"Trade war with China over solar technology could cut both ways"
An escalating trade war with China over solar technology now seems all but certain. A trade complaint filed last month by SolarWorld Industries Americas claims the Chinese cheat: They're liquidating heavily subsidized inventories of solar panels and cells and flooding the U.S. market. They're selling below cost, undermining U.S. solar producers. For that, Chinese solar products could face tariffs of more than 100 percent. Now reports Wednesday from China say a solar trade group is preparing to ask the government there to undertake its own investigation of U.S. companies that export polysilicon, the raw material for solar cells, to China. They're accusing U.S. companies of essentially the same thing -- dumping product below cost and putting Chinese companies out of business.
SolarWorld has complained about China's dumpingits heavily subsidized solar technology on U.S. markets. (Photo by Michael Lloyd, The Oregonian)
By Ted Sickinger
An escalating trade war with China over solar technology now seems all but certain.
A trade complaint filed last month by SolarWorld Industries Americas claims the Chinese cheat: They're liquidating heavily subsidized inventories of solar panels and cells and flooding the U.S. market. They're selling below cost, undermining U.S. solar producers. For that, Chinese solar products could face tariffs of more than 100 percent. Now reports Wednesday from China say a solar trade group is preparing to ask the government there to undertake its own investigation of U.S. companies that export polysilicon, the raw material for solar cells, to China. They're accusing U.S. companies of essentially the same thing -- dumping product below cost and putting Chinese companies out of business.
If it's war -- and the U.S. government will make decision on tariffs this spring -- Oregon has a parochial interest in saving 1,000 manufacturing jobs at SolarWorld in Hillsboro.
But tariffs cut both ways. A growing chorus of opponents claims tariffs are lose-lose for consumers and the country in general.
"If SolarWorld wins the case, then consumers, developers and installers are going to lose," said Ocean Yuan, owner of Grape Solar, a Eugene solar distributor that imports panels from China.
Other losers? A tit-for-tat trade war could hurt U.S. exporters of solar panel raw materials, particularly production equipment, polysilicon or silicon ingots, such as MEMC's factory in North Portland.
And if tariffs raise panel prices, the argument goes, they will undercut demand just as it's taking off and destroy more jobs downstream than they save in manufacturing -- all in a futile attempt to hold back a competitive, rising tide.
Certainly the prospect of tariffs comes at an inopportune time.
State tax breaks and cash incentives supporting solar installations are already squeezed by local budget problems. Low natural gas prices make system paybacks longer and solar investments less attractive. And the slow economy and real estate market have put the brakes on project financing.
Yet local solar installers suggest that tariffs, while not positive, won't be devastating.
"Prices have dropped so much that if they go back up a bit, nobody is going out of business," said Peter Greenberg, owner of Energy Wise Lighting in Eugene.
SolarWorld says opponents of the trade complaint set up a false choice. The company maintains it can compete long term and offer consumers steadily lower prices -- as long as the playing field is level. It's not inevitable, executives say, that yet another manufacturing sector disappear, particularly one this important to national security. The low-cost-at-any-cost argument may have appeal in a country where consumers pay lip service to domestic manufacturing but typically vote their wallets in favor of the bottom line. But it's shortsighted.
"If you're down to the point of exporting raw materials and buying back finished products, ultimately the whole supply chain will disappear," said Tim Brightbill, an international trade lawyer for Wiley Rein, who represents SolarWorld.
Chinese manufacturers produce about half the solar panels sold in the United States, up from almost nothing several years ago. They are the price leaders, local installers say, regularly offering panels 30 to 50 percent below the competition.
Solar industry experts think prices will continue to decline. China has overbuilt its manufacturing capacity, and U.S. consumers are the beneficiaries of the resulting inventory fire sale.
If tariffs are imposed, however, panel prices will likely go up. How much is speculation, and whether that undermines demand remains to be seen.
Once imposed, countervailing and anti-dumping duties typically last five or more years, providing breathing room to domestic manufacturers. But barriers to new companies entering the solar industry are quite low, and Chinese manufacturers will quickly look to shift production to other low-cost locations in Asia -- notably Taiwan and South Korea, according to Jesse Pichel, a solar industry analyst at Jeffrey's & Company. Indeed, that move may already be taking place as Chinese solar companies anticipate tariffs and the Taiwanese look to capitalize.
There may be some shortages, Pichel said, and some demand will spill over to Japanese and Western suppliers such as SolarWorld.
He anticipates a 20 percent increase in panel prices. That's not insignificant. But it might not devastate demand or the jobs supporting it.
The annual volume of residential solar installations by customers of investor-owned utilities in Oregon has exploded, growing nearly sevenfold since 2008, according to figures from the Energy Trust of Oregon. Much of that growth is a function of better marketing, more consumer awareness and the arrival of low-to-no-money-down leasing options in Oregon, according to Kacia Brockman, solar program manager for the ETO.
But plunging panel prices have also made a big contribution, particularly at a time when the state and utility incentives were declining.
On the other hand, panel prices make up only about a quarter of the installed cost of a solar system today. If they went up 30 percent, for example, that means the total cost of an average system would go up only 7.5 percent.
Yuan, who imports from China, says that's enough to put the brakes on demand.
"Only people who have money can afford solar right now," he said. "With reduced incentives, that 7.5 percent will make the difference. The market won't expand, to say the least."
Eric Nill, owner of Advanced Energy Systems in Eugene, says Oregon is a minnow in the solar market, but what happens here reflects national conditions. He says that whatever keeps costs low is good for demand but that the industry is likely to adapt if there's a tariff.
"If prices went back up a little, there will still be a robust industry," he said. "The state and utility subsidies are a lot more critical. Changes there have a far bigger impact than a warble in our material prices."
The Oregon Legislature already cut the knees out from under the state commercial market, Nill said, with cuts to its business energy tax credit. The BETC program subsidized 50 percent of a renewable energy project's cost up to $10 million before new limits. Right now, most commercial solar projects being completed are a legacy of that system, with tax breaks approved under the old regime. Once that backlog disappears, installers say the commercial market will slow to a trickle here.
Unlike California or Arizona, Oregon has little in the way of "utility-scale solar." A big project here is 2 megawatts, where some of the massive panel arrays being assembled in the desert Southwest are 50 megawatts or more. The margins on such mega-projects are already thin, experts say, and the addition of tariffs may mean they no longer pencil out.
According to Glenn Montgomery, executive director of the Oregon Solar Energy Industry Association, the state has about 3,000 jobs in the solar industry. About half are in manufacturing and half in related professions.
Montgomery says the industry has become accustomed to volatility, so much so that advocates have a name for it: the solarcoaster.