New Hampshire, US After a ruling in March by its Department of Commerce (DOC) to impose low countervailing duties (CVD) of between 3% add almost 5% to protect its solar manufacturers, as REW went to press the US looked poised to slap anti-dumping tariffs far higher than these figures on Chinese imports.
In political terms, the Obama administration could well have made a smart move. But the US solar industry – especially firms that rely on Chinese materials – could be considerably less pleased than prospective voters.
The level of duties imposed in March by the DOC could be seen as almost symbolic: Chinese modules undercut their US counterparts by 12%. But the scale of protection that now looms could not only have a significant direct impact but also trigger a damaging response in kind by the emerging Asian superpower.
Why the Low Tariffs?
In its 62-page ruling, the Department of Commerce detailed how it had determined what the Chinese firms received in subsidies and what could count as unfair, then what extra tariff would be needed to rebalance the equation for US imports. But the DOC repeatedly stated that this was no easy task, given that the Chinese government had been less than forthcoming with information.
Imposing three levels of tariffs was also based purely on the numbers that the DOC could access on Chinese government subsidies. A graphic from Maxim Group analyst Aaron Chew illustrates all the Chinese subsidies that the DOC could identify, and how they impacted specific tariff levels for Suntech and Trina, which were selected in the DOC’s investigation as ‘mandatory respondents’ as the two largest producers and exporters to the US based on aggregate value. The chart reveals subsidies for official programmes (‘Golden Sun’, ‘Two Free, Three Half’), benefits in policy lending, tariffs/value-added taxes, land use, and so on. (‘LTAR’ is an acronym for ‘less than adequate remuneration’.)
Note in that graphic the bar for ‘polysilicon’ is the second biggest chunk of Trina’s determined subsidisation, at 0.72%. Chew says this number is in reference to Chinese polysilicon supplier GCL Poly, which he dubs ‘the Intel of solar’ because of its ubiquitous influence on the sector.
If the DOC is indeed purely looking at numbers, anti-dumping penalties applied in other industries tend to be higher than the CVD ones.
But it would seem clear, based on the DOC’s numbers, that Chinese companies aren’t as heavily subsidised as many believed. That’s ‘a relatively positive outcome’ for the Coalition for Affordable Solar Energy (CASE) and its followers, who argue this dispute hurts the solar sector overall. On the other hand, it’s still an official determination that: Chinese solar suppliers are in fact getting unfairly helped by their government; it’s hurting US companies to a measurable degree; and government intervention is required.
‘It basically shows they’re trying to accommodate everyone, and make everyone happy,’ suggests Fatima Toor from Lux Research. ‘Everybody recognises that it won’t be a good idea for the US Department of Commerce to put huge tariffs on modules.’
There’s another angle to be played out here: precedence. A favourable US ruling in the pocket of SolarWorld – which led the CASE alliance of seven firms pushing for protection – increases the chances that the company will find sympathy in Europe should it choose to open a case there.
‘The larger risk is that SolarWorld expands the case to Europe, and/ or Chinese polysilicon retaliates against US and Korean polysilicon companies which have received government incentives,’ says Jefferies analyst Jesse Pichel.
What’s also clear is that the tariff cannot mask the broader concerns for global solar markets: it’s a tough business lately, and companies are losing money. Chinese solar stocks that shot up after the DOC ruling was announced just as quickly fell back to Earth within a day as investors realised the bigger picture hasn’t changed.
‘It is premature to call the decision a victory,’ says Pichel. Ultimately, the effect of a duty is the same, whether it is large or small: Chinese companies will see their costs rise (and thus pricing all the way down the chain), either by shipping Chinese products directly to the US and suffering the tariff, or outsourcing some production to other nations to get around the tariff.
Chinese firms have also seen this decision coming.
Some allegedly ramped up their exports to the US in late 2011 ahead of such a ruling (hence the pending anti-dumping claim, with possible separate penalties).
And they’ve also been preparing ways to get around the tariff by sending some production to other countries before exporting to the US, a practice called ‘tolling’.
Buried within the DOC decision is a key clarification that might help them do just that. The DOC ruling states it will include imports of solar cells made in China, and modules/panels/laminates produced in China or elsewhere from Chinese-made solar cells – but the document specifically excludes products coming from China that were made from cells produced anywhere else. Thus, Chinese firms could reasonably outsource production of the cells themselves, say to neighbouring Taiwan just across the strait, or to other nearby Asian countries such as Malaysia or the Philippines. Shipping the materials out, having the cells made, and then either returned back to China to be made into modules, or kept offshore and having modules manufactured and exported from there would both be legitimate approaches.
The economics of tolling – involving extra shipping, manufacturing, requalification of the products, and shipping back to China – aren’t very attractive if the tariff is only 3%-5%. Maxim’s Chew calculates that tolling adds about 6.5% to module production costs (about US$0.05/W).
But if Chinese companies expect the DOC to come back in May with a stiffer set of penalties for anti-dumping – which now looks likely – then setting up tolling would actually make a lot more sense.
China’s solar triumvirate (Trina Solar, Suntech and Yingli Green Energy) were quick to criticise ‘unilateral trade barriers, large or small, [that] will further delay our transition away from fossil fuels at a time when the majority of Americans demand cleaner and more secure energy such as solar’. They also pointed out that this is only one of two decisions forthcoming, with an anti-dumping ruling expected in mid-May.
China’s government has also chastised the US for pursuing the case, and warned it might move ahead with investigations of its own into US imports. US-imported silicon material might be eyed first, with the scope possibly widened to involve solar manufacturing equipment. That would eat greatly into a US solar market that was a large net exporter in 2010.
The Coalition for American Solar Manufacturing (CASM) has recently projected a 2011 net trade deficit for US solar products. Chew muses that a polysilicon case could very well proceed in China, although its scope would be narrower than this case (Hemlock would be the primary US target) and would likely not be broadened to include PV manufacturing equipment.
That said, the US government, and Obama specifically, have been more vocal recently about addressing trade rules with China on a broad scale. Ratcheting up from either side – China investigating solar polysilicon imports, the US expanding to other contested sectors outside of solar – could intensify into a much bigger trade dispute. Then again, that could also create a détente needed to bring both sides back to the table.
Impact on the US
Ultimately, US demand for solar should be bigger than this dispute. Installations more than doubled in 2011 to 1.8 GW, according to the Solar Energy Industries Association (SEIA) and GTM Research. Even with tariffs put into place, solar technology suppliers in China and everywhere else recognise the US market’s potential, and will find ways to play in this market.
‘Trina Solar is committed to providing high-quality modules and services to the United States market for the long term, where we value our customer base and supply chain business partners,’ said Trina chairman/CEO Jifan Gao. Robert Petrina, managing director of Yingli Green Energy Americas, added that his firm remains dedicated to the US solar market, ‘regardless of the outcome of this proceeding’.
It’s less clear what the ruling means to US solar manufacturers. ‘If we address unfair trade practices in the US solar market, we can get back to our business of expanding American manufacturing and jobs in the renewable energy sector,’ said Carlo Santoro, director of business development at MX Solar, one of the now three public members of the seven-member CASM. ‘We look forward to getting back to the fair and legal competition that serves everyone best.’
But there’s a reality that must be acknowledged: the US only accounts for 3% of global solar PV cell and module manufacturing, points out Paula Mints from Navigant Consulting. Comparatively, China and Taiwan gobbled up a 74% share of global solar cell production in 2011, up from 63% in 2010, according to recent NPB Solarbuzz numbers. It’s not at all clear that tariffs – either the countervailing ones today or anti-dumping ones later – will significantly shift that paradigm.
Assuming solar-panel average selling prices of $1.20, that means Chinese-made modules would tack on just a few additional pennies to compete in the US market. From some perspectives, a 3%-5% pricing swing could easily be washed out solely by shifts in currency valuations.
Also note that a 3%-5% CVD only brings prices back to where they were in early January – which doesn’t exactly rewrite the competitive landscape.
This solar trade dispute is far from over. This is a preliminary decision by the DOC, which as REW went to press still had to nail down issues such as specifics, findings, final tariff levels and such like. It can, however, begin collecting tariffs from this designated preliminary date, holding monies in escrow pending its final ruling, currently scheduled for 4 June. If the US International Trade Commission (ITC) also decides (currently scheduled for 19 July) on an injury impact of Chinese solar cells, the DOC will issue the CVD order on 26 July.
The other legal milestone will be the DOC’s ruling on whether the Chinese suppliers flooded the US market with solar goods (‘dumping’) to gain an unfair cost advantage. (The ITC already gave a preliminary affirmative for anti-dumping back in December.) There are two important aspects to this decision: did they dump, and was there enough injurious impact to US firms to make the penalty retroactive.
Some think the DOC will likely rule in favour of anti-dumping, and likely with a stiffer penalty than the CVD ruling (as has happened in such cases in other industries). But retroactive action is unlikely, given a higher burden of proof, and the fact that a confirmed surge in solar imports could be reasonably explained as reacting to the expiration of US incentives at the end of 2011. (Efforts also continue among US renewable energy proponents to revive both the 1603 Treasury grant and Investment Tax Credit [ITC].)
Meanwhile, on 16 May Dinghuan Shi, president of the Chinese Renewable Energy Association, told the SNEC Power PV Conference and Expo in Shanghai that a ‘family meeting’ of global PV industry leaders from Asia, Europe and North America at the conference addressed how to ‘join hands’, strengthen co-operation within the industry and break through trade barriers. The result of the meeting was that a ‘three-continent consensus’, ‘the voice of the whole industry’, has called for greater co-operation, he said.