy periodically sees spontaneous overinvestment when a few first movers in a promising industry show good results, prompting an uncontrolled gold rush of “me too” ventures. In the past, Beijing has taken this corrective stance of favoring the big and weeding out the small … in TV cathode ray tube industry, for example. One thing that all these Chinese industrial boom-bust cycles have in common is overfocus on foreign markets, mistakenly perceived (by each in a mob of actors) as wealthy countries with bottomless pockets.

But while China is slamming the brakes on solar cell manufacturing, India is putting its foot on the accelerator, albeit with a different goal — addressing a huge electricity shortage at home. What’s more government incentives for investment in the sector, summarized in this article from Your Renewable News, appear to be getting traction. The solar-friendly policies from the national government include preferential rates for selling solar power back to power companies running the grid (so-called feed-in tariffs), an important step. But interestingly it is also providing direct financial support for investment in silicon manufacturing including solar cells, so that domestic manufacturing will supply the generation capacity build-up. The government is reportedly ready to subsidize 20% of capex for the first 10 years if the factory project locates in a Special Economic Zone.

The policies seem to be getting traction already, especially in the western Indian state of Gujarat, which according to this article from Cleantech.com, has in recent weeks racked up a whopping $21billion worth of renewable energy investment. Attracted by a 25-year guarantee on favorable tariffs announced January 8, Astonfield Renewable Resources Ltd. has signed an MoU for a PV solar project worth $800 million (news report here). Other commitments to solar in Gujarat include Tata Power (news report here) and Suzlon Energy. Gujarat is targeting 500 MW of solar capacity in the state.

While electrical shortages plague India’s economy broadly, rural zones are particularly hurt, with some 50,000 Indian villages still lack electrical power of any kind. Electrification is viewed as a means of promoting economic development, jobs and higher standards of living in these zones. Too bad all that PV cell manufacturing capacity in China that’s suddenly out of favor can’t simply relocate to India …

(Image courtesy of www.treehugger.com)