A few days after the U.S. Department of Commerce imposed a 25 percent tariff on wind turbine towers made in China, and two weeks after announcing a 31 percent tariff on silicon solar cells and modules made in China, another set of Commerce officials, representing the United States at the Asia-Pacific Economic Cooperation meeting in Kazan, Russia, agreed to work for sharp tariff reductions in “green goods” by September. Products slated for freer trade between the 21 nations include wind turbines and solar panels.
The fact that two different sets of officials in two separate offices within the U.S. Department of Commerce are calling simultaneously for two opposing trade policies is just the latest irony in the evolving mix of alliances created by SolarWorld’s anti-dumping petition.
It would be easy to divide the renewable energy world into three camps:
- For high tariffs on Chinese goods — the Coalition for American Solar Manufacturing (CASM) and its allies, including manufacturers of silicon modules with factories outside China (including Korea, Taiwan, Japan, Malaysia and the Philippines);
- Against — the Coalition for Affordable Solar Energy (CASE) and its allies, including American installers, developers and most balance-of-system operators; and
- Those caught in the middle — including trade associations serving both sides and factories exporting raw materials like polysilicon, who now may be threatened by retaliatory tariffs imposed by China.
It’s not that simple, of course. The middle ground is dangerous territory for officials and companies in both China and the United States, precisely because they have to do business with both sides. Speaking for the middle ground, the Solar Energy Industries Association (SEIA) has been calling for mediation. Immediately following the May 17 announcement of U.S. tariffs on Chinese modules, SEIA President Rhone Resch issued a statement beginning “The solar industry calls upon the U.S. and Chinese governments to immediately work together towards a mutually satisfactory resolution of the growing trade conflict within the solar industry. While trade remedy proceedings are basic principles of the rules-based global trading system, so too are collaboration and negotiations.” Meanwhile, both CASM and CASE reiterated their own entrenched positions.
It’s still unclear what long-term consequences the tariffs will have. Retroactive charges against Chinese imports had the immediate effect of sharply cutting the flow of new modules into the United States. Market research firms variously forecast a drop of 45 percent to 75 percent in the volume of shipments this year. But those cutbacks were largely made by smaller Chinese factories that were nowhere close to running profitably to begin with. Bloomberg New Energy Finance now predicts that more than half of all module manufacturers will fail or be acquired by larger companies, but that was the case before the tariffs, too.
The import slowdown did not immediately affect the availability or price of existing inventory. Spot prices for modules did not rebound, or even level out, following the tariff announcements (though some of the price reductions were masked by the weakening of the euro). Worldwide, silicon-PV factories continued to trim margins (and put each other into bankruptcy) in pursuit of market share in countries without new import barriers: Japan’s newly announced 42-yen-per-kilowatt-hour feed-in tariff drove some of the action, and Australia (without its own significant PV manufacturing base to protect) began to look like a safer bet than any country eager to impose a domestic-content requirement. And so the flood of inventory was diverted, not curtailed.
During the months leading up to the tariff announcements, solar installations continued to boom both in Germany and North America (especially in New Jersey). Toward the end of May, a German research organization reported that half of the country’s mid-day electricity demand was met by solar sources. Thanks to a wide variety of causes, the wholesale price of electricity in Europe fell in May by 5 to 11 percent.
Moreover, while the tariffs may provoke a palpable price increase for American installers and developers, it may not do so for end consumers. That’s because the installer business itself is consolidating rapidly, mainly around leasing/PPA companies with a business model based on zero upfront cost. As far as Joe and Jill Householder are concerned, a 31 percent tariff on zero is zero. SolarCity, SunRun, Clean Power Finance and the other large consolidators of small systems can find ways to fold the tariff into the business model. Don’t lose sight of the fact that the average cost per watt to install an American system is still roughly double the cost in Germany: There’s still a lot of inefficiency in the North American permitting-and-labor process. Squeezing that out can go a long way to ironing over a higher module cost — at least for bigger companies. That gives the small locally-owned installer a powerful incentive to become a subcontractor.
In the long run, trade officials in the United States and China may find some middle ground that won’t make anyone very happy, a kind of product-dumping demilitarized zone where everyone is at war but no one shoots. Tariff or no tariff, big fish will grow bigger and small fry will be absorbed. And the price of solar installations will move steadily downward.