Photo by Ingrid Taylar

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.

Tianwei PV production line

The U.S. Department of Commerce has announced preliminary countervailing tariffs to correct for more than $30 billion in subsidies provided by the Chinese government for silicon modules and cells made in China.

But the tariffs are far lower than American solar module makers asked for, between 2.9 and 4.73 percent. Members of the Coalition for American Solar Manufacturing (CASM), which lodged the original complaint, asked for tariffs ranging from 30 to 50 percent to offset subsidies and dumping (the sale of product below its cost to manufacture and ship). An announcement regarding antidumping tariffs — which may be higher — is due in May.

Both sides claimed initial victory in the dispute between American solar manufacturers and other solar industry interests, represented by the Coalition for Affordable Solar Energy (CASE).  But stock prices for solar module manufacturers surged on the news.

Jigar Shah, president of CASE, noted that in anticipation of stiff tariffs, module manufactures have been padding their U.S. prices for several months. “Today, the U.S. pays the highest prices in the world, by about 12 percent,” he said. “A mid-size firm pays about 95 cents a watt, versus about 84 cents in Europe. Hopefully this announcement, which largely exonerates China, will bring American module prices down.”

Shah also released this statement:

Today’s preliminary determination by the Department of Commerce imposing low tariffs on imported solar cells and modules, is a relatively positive outcome for the U.S. solar industry and its 100,000 employees.  However, tariffs large or small will hurt American jobs and prolong our world’s reliance on fossil fuels. Fortunately, this decision will not significantly raise solar prices in the United States as SolarWorld has sought.

 This decision clearly demonstrates that the Commerce Department did not find the Chinese government engaged in massive subsidization, as SolarWorld and CASM claim. 

 There is more work to be done to protect the future of solar industry and power in America. There will be another decision in May when the Commerce Department announces anti-dumping duties.  A recent study by the Brattle Group confirmed that placing artificially high tariffs on solar panels would severely undermine the US solar industry, resulting in the loss of up to 60,000 US jobs by 2014.

At the same time, SolarWorld, the lead company in the CASM petition, issued this press release:

U.S. trade ruling will help restore fair competition in solar trade

Commerce ruling is calibrated to offset effects of China’s subsidized solar exports

HILLSBORO, ORE., March 20, 2012 – SolarWorld, the largest U.S. solar manufacturer for more than 35 years, today said the U.S. Department of Commerce’s preliminary trade-remedy ruling against China’s state-sponsored solar industry represents an important step toward restoring fair trade in the critically important U.S. renewable-energy manufacturing industry.

The U.S. Department of Commerce today issued a preliminary finding that Chinese state sponsorship of its solar industry is anti-competitive under U.S. and international trade law and ordered preliminary duties on the industry’s U.S. exports of crystalline silicon solar cells and panels to offset the effects of China’s illegal subsidies. Commerce will require importers of record to post deposits or bonds toward anti-subsidy margins of 2.9 percent for cells and panels made by Suntech, 4.73 percent Trina Solar and 3.6 percent for all other Chinese manufacturers.

“We commend the Department of Commerce for its preliminary decision today, which is the first step in a process that will roll out over the next several months,” said Gordon Brinser, president of SolarWorld Industries America Inc., member of the seven-manufacturer Coalition for American Solar Manufacturing (CASM) and petitioner in anti-subsidy and anti-dumping cases against the Chinese industry.

“If fair international trade can be re-established, the solar-pioneering U.S. industry will once again compete on legitimate market factors such as product performance, production efficiency and unsubsidized pricing,” Brinser said. “We need both the domestic manufacturing and installation businesses to participate in fair competition to advance our solar industry’s reach for greater national energy, economic and environmental security.”

CASM contends that China’s broad portfolio of subsidies spurred its producers to build huge excesses of manufacturing capacity, export more than 95 percent of production and sell product at artificially low prices to unfairly seize U.S. market share at the expense of domestic producers. At least 12 U.S. manufacturers of crystalline silicon solar cells and panels have closed plants, gone bankrupt or staged significant layoffs since 2010.

On Dec. 2, the U.S. International Trade Commission (ITC) made a unanimous preliminary determination that China’s trade practices were harming the domestic industry. On Jan. 30, Commerce found that Chinese importers had mounted a massive, evasive surge ahead of the preliminary determination. As a result, today’s ruling on duties applies to Chinese solar imports not just hereafter but also retroactively 90 days.

Commerce is expected to issue a preliminary ruling on anti-dumping duties on May 16 (announced May 17). Final determinations on the duties would take place in the summer. To close the case in the fall, the ITC would need to make a second, final ruling on whether Chinese trade practices have harmed the domestic industry.

Trina’s American distribution subsidiary released this statement:

Trina Solar is committed to providing high-quality modules to the United States for the long term. We value our customers, and we our working to ensure that our U.S. team will continue to grow our North American business in order to meet our customers’ expanding needs.

This determination is only the first step, and is subject to further examination and final determination later this year by the Department of Commerce and the International Trade Commission. Until then, Trina and the solar industry will continue to operate in an era of uncertainty brought upon by these proceedings. As a forward-thinking global company, we are constantly assessing our options so that we can most effectively serve all of our markets around the world. Until the final determinations are made, it is premature to speculate about next steps in the United States, but know that Trina Solar is committed to serving the United States market for the long term.

 

Hemlock PolySi Ingot (HSC photo)

The Coalition for American Solar Manufacturing (CASM) last week released a report estimating that the U.S. solar industry ran a $1.6 billion trade deficit with China for calendar year 2011, compared to a trade surplus for 2010 somewhere between $250 million and $540 million.

The release said, in part,

“This new data, drawn from official government sources, finally buries the Chinese importers’ tired, shop-worn and factually incorrect talking point that the U.S. solar industry has a trade surplus with China,” said Gordon Brinser, president of SolarWorld Industries America Inc., the largest U.S. manufacturer of solar cells and panels. “Chinese importers often claim that the modest U.S. trade surplus in 2010 proved that China is not threatening the U.S. solar industry and economy. But it is no longer 2010, and any trade surplus is history. Illegal dumping by massively subsidized Chinese solar producers, combined with curbed exports of polysilicon and manufacturing equipment, are decimating U.S. solar manufacturers, the supply chain and their export business.”

That statement deserves some analysis.

In December, China idled about a third of its module factories to clear out excess inventory, and the timing was right to dump much of that excess into the U.S. market – because American developers were eager to pay for modules before the Dec. 31 expiration of 1603 grants. The rush spiked Chinese imports dramatically.

In the other direction, American factories don’t sell a lot of modules to China. They do sell a lot of polysilicon ingots (the raw material from which a factory slices silicon wafers to be made into solar cells). And they used to sell manufacturing equipment to start-up Chinese factories.

The world’s largest polysilicon foundry is Hemlock Semiconductor, with factories in Michigan and Tennessee. The opening of the new Tennessee plant boosted capacity to about 34,000 tons annually. Together, the top five factories – Hemlock, Wacker (Germany), OCI (South Korea), REC (Norway) and GCL Poly (China) probably can make about 131,000 tons annually.

Last year, industry sources estimate that Chinese factories used nearly 100,000 tons of that, and imported roughly half of it at historically low prices approaching $30 per kilogram – China claims that foreign factories “dumped” 47,500 tons of polySi into their market, putting most of its 35 small polySi factories out of business. Now, to meet a five-year plan to build 15 gigawatts of PV farms at home, the Chinese government has asked its surviving polySi plants, led by GCL Poly, to ramp up to 50,000 tons each. The goal will be to slash imports of polySi dramatically. Hemlock’s future profitability – and America’s solar export volume –  depends on the extent to which China needs to supplement domestic supply going forward.

Meanwhile, those start-up solar factories have, for the duration of the inventory glut, quit expanding. One result is that solar machine-tool companies had no market in 2011. Applied Materials, which makes equipment to build twin-junction amorphous silicon modules, quit opening new accounts back in July, 2010.

That 15 gW goal looms large in production planning, though, at least for Tokyo Electron Ltd. The Japanese company last week bought Oerlikon’s solar machine-tool business. Presumably they expect China to resume importing production machinery.

What it comes down to is Chinese domestic solar deployment. If the country ramps up its solar farm capacity quickly, trade should rebalance. Western companies will sell polySi and machine tools to China. The glut of module inventory may ease. Wholesale pricing may stabilize. Or not.

Either way, it may be too late to save Western module factories.