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Part 2: How Tariffs Could Impact Solar Industry

SunEdison founder Jigar Shah and SolarWorld executive Ben Santarris are each looking in the rear-view mirror even as they attempt to navigate the road ahead. Behind them, they see those who laid the groundwork for the solar industry. They see the tremendous strides that have been made in the technology, the acceptance, and yes, in the cost.

They are both appreciative of the work that has been done and the effort it took to get the industry to where it is today. Yet, from their perspective, there’s a fork in the road, and they remain divided over which direction America’s solar industry should go. Regardless of the path taken, there appear to be plenty of bumps ahead.

While many are offering predictions in how the SolarWorld trade complaint will end, and what the impacts may be, there is one undeniable reality. The allegations that China is illegally dumping its products into the U.S. market has become a highly emotional topic within the industry. Individual companies on both sides of the issue are quickly moving to protect their position while others are anxiously awaiting resolution.

While the past month has often been about finger-pointing, we set out to ask key members in the industry for their thoughts on how we got to where we are and where we go from here.

Last week, we spoke with Andrew Beebe, Chief Commercial Officer for leading Chinese panel manufacturer Suntech, and Mark Simmons, Chief Operating Officer for ClearEnergy, a distributor who recently decided to sever ties with panels coming out of China because of difficulties associated with volatile prices.

Today, we hear from Ben Santarris of SolarWorld, the company that filed the trade complaint — and yes, the company that has taken a lot of heat for doing so. We’ll also hear from Jigar Shah, who co-founded SunEdison before moving on to his present role as CEO of the Carbon War Room.

The American Manufacturer

SolarWorld bristles at the notion that it filed the trade complaint because it couldn’t keep up with the competition. Cost and efficiency gains have fueled the industry since the early days, the company says, and much of that innovation has come from polysilicon panel makers in Japan and Europe, as well as many U.S. companies. This is the type of healthy competition, says SolarWorld Head of Communications Ben Santarris, that has sparked innovation in companies across the world, including SolarWorld.

But China’s entry, he says, has never been about innovation — it’s been about domination. And, as the petition suggests, China’s manufacturing capacity has been built solely for exports. To SolarWorld, the issue is black and white. If China is doling out subsidies only to Chinese companies to allow them to enter a new market and put the domestic competition out of business, then that has been determined to be illegal according to international trade rules.

Santarris understands that companies have bet their businesses on the cheap panels coming out of China, but he says that doesn’t mean the law shouldn’t be followed. More so, he contends that those who adamantly oppose the complaint are looking too short-term and don’t really understand what’s at stake: If China is allowed to dominate the industry, there will be disastrous implications and it will undermine all the work that’s been done to build the industry.

“We’ve seen robust international competition,” said Santarris. “We’ve seen wholesale price decreases in double digits, sometimes 30 percent. But in the last year, the massive overbuilding of China and its constant rush to drive products down our throat has derailed that healthy international competition.

“Providers of many other countries, not just the United States, are at risk. If China succeeds, a couple things will happen. You’ll no longer have that pressure for innovation and efficiency, you’ll have a unilateral price-setter, and you’ll be depending on a foreign country for yet another form of power. That is not going to be good for the long-term health of our industry, or our country.”

The short-term impact of more expensive, or perhaps prohibitively expensive solar panels, is perhaps a bit harder to gauge since it could mean broken contracts, lawsuits, stalled projects and general reordering of supply and demand.

“I think the competition is robust enough to get to an equilibrium price that is in keeping with a price that can keep many nations competitive,” said Santarris. “Prices have fallen precipitously [since the spring]. We’d like to see a 10 to 20 percent drop in wholesale prices every year, and while that is huge, it’s more sustainable than what has happened in the last year. What is the natural supply and demand when played by the rules?”

At least publicly, SolarWorld has framed its complaints in many ways — as a legal issue, a jobs issue, an environmental issue and a moral issue. Ultimately, though, it will only be judged on its legal standing. But that hasn’t stopped the company from pushing the other factors as central to why more companies ought to jump on its side of the fence.

“How can we let go of the solar manufacturing industry and give it to a country that has no investment in jobs, and [no environmental responsibility],” said Santarris. “This is supposed to be a green energy industry and we’re talking about shipping panels across the globe? If we’re not willing to defend this, then what industry and what jobs are we willing to defend?”

The Fight on Carbon

The American solar industry won’t come to an end over this trade dispute. It’s come too far and made too many inroads for that. But Jigar Shah of the Carbon War Room is concerned that the industry could lose something that it has only recently gained — and that’s relevance.

Solar is now surpassing the big boys like coal and nuclear when it comes to utility expenditures for new power plants. A severe spike in prices, though, could harm that momentum, and it could jeopardize expansion plans built on those falling costs.

“If this happens today, it will create more uncertainty and make our ascendancy as a technology at risk,” said Shah, who also co-founded a coalition of solar-based companies opposed to the trade complaint. “There are actual companies that have bet their entire life savings into the development of solar projects that will be negatively hurt by this, and they will go out of business because the panel prices that they have locked in with a supplier will go up substantially. That puts some negative pressure on solar in the U.S.”

#rewpage#

That negative pressure would immediately hit importers of Chinese panels because they’re the ones who would be on the hook for the new tariffs. While some contracts have likely been renegotiated in light of the investigation, it’s also possible that some importers will be stuck with a contract from which they can’t escape.

Once that happens, says Shah, Chinese companies will scramble to set up new supply chains. There have already been reports that China plans to set up operations into the United States through South Korea and Taiwan as a way to avoid the tariffs. Final assembly would conceivably happen in the United States, but it is unlikely such an approach would add many American jobs. There could also be the type of retaliation that has been feared from the time the complaint was announced. China has indicated that it too may file a trade complaint against the American polysilicon makers whose products go into many Chinese panels. China could turn to Asian polysilicon makers to fill the void, but that would also cause a slowdown in production.

This massive reordering both in China and the U.S. would certainly cause supply chain disruptions. Projects that otherwise have a green light might face delays in construction. “Some of these projects that were going to be built in March may not be built until August. Some of these companies will have to temporarily lay off workers because they can’t pay those people for sitting around and not installing things.”

And this scenario doesn’t include a vision for what happens if SolarWorld also files a European-based complaint. Cutting off Europe — a far bigger and much more mature market — could be even more disruptive globally than what would happen in the U.S.

That gets back to the issue of relevance because you can’t be relevant when you can’t install your product.

“Chinese companies are doing just what [the consumers] told it to do — reduce cost of panels so we can get to grid parity,” said Shah. “Now they’re being vilified. … I mean we’re winning. Those of us who believe that global climate change is literally going to crush the human species on this planet, we’re desperately trying to move us away from coal and toward more sustainable forms of energy. SolarWorld’s complaint is not one of my top priorities in terms of saving the world from climate change.”

There is a way out of this, says Shah. There is considerable political momentum to take a hard stance against China, and much of that is coming from Democrats. Oregon Sen. Ron Wyden in September wrote a letter to President Obama urging his administration to place tariffs on Chinese panels. President Obama himself recently weighed in on the issue, telling an Oregon television station that the U.S. would be aggressive in enforcing trade laws.

One hope for those who concede that laws may have been broken but that the cheap prices are too important to the American industry is for the ITC to rule in favor of SolarWorld but to implement a very low penalty on products coming into the United States, perhaps as low as 1 percent. It’s hard to imagine that SolarWorld would view such a scenario as a victory, but Shah says that type of outcome could allow America to take a stand for both trade laws and America’s solar industry.

The ITC could make its initial ruling by early this month.

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