Solar Trade Wars Create Uncertainty, Alter Economics
Recent salvos in the long-running solar-energy trade wars are brightening hopes for some solar companies and dimming prospects for others.
Double-digit tariffs that the U.S. Department of Commerce slapped on solar-panel makers in China and Taiwan during July have drawn protests from foreign-based companies such as Canadian Solar (NASDAQ:CSIQ), Trina Solar (NYSE:TSL) and Yingli Green Energy (NYSE:YGE).
The tariffs, set to become final in December, hurt the companies' prospects for U.S. sales.
China's Ministry of Commerce fired back on Aug. 13, saying that starting Monday, it will make polysilicon imports from the U.S. and South Korea more costly. Polysilicon is used to make most solar cells and solar panels.
China's decision comes at least partly in response to the U.S. tariffs, says Deutsche Bank analyst Eric Cheng.
China is closing a loophole, no longer letting solar companies import polysilicon for free under “processing trade” rules, whereby materials used in manufacturing inside China are exempt from import duties if the finished product — solar cells — is then exported, Cheng said. Now, they must pay a duty.
Companies likely to be most affected include SunEdison (NYSE:SUNE) and Singapore-based REC Silicon, says Josh Baribeau, an analyst with Canaccord Genuity. But almost any maker of polysilicon solar cells not based in China will face higher fees.
Expects 5% Price Hike
Few importers, though, are expected to hike prices more than 5% because of competitive pressures, Baribeau says, so disruption to global supply should be minimal.
“Much supply is at contracted prices, and polysilicon costs are far less material to solar costs than they used to be,” said Baribeau.
The impact of the U.S. tariffs, though, likely will be more far-reaching, say analysts and solar industry executives, in large part because the added fees are higher.
Companies that install commercial solar systems, as well as solar farms, are likely to see an impact from the tariffs because they have relied on cheap Chinese panels. When Strata Solar, a small solar farm developer in Chapel Hill, N.C., saw its solar module price quotes jump 15% to 20%, it began buying from U.S.-based First Solar(NASDAQ:FSLR), says John Morrison, a Strata Solar senior vice president.
Shyam Mehta, an analyst with GTM Research, says that the biggest positive impact will be felt by First Solar and U.S.-based SunPower (NASDAQ:SPWR), two of the biggest utility-scale solar builders.
They already were two of the lowest-cost builders, Mehta says, so the prospect of Chinese- and Taiwanese-made modules going up in price can only help make their prices more competitive, and might even let them buy projects from other installers.
The new tariffs will raise the price of solar energy across the U.S., says Robert Petrina, managing director of Yingli Green Energy's Americas unit. He says that the price rise will jeopardize the U.S. solar industry's progress to become cost-competitive compared with traditional energy sources.
Solar Job Prospects Hurt?
Petrina said that higher prices could “diminish opportunities for tens of thousands of U.S. solar jobs.”
Already, some Chinese solar module suppliers have raised prices because of the new tariffs, says Mehta.
The new tariffs, combined with previous duties imposed on Chinese solar-panel makers since 2012, could raise the price of solar modules shipped into the U.S. by 7% to 8%, or more, Mehta says.
“That's not huge, but it's still meaningful,” he said. “Meaningful enough that it's impacting the sector in a few different ways.”
Chinese companies supplied 31% of the modules installed in the U.S. last year, GTM Research reported.
As the cost of Chinese- and Taiwanese-made solar cells and solar modules rise, costs to develop solar projects also rise, says Christine Beadle, an analyst for market tracker NPD Solarbuzz. The rising costs can require changes to the design of new solar projects or even close some solar-energy operations, she says.
“At least 6% of the U.S. photovoltaic project pipeline has specified (solar) modules from a Chinese source,” Beadle said. “That's at least 3 gigawatts.”
Beadle says that by her count, nearly 3,000 nonresidential solar projects encompassing 48 GW have been approved or are in the planning stages in the U.S., encompassing 48 states.
Among U.S. projects that rely on Chinese-made solar modules, 40% are in California, says NPD Solarbuzz, with 22% in Arizona, 13% in North Carolina and 11% in Nevada.
The biggest impact will be on solar companies that install commercial and utility-scale projects because they're more price sensitive, analysts said.
Many utility-scale projects planned for 2014 and 2015 have likely penciled in modules at less than 70 cents a watt, but Mehta says the cost will be more like 75 cents a watt.
“It's possible that some projects that had less attractive economics to start with could be at risk,” Mehta said. “I know of at least one relatively established (solar) developer that is having a hard time making the numbers work and is scrambling for creative solutions.”
Utility-scale projects made up 60% of the 4,751 MW of solar installed last year in the U.S., says GTM Research.
The uncertainties ahead are prompting some big buyers of solar panels to seek out non-Chinese companies for U.S. installations, Mehta says. And more companies are exploring manufacturing in the U.S. to avoid the tariffs.
SolarCity To Manufacture
“They've started to replace Chinese-made panels with non-Chinese panels in their procurement scheme,” Mehta said.
SolarCity (NASDAQ:SCTY), the largest U.S. residential solar installer and a big customer of China-based solar panel suppliers Trina and Yingli, in June announced a 100 MW supply agreement with Singapore's REC. Moreover, SolarCity is acquiring panel manufacturer Silevo and is planning a 1 GW (1,000 MW) manufacturing plant in New York.
“It is possible that other large residential residential and commercial installers such as Vivint, Verengo Solar and Borrego Solar, which have also been heavily reliant on Chinese modules up to now, could follow SolarCity's example in coming months,” Mehta said.
But China-based solar panel makers that manufacture outside China and Taiwan also could benefit from the tariffs.
ReneSola (NYSE:SOL), a Chinese firm that shipped more than 300 MW to the U.S. last year, has been working since April with contract partners in India, Malaysia, Poland and South Korea to deliver tariff-free modules to the U.S.
Smaller firms such as Websol Energy in India and S-Energy in South Korea have also benefited.
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