Asia already has more solar equipment manufacturing capacity than other regions in the world. That dominance will likely grow.

By 2012, Asia (including Japan) could produce 82 percent of the world's crystalline silicon solar cells, up from 71 percent in 2008, according to a new GTM Research report, "PV Technology, Production and Cost, 2009 Forecast: The Anatomy of a Shakeout."

The news might not be embraced by those in the United States hoping to ensure that federal legislation is in place to help solar companies make their products in the U.S. instead of abroad (see Who's Offering Good Green Jobs?).

The lower labor costs – and strong government programs to support their domestic solar industry – will continue to make Asia an attractive place to build factories.

First Solar out of Tempe, Ariz., for example, is expanding its production plants in Malaysia. Evergreen Solar, which makes silicon wafers, cells and panels, had considered building a factory in Asia to take advantage of the low-labor costs. The Marlboro, Mass.-based company is now considering outsourcing its solar cell production as well as its assembly of these cells into panels – and that could well be in Asia (see Evergreen Considers Contract Manufacturing).

BP Solar scrapped a factory expansion plan in the U.S. last year, citing the increased competition from Asian producers (see BP Solar Nixes Factory Expansion Plan). 

Asia is expected to out-produce not only crystalline silicon cells, but cells using all other technologies, said Shyam Mehta, a senior analyst with Greentech Media and co-author of the report. Most of the cells on the market use crystalline silicon as the key ingredient, and those cells are assembled into panels for installation. But companies using little silicon or alternative materials for their cells are gradually winning over customers.

The top three producers in Asia are expected to be China, Taiwan and Japan, who collectively could churn out 44 percent, or nearly 12 megawatts, of solar cells by 2012. In comparison, factories in Europe could roll out 23 percent, or 6 gigawatts, by then while America could do 16 percent, or nearly 4.3 gigawatts. The remaining 17 percent, or roughly 4.5 gigawatts, would come from the rest of the world.

The growth of solar manufacturing in Asia will not only involve new factories being built by European and American businesses. Asia-based companies are gaining an advantage over European companies as a result of a fast-falling silicon prices, the report said.

"What we have seen are Asian producers having more ambitious capacity expansion plans than European producers," Mehta said.

European companies have historically inked more favorable contracts for silicon, the raw ingredient for making crystalline silicon cells, while their Asian counterparts and newer entrants into the market pay more for silicon. European products have typically commanded higher prices because their technologies are considered superior and they are viewed as solid companies that can stand behind their warranties, Mehta said.

But silicon prices are falling rapidly, while more Asian companies are emerging to be formidable competitors by investing heavily in building factories and improving the quality of their products. 

Join industry leaders and influencers at Surviving the Shakeout: Greentech Media’s 2009 Solar Industry Summit in Phoenix, Ariz., April 14–15.