New Hampshire, USA — Would tariffs placed on Chinese solar panels amount to “protectionism?” Are the companies most critical of the trade complaint “just crying foul?” And what’s more important to American companies, the race to grid parity or the desire to reclaim solar manufacturing from China?
With the creation of competing coalitions, the sides have been clearly labeled, and the opinions have become increasingly entrenched. But there remains a striking lack of clarity about what happens if and when tariffs are placed on solar panels and cells imported into the U.S., and how that could ultimately impact American businesses and American solar capacity.
Those answers are hard to come by as the solar industry anxiously waits for an investigation of whether China has been illegally dumping solar panels into the U.S. market to come to an end. Will the prices coming out of China be ruled legitimate? Will the U.S. International Trade Commission find culpability, but implement a small tariff that would give American panel makers a moral victory but keep the U.S. market open to Chinese companies? Or will the tariffs be so high that it will sever the market to Chinese companies, and significantly increase the price of solar?
News developments over the past week continue to cloud the road ahead as SolarWorld in Europe considers its own trade complaint and as China weighs filing its own anti-dumping petition against American polysilicon manufacturers.
But this much is clear. There are many stakes in this battle, and just as many perspectives. To get a better sense of the potential road ahead, we spoke with executives across the industry about the challenges they face and the outcome they envision.
For today’s first installment, we spoke with Andrew Beebe, Chief Commercial Officer for 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.
In the second installment next week, we’ll hear from Ben Santarris, the Head of Communications with SolarWorld, and Jigar Shah, CEO of the Carbon War Room and founder of SunEdison.
If you have a perspective you’d like to share, please comment below or send an email to firstname.lastname@example.org.
The Chinese Panel Maker
Perhaps no other company outside of SolarWorld finds itself more central to the trade complaint than Suntech. The company’s Chinese operations are massive, the biggest in the world. But the company has also targeted the U.S. manufacturing sector in a way that no other Chinese company has. Its 40 MW facility in Goodyear, Ariz., is now churning out American-made panels targeted to American-built solar projects that will power American lives.
Suntech has been a vocal player in the American solar space, but its American position — and one could argue its future American prospects — are threatened by the trade petition. SolarWorld’s complaint targets Chinese panels and cells, meaning the cells Suntech makes in China and ships to its facility in Arizona could themselves be hit by the tariffs meant to protect American solar panel makers.
Suntech’s Beebe is adamant that regardless of the outcome of the trade dispute, his company is here to stay, and that the projects for which it is supplying panels, including Sempra’s 700-MW Mesquite Solar project outside Phoenix, will move ahead as planned. Mesquite’s initial 230 MW will use Suntech panels, including some made at the facility nearby.
While some argue that a Chinese company’s presence in the American market is about turning a couple of screws and slapping on a “Made in the U.S.A.” sticker, Beebe says the opposite is true for facilities that import the cells made in China.
“The module process is labor intensive and it’s real,” said Beebe. “It’s the most manufacturing intensive part of the process. Making cells is a significant process as well but our cell lines [in China] are extremely automated. If you’d walk through the production lines [of cell manufacturing], you’d see very few people.”
Its production facilities aside, Beebe says his company sources so much of its products globally that the company perhaps felt a bit insulated when word about a possible trade dispute began to circulate. With offices in Europe and Japan, as well as in the U.S., Beebe says Suntech sees itself as a global company as much as a Chinese company. He says they source on average 50 percent of what goes into each panel from outside China, and 25 to 30 percent comes from the U.S., mainly from polysilicon.
That means the company is hugely invested in the American and European markets, and it in fact sees the Chinese companies that are often grouped as one entity in the American media as the firms they need to beat on pricing and efficiency.
“Our fiercest competitors are our Chinese peers,” said Beebe. “There’s no real, general love across this industry from a Chinese standpoint.”
It’s those Chinese companies, says Beebe, who have the most to lose in the price wars regardless of the outcome of the trade complaint.
“We’re in a hyper competitive environment,” he said about the falling prices and the eventual shakeout that many are predicting. “The cost leader here is a U.S. company, First Solar. It’s not due to one country or another; it’s due to the extraordinary rush of companies that has taken place over the last couple of years, and it’s led to an oversupply of capacity. It’s been a great time to be a customer of solar, but the inevitable ramification of that is not everyone is going to make it.”
The U.S. Distributor
Regardless of what was driving down prices, Simmons realized he had a problem on his hands last spring. Simmons and his bosses from his parent company in Germany were seeing the prices begin to slide. As a distributor, he was buying panels from China-based UpSolar, and in April the wholesale list price for developers and installers was between $1.82 and $1.93 per watt.
From there, the prices of what he was buying from China (which he said he cannot disclose) dropped so dramatically and so quickly, that he found himself stuck with inventory that was being undercut almost daily. To keep pace with the prices, and the surging demand, Simmons had to continually buy the cheaper modules and find a way to get rid of the higher cost inventory. But by the time those modules would get in his hands, eight or nine weeks later, the prices would no longer be competitive. It’s an issue he says that many distributors are grappling with.
“The distributors get stuck,” he said. “They can’t sell what they previously had, but if they stop buying, then they only have the more expensive modules left. You have this pressure from the installers saying, ‘Hey, I can get it cheaper elsewhere,’ and it’s probably true in this case.”
By July, when more Chinese panels were imported into the U.S. than all of 2010, Simmons knew some changes were needed. With $1.5 million in Chinese panels in inventory, he did what few in the industry did. He changed his business plan and moved away from the Chinese imports.
“We cancelled containers that were on the way,” said Simmons. “If the question is cheap, cheap, cheap always, then whoever can buy the largest volume with the fastest delivery will always be the cheapest. And there’s no sustainability in that model.”
So now Simmons buys American-made panels from Sharp and panels made by Sovello in Germany. But he didn’t have to pay April prices once he made the changes. According to Simmons, the wholesale list price offered to developers and installers for those Sharp and Sovello panels are now between $1.34 and $1.37 a watt, having been forced to come down to compete with the Chinese prices. He says he could buy Chinese panels direct from manufacturers for under $1 a watt if he wanted to.
“We’ve gotten really positive reaction since we went away from China,” said Simmons. “But talk is cheap. … We’re still constantly asked for cheaper, cheaper and cheaper. At least 90 percent of the market is looking for cheap.”
As a smaller distributor, he’s been content to focus on the 10 percent of customers that are perhaps looking past the initial price. If and when tariffs are set, he believes more in the industry will end up seeing things from his vantage point.
“[Once tariffs hit], it will stabilize the market,” he said about the cost per watt. “The list price of modules — the distributor prices for manufacturers — I think will stabilize in the $1.30 range. In the $1.20 range there will be some margin for manufacturers. Under $1.20, manufacturers will not be able to stay in business. Manufacturers are dying off and it’s already happened. That’s the result of not stabilizing.”
He also sees return on investment (ROI) as a far better measuring stick than cost per watt, which is generally how prices are measured. The combination of energy efficiency and panel cost is ultimately what will define the financial success of a project, he says.
“At $1.35, panel prices are already low enough. You don’t need cheaper modules to get a good ROI,” said Simmons, whose company uses energy efficiency tools in combination with solar to get a quicker payback. “More important than grid parity is ‘sellability.’ You have to show a price they can afford and an ROI they can approve of. If you use the right product mix, we’re there already anywhere in country.”