Climate change has figured prominently on President Obama's
agenda. Time and again he has emphasized the importance of
renewable energy as a means to achieve this objective. However,
measures to reduce the inflow of Chinese solar panels may hamper
his battle against climate change.
Speaking at the Los Angeles Trade-Technical College last month,
Obama said: "We've reduced our carbon pollution over the past eight
years more than any country on Earth." However, the very next day
the Department of Commerce (DOC) implemented measures which could
thwart such gains.
The DOC has upheld a complaint made by the U.S. arm of SolarWorld
AG. In the complaint, SolarWorld had alleged that China's sale of
solar panels to the U.S. was illegal because these panels are
priced well below their cost of production.
Holding the allegation to be true, the DOC has imposed larger
tariffs on imported panels. As a result of such tariffs, prices of
foreign panels will increase nearly 15%. This will benefit domestic
producers like First Solar, Inc. (
) and SunPower Corp. (
). A final ruling will be made in December, which means that
whatever transpires till then will have a significant impact on the
U.S. solar sector.
Origins of the Dispute
In 2011, SolarWorld filed a complaint with the DOC that China was
subsidizing solar panel production in an illegal manner. This was
enabling Chinese companies to price them below cost. The following
year, DOC upheld the complaint and levied tariffs ranging from
31-250% on Chinese panels.
In response, Chinese companies avoided tariffs by moving production
facilities to Taiwan. This in turn, led to SolarWorld filing a new
complaint in Dec 2013. In June this year, the DOC levied duties of
up to 35.2% to negate the effect of China's production subsidies.
The near complete domination of Chinese solar panels is in sharp
contrast to the fate of domestic solar panel producers. According
to data from the Census Bureau, imports of panels from Taiwan and
China increased to $2.6 billion from $1.8 billion in 2010.
On the other hand, several domestic solar panel companies shut
down. According to Boston-based GTM Research, panels made in China
were used in more than 50% of U.S. rooftop installations. This also
reflects the global dominance of China in the solar panel
Analysts and market watchers alike believe the impasse illustrates
the difficult choice the Obama administration faces. It will have
to decide what is a greater priority -- ending Chinese dominance
and protecting domestic companies, or combatting climate change to
During the speech mentioned earlier, the President had also said:
"We now generate 10 times the solar electricity, creating tens of
thousands of jobs across the country." The Obama administration has
always encouraged domestic producers to compete with companies from
China and Germany. The economic stimulus package of 2009 featured
tax credits and loans to boost green companies and encouraged the
purchase of their products.
By the end of 2013, $4.4 billion had been handed out as part of the
cost of installing residential solar systems. This resulted in a
significant decline in the cost of solar energy. During the last
four years, the cost of solar electricity systems has declined by
nearly 50% while panel prices have declined 60% according to
Impact on Chinese Producers
China's commerce ministry has criticized the levy of duties on
solar panels and cells produced in that country. The effect on two
key producers illustrates the effects of levies which are as high
as 165%. The DOC has levied a preliminary anti-dumping rate of
26.3% on Trina Solar Ltd. (
) following its investigations. Taken together with anti-subsidy
duties announced in June, Trina Solar will face an effective rate
Though the company opposed the preliminary findings, it said it is
committed to serving customers in the U.S. as well as its business
partners. In a statement the company said: "Trina Solar believes
that because of its competitive cost structure, in-house
manufacturing capacities, global strategies, strong brand image and
quality products and global strategies, it will continue to grow
its business in the United States and to play an important role in
the U.S. market."
Yingli Green Energy Holding Co. Ltd. (
) also voiced its discontent regarding said duties, but also
promised that it would continue to serve customers in the U.S.
Yingli faces an anti-dumping duty of 42.3% and a combined tariff of
47.3%. Companies which refuse to cooperate with the DOC will have
to pay the highest possible rate of 165%, which amounts to 191%,
taking into account the anti-subsidy duty.
ReneSola Ltd. (
) has said that it will utilize contract producers across the world
so that it can continue to sell its panels in the U.S. Last week,
the company said it will leverage partnerships with OEMs to sell
solar panels worth 500MW in the U.S. next year. Analysts believe
that this will create a complicated supply chain spread across
This in turn will raise manufacturing costs. But the benefits of
global sourcing could possibly outweigh the cost of duties levied
on such products. Analysts believe that other Chinese companies
will follow suit. Such a phenomenon is likely despite the fact that
the sector has returned to the black only a year earlier. This
positive period has been preceded by years of low panel prices
leading to lower margins.
Resolution in the Offing?
According to Bloomberg, a law firm representing the Chinese
government has sent a proposal for a suspension agreement to
Commerce Secretary Penny Pritzker. This is an attempt to settle the
anti-dumping duty dispute. Trade experts believe that this is a
crucial step in a resolution to the dispute since such an offer
would not have been made unless China was confident that it would
not be rejected outright.
A successful resolution to the dispute would come as happy tidings
to the likes of Yingli and JinkoSolar Holding Co., Ltd. (
). On the other hand, domestic producers such as Enphase Energy,
) would lose the advantage gained by the imposition of anti-dumping
duties. However, the adoption of solar power would continue at a
rapid rate as consumers would not be deterred by higher prices.
Even when one considers employment generated from the sector, jobs
growth has not come from solar panel making. Companies that produce
polysilicon materials for solar kits, inverters and jacks and those
involved in installation have contributed the bulk of jobs.
According to the Solar Foundation, such positions contribute nearly
70% of all jobs in the solar industry. This why a satisfactory
resolution to the conflict may be more desirable than a duty
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