first solar.jpgChina is to build a massive 2.2GW solar farm in Inner Mongolia using solar panels from US vendor First Solar.

The facility, located near Ordos City, will be built in stages starting with a 30MW demonstration project, whose construction begins next June.

The memorandum of understanding (MOU) says full capacity will not be reached until 2019 — which presumably gives the Ordos municipality plenty of time to consider new bids from Chinese photovoltaic manufacturers anxious to steal some of this landmark contract from a western rival.

But let's not be so cynical. The deal is a a big coup for Nasdaq-listed First Solar as its largest installations to date have all been in Europe, a relatively consolidated solar market, and of much more modest sizes.

The news should sooth the nerves of investors concerned about the impact that the flood of cheap Made-in-China solar panels are having on western PV manufacturers — see this story for example.

First Solar uses a novel thin-film process technology to manufacture its solar cells. While the technology is still being developed, the company claims that it will eventually reduce the cost of solar power sufficiently far that it becomes economically feasible to deploy large-scale PV installations in countries that do not heavily subsidise solar power.

Nevertheless, like other PV manufacturers, First Solar argues that subsidies remain essential today as its technology is not yet cost-effective with more mature energy sources.

The Ordos project will operate under a feed-in-tariff which will guarantee the pricing of electricity produced by the power plant over a long-term period. First Solar CEO Mike Ahearn said:

The Chinese feed-in tariff will be critical to this project.This type of forward-looking government policy is necessary to create a strong solar market and facilitate the construction of a project of this size, which in turn continues to drive the cost of solar electricity closer to 'grid parity' – where it is competitive with traditional energy sources.”

The share prices of Germany's Q-Cells, the world's largest maker of solar cells, has slumped 85% in the past 12 months due to concerns about a glut of PV production capacity globally and tumbling prices.

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