The World's #1 Renewable Energy Network for News, Information, and Companies.

Could Trade Barriers Help the PV Industry Regain Its Balance?

The October 10 ruling by the US Department of Commerce against PV modules containing Chinese-produced solar cells is just the most recent development in a string of trade disputes that stretch across the globe. Until now, much of the discussion has focused on the details of each case, the potential effect on different manufacturers, technology types, etc.

But perhaps the bigger question is how these issues collectively will affect the main issue confronting the PV industry today: the supply/demand imbalance. Supply/demand issues are not simply confined to upstream (manufacturer stock levels) and downstream (warehouse/distributor) inventory levels. They are currently affecting excess polysilicon supply and (perhaps most profoundly) wafer oversupply that is anywhere in the 5-10 GW level.

In terms of end-market demand, the PV industry has been growing rapidly. Over the five-year period from 2007 to 2011, downstream module demand increased by an annual compound average growth rate of over 50%. This growth in downstream demand has certainly been matched by growth in module manufacturing capacity – with the scale of growth here during 2010 and 2011 being the key factor in price erosion over the past 12-18 months.

In 2006, total module capacity exceeded total module demand by almost 2.5. This implies that, for every PV module that was needed for an installation, there was enough capacity to satisfy more than double that amount. By 2011 the ratio had declined somewhat, but was still slightly over two, showing a continued environment of oversupply. Indeed, nameplate capacity of production equipment delivered during 2010 and 2011 would have supplied a 60 GW industry in 2012, twice the level currently being forecast for this year.

Between the end of 2008 and the end of 2011, PV module inventories held by module manufacturers increased more than seven-fold. Much of the increase in capacity can be attributed to the rise of Tier 2 and 3 Chinese manufacturers and not necessarily the Tier 1 (pure-play PV) Chinese companies that are currently feeling the full effect of anti-dumping tariffs. Indeed, many of the Tier 2 and 3 Chinese manufacturers are currently retreating to their original businesses, and may simply write off any PV investments undertaken during 2010 and 2011.

Therefore, it would appear to be the rise of these Tier 2 and Tier 3 Chinese PV companies that has led Western manufacturers to lodge trade complaints, alleging unfair competition and subsidization on the part of the Chinese government. (Solarbuzz highlighted this topic in 2010.)

As summarized in the table, there are four ongoing trade investigations concerning PV products (with several more in the works).

Although each of these investigations differs slightly in terms of the ‘target’ regions/countries and industry segments, there does appear to be an underlying theme: domestic manufacturers alleging unfair subsidization of imports and requesting additional charges to increase domestic competitiveness. While each dispute may ultimately have a somewhat ‘localized’ effect, the bigger question is how they will affect the global PV supply/demand balance.

These actions may actually have a positive effect in terms of industry rationalization (bringing total production and production capacity more in line with actual demand). This could be achieved by imposing additional costs on Tier 2 and 3 manufacturers that may not be able to alter supply arrangements to avoid local duties and thus will simply become uncompetitive.

As the US and EU complaints have already shown, sophisticated players, regardless of nationality, can find a way to avoid otherwise harmful taxes. This can be achieved by altering supply chains, such as Chinese module producers using non-Chinese cells for US-bound products; or through defensive acquisitions, such as Hanwha SolarOne purchasing Q-Cells to maintain access to European markets. Less well-funded competitors are unlikely to have the resources to pursue such strategies and may find themselves locked out of end-market opportunities.

Also, the trade disputes may create increased geographic fragmentation of lower tier manufacturers because they will be required to ship their products across a wider range of territories. Indeed, small-scale PV manufacturers already exist (and thrive) in many markets, in particular within emerging PV regions. Many of these manufacturing entities are actually a direct result of government policies or joint-ventures that promotedomestic manufacturing.

Investigations resulting in increased tariffs or the exclusion of foreign products (in favor of domestically produced goods) may help stimulate more domestic PV module manufacturing. Then, the goal of these companies would be to ‘right-size’ local manufacturing facilities to meet domestic needs with the understanding that any excess production in that facility is unlikely to be consumed by foreign PV markets. This outcome could possibly soften the decline of module prices, due to lack of domestic competition.

Regardless of the scenarios that may unfold, the PV industry must evolve to a stage where a considerable quantity of PV capacity is removed from the supply chain, from polysilicon through modules. The first stage of this process has already begun, with many Western manufacturers entering receivership. The next wave of closures is likely to involve uncompetitive Chinese manufacturers that are not ‘chosen’ as suitable candidates for continued support from local banks. Indeed, this process had already begun prior to any trade investigations being completed.

The next few quarters should provide more insights into how fast PV industry rationalization will take place, as the full effect of trade disputes become more apparent.

Michael is an Analyst for Solarbuzz. He covers primary research and analysis concerning the photovoltaic industry.

This article was originally published on NPD SolarBuzz and was republished with permission.

Lead image: Balance scale via Shutterstock

RELATED ARTICLES

The Rapid Rise of Residential Energy Storage

Markus Elsässer, Solar Promotion International (Intersolar) Energy storage is heralded as the critical technology that will make widespread adoption of renewable energy possible. Storage bottles sunlight, addressing a key drawback to solar energy — that it can’t provide electricity ...

Testing Heats Up at Sandia's Solar Tower

Rebecca Brock, Sandia National Lab Researchers at Sandia National Laboratories are working to lower the cost of solar energy systems and improve efficiencies in a big way, thanks to a system of small particles. This month, engineers lifted Sandia’s continuou...

Advanced Energy Retreats from Solar Inverter Market

Cormac Gilligan, IHS Technology US inverter supplier Advanced Energy yesterday announced it would wind down its solar inverter business having failed to attract a buyer for this part of its business. This follows intense competition and price pressure due...

Behavioral Economics and the Solar PV Industry

Paula Mints Behavioral economic theory holds that human interactions are complex and that economic motivations include nuance beyond that of maximizing utility. This is certainly true of the global solar industry as throughout its hist...

CURRENT MAGAZINE ISSUE

Volume 18, Issue 3
1505REW_C11

STAY CONNECTED

To register for our free
e-Newsletters, subscribe today:

SOCIAL ACTIVITY

Tweet the Editors! @megcichon @jennrunyon

FEATURED PARTNERS



EVENTS

NFMT Orlando

NFMT Orlando is a trade show and educational conference for facility pro...

Green Sports Alliance Summit

The annual Green Sports Alliance Summit is the world’s largest and...

SAP for Utilities

The SAP for Utilities conference is the most comprehensive SAP for Utili...

COMPANY BLOGS

Everything You Need to Know About Intersolar 2015

The Intersolar North America exhibition and conference are just two week...

Renewables make huge strides globally in 2014

Renewable sources of energy are making an increasing impact on the globa...

LSX welcomes companies to the next generation of office space

Silicon Valley sports a brand new LEED Platinum standards...

NEWSLETTERS

Renewable Energy: Subscribe Now

Solar Energy: Subscribe Now

Wind Energy: Subscribe Now

Geothermal Energy: Subscribe Now

Bioenergy: Subscribe Now  

 

FEATURED PARTNERS