The Coming Solar Trade War Threatens Progress
by Ryan Fitzwater, Investment U Research
Tuesday, December 20, 2011
Solar power is finally becoming a viable renewable energy resource. This was accomplished by major achievements from different parts of the world over the past two decades and a rapid reduction in solar modules over the past two years.
The solar market reached the point at which generating solar power (with no subsidies) costs less than the electricity purchased from the grid – better known as grid parity.
Sounds like great news right? Not so fast…
What has taken decades of global collaboration and competition, to finally create affordable solar power, might be spoiled by a trade war between China and the United States.
Can’t We All Just Get Along
In November of 2011, the U.S. Commerce Department opened a trade case against Chinese solar module manufacturers. The Commerce Department opened its case acting on a filing by six American solar companies and SolarWorld’s (a German manufacturer) U.S. branch.
The main argument – China is dumping panels here for less than their total shipping and manufacturing cost, and they could be using billions of dollars in subsidies on exported panels, which is against international trade rules.
U.S. solar companies are arguing that all these factors are giving Chinese manufacturers an unfair position in American markets.
So here come the tariffs…
According to The New York Times, the Department of Commerce is considering tariffs of 50 to 250 percent on Chinese solar panels.
But the United States isn’t the only one threatening to impose tariffs on imported solar products – China could fire back with similar import taxes on U.S. solar products.
The recent U.S. trade case has sent Chinese companies into retaliation as they’re supposedly considering filing their own trade case with China’s Commerce Ministry.
The Chinese trade case would most likely focus on American exports of a key component in solar panels – polysilicon.
The United States is currently one of the world’s largest producers of the product, with manufacturing big in Washington and Tennessee due to their access to hydroelectric power.
Access to hydroelectric power is key because it takes massive amounts of energy to create polysilicon. It typically takes a whole year of solar panel operation to capture and even out the energy it took to make it. And since hydroelectric power is cheap, American manufacturers have the advantage.
In China things are less efficient, worse for the environment and much more controversial. China’s polysilicon manufacturers greatly rely on coal-fired power plants. And due to weak environmental controls, the polysilicon industry in China has seen numerous toxic spills that have polluted rivers and streams.
Environmental concerns aside, the Chinese manufacturers’ move to file with China’s Commerce Ministry is a logical retaliation. The American polysilicon industry exported around $873 million to China last year, almost matching what China shipped in solar panels to America over the same period of time.
Please Don’t Cloud Our Future
The potential development of a solar trade war between the United States and China will only hurt the industry in a time when it could finally start to flourish due to more affordable solar power.
According to Martin Green, the Executive Research Director at the Photovoltaics Centre of Excellence at the University of New South Wales in Australia, it takes more than one country or company to improve solar efficiency and drive down costs – totally global collaboration is necessary.
International advancements and collaboration is one of the reasons that recent costs for solar modules have dropped to around $1 per watt. And just look at the drop in price of polysilicon in the graph below, this is one of the factors has pushed the price of solar panels down over the past few years.
Trade barriers will only undermine recent developments, and increase the price of solar products and electricity.
And if prices rise due to solar tariffs, you could see political support for the solar industry fall even more.
Chinese solar manufactures have already put plans on the table to move production sites to Taiwan, South Korea and the United States in order to dodge any American tariffs that could arise in the future.
And let’s not even go into the fact that India has stated it may begin an anti-dumping probe of its own on imported Chinese solar products. Multiple countries imposing tariffs on one another will further impair the development of cheaper solar power.
Investors should keep an eye on developments in trade barriers between the United States and China. If any tariffs are imposed on exported or imported solar products, this could hurt an industry that has been struggling for decades to bring investors profits and provide a cleaner, renewable energy source for the planet.
Good investing,
Ryan Fitzwater
Article by Investment U
