Australia is awash with solar panels. They're cheap, they're plentiful, and they are almost entirely Chinese-made.

They're transforming the Australian power grid.

Around lunchtime each day, when the Sun is shining brightest, solar production will peak at close to half of Australia's power needs. 

Often there is so much in the system, power becomes worthless.

Energy experts and economists plotting Australia's green energy transformation see solar as a generation backbone, along with wind and hydropower.

Their vision sees huge banks of panels capturing Australia's sunshine, and turning that energy into fuel-like green hydrogen, or products like green steel, to sell to the world.

But the federal government wants more than a future powered by cheap imported panels.

Under its Future Made in Australia strategy, it is willing to pump taxpayer dollars into a local solar panel manufacturing industry to try to take on the Chinese solar giants.

The nascent local industry is excited at the prospect, but many economists argue it might be — at best — a waste of time and money.

At worst, it might actually hold up the renewable transition.

A new Australian solar system

Australia makes a lot of solar power, but it doesn't make a lot of panels.

The global industry is almost totally concentrated in China. It makes roughly 80 per cent of the world's panels, with Vietnam and India the next largest manufacturers, making less than 10 per cent each.

The Albanese government wants to change that, and it is stumping up cash.

$1 billion has been set aside to offer financial support to anyone who can produce solar panels and other components in Australia.

The government is still working out the exact structure and design of the scheme, but it is expected to largely work through production tax credits.

That means anyone who can produce a solar panel will be entitled to payment from the government.

It's not an unusual structure — it's the same model the government is taking in supporting industries like critical minerals and green hydrogen, and the United States and some European countries are using to support their own solar industry.

Advocates say the tax credit scheme is low risk, in that money is only paid for panels produced and therefore can't go to waste.

The government has been making a case that given Australia produces all the raw materials for solar panels (and batteries), it makes sense to manufacture them here too. 

And there is a national security element — with government stressing that Australia could be left vulnerable if the flow of solar panels from China was ever cut off.

Energy Minister Chris Bowen argues there is a pressing economic need for a local solar industry.

"We want to be a more complicated economy," he said.

"That means adding more value, not just digging things up and shipping them out, but actually making things in Australia.

"I'm not suggesting we can make all the solar panels we need in Australia, but we can build a greater sovereign capability. And we should."

And Mr Bowen has high hopes for the industry, with the government planning for rapid expansion.

"We think we can get up to around 20 per cent of Australia's needs made in Australia with the right policy settings," he said.

A tiny player in a global market

Right now, more than 99 per cent of Australia's solar panels are imported from overseas.

The remainder comes from one place only: Tindo Solar's factory in Adelaide.

Tindo has been around for nearly 15 years, currently employing about 65 people making Australia's only locally assembled panels.

While its panels are locally assembled, they largely comprise imported components.

It's got big plans, talking of opening a "gigafactory" somewhere on the east coast and tripling its workforce.

Tindo's panels are some of the most expensive on the market, competing with the top-tier imported brands.

The company's CEO, Richard Pettersson, said they were aiming to compete on quality, not price.

"We make a panel that lasts a long time and performs at a very high level," he said.

"The risk of chasing a low-cost product is you inevitably start to cut corners. And typically, the consequence of that is a lower-quality outcome."

That said, Richard Pettersson sees the Sunshot subsidy scheme as enormous for Tindo, and a broader Australian industry in future.

A consultation paper put out by ARENA, the government agency managing the scheme, spells out the challenge facing the Australian industry.

It suggests that the tax credit will be "aimed at bridging the gap between the cost of production and the expected sales price".

Which makes the challenge clear — that the cost of putting together a panel can outweigh how much it can be competitively sold for.

Richard Pettersson said it was the leg-up the industry needed to start producing, learn from its mistakes, and become globally competitive without government assistance.

"It's an opportunity for us to potentially scale rapidly with government support," he said

"The proposal at the moment is that it's a temporary measure. So it won't be there forever.

"Which means industry really has to respond and make sure it gets efficiency levels at the right level, and compete properly with the international market to be able to survive in the future."

'I don't think we need this industry'

The plan has a fairly long list of sceptics.

Productivity Commissioner Danielle Wood has voiced significant concerns about the idea, arguing there is "nothing wrong" with buying cheap solar panels from China.

And when the government's own Treasury Department put together a "national interest framework" for the Future Made in Australia policy, it pointed to the benefits cheap imported panels could bring.

"Accessing cheap clean energy technologies that are manufactured offshore supports Australia's ambition to become a renewable energy superpower," it found.

It suggested if the government is concerned about the strategic risks of supply being concentrated in one country, it can rely upon Europe and the United States developing their own industries instead.

"Australian consumers will benefit from any improvement in supply chain diversity and competition, subsidised by international taxpayers."

Rod Sims chairs the Superpower Institute, dedicated to developing research and policy aimed at positioning Australia's economy to best capitalise on global decarbonisation.

That includes rapidly scaling up renewable generation, and supporting future export industries like green hydrogen and green steel.

He backs of the government's recent support for sectors like hydrogen and critical minerals, with $15b in production credits set aside in the recent federal budget.

"It's always important when you're talking about making things in Australia, that you've got a clear rationale as to why you're supporting particular industries, and you've got a rationale for the form of support," he said.

"I think in the budget, they provided both of those things."

But on the solar panel idea, he is not just unconvinced — he warns it might hold the transition back.

"I don't think we need this industry," he said.

"You can get very inexpensive solar panels from other countries, predominantly China, and we want the cheapest solar panels we can get.

The only area he can see any kind of advantage Australia might hold over other countries is in making polysilicon, a critical component of solar panels.

It's an extremely energy-intensive process, and he says it's the kind of industry that could be decarbonised in Australia.

"You need a lot of renewable energy to do that. And we've got a lot of renewable energy in Australia," he said.

"So it makes sense for us to make the polysilicon here. It may make sense to do a few other things here. But in my view, it makes no sense to make solar panel modules."