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A ‘Third Way’ Approach for U.S.-China Solar Trade

By Climate Guest Contributor

"A ‘Third Way’ Approach for U.S.-China Solar Trade"

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by Ron Kenedi, via Clean Edge

Last October, SolarWorld led a U.S. manufacturer coalition that asserted trade law violations by Chinese makers of solar cells. The coalition’s filing with the Department of Commerce led to significant tariffs being levied on solar products originating in China entering the U.S.

According to filing by the U.S. manufacturers, Chinese manufacturers received lavish incentives from China’s government that gave them an unfair cost/price advantage over U.S. manufacturers. In addition to this advantage, it is asserted that the Chinese makers sold product to U.S. customers at below manufacturing costs, a practice often referred to as dumping.

Chinese manufacturers and the Chinese government argue that they did not receive unlawful or excessive incentives and did not sell solar cells and modules at below cost. Also, they allege that not enough attention is given the other factors that allow a cost advantage over U.S. makers, namely “know how” and scale. They claim the solar manufacturers coalition’s trade case was brought forward because SolarWorld had lost its competitive edge and couldn’t compete successfully in a highly competitive marketplace.

Now, because of a loophole in the tariff judgment, only the solar cell, not the entire module, has to be manufactured outside of China to avoid all tariffs.

The case has been presented that SolarWorld itself was the recipient of large amounts of incentives from the German, U.S., and Oregon governments and has no right to complain about the special treatment received by Chinese makers from their government. There are also rumors of SolarWorld modules occasionally being sold in the U.S. for extremely low, below market prices.

The result of all this chest pounding and legal maneuverings (the extent of which might not be resolved for years) is that the U.S. solar industry and all its participants—from manufacturer to end-user—has suffered. The only winners are Taiwanese cell makers. Solar modules from China that are being sold in the U.S. are now more expensive because of retroactive tariff penalties that must be paid and the additional cost of securing “out of country” cells. That price increase is magnified as the product moves from maker to EPC to end-use customers in the case of project business, and from maker to distributors and dealers to end-use customers in the case of sales through channels. Each organization marks up the increase as the modules moves from manufacturing to installation. This higher price is even more striking today as euro weakness has caused a lowering of the module price in Europe creating a 20 percent or more difference between U.S. and European pricing.

Threat of unresolved tariff amounts (that might change in the future) also has caused uncertainty among buyers which creates insecurity in the market and damages the efforts of U.S. sellers.

The reputations of both SolarWorld and the Chinese manufacturers have been tarnished, and profits, which are in short supply throughout the global solar industry, have been further squeezed by this action.

But let’s be realistic. Yes, the U.S. manufacturers have a difficult time competing pricewise with Chinese makers because the cost of doing business in China is less than in the U.S. for many reasons—including cost of labor, taxes, insurance, property, and the steadfast support of an exceedingly generous government. But also, the Chinese solar industry has been willing to take risks to establish scale which lowers solar’s total cost, and the Chinese makers have learned to refine silicon, make wafers and cells and build modules as well as or better than any other group of manufacturers.

I believe there is a “third way” of moving forward for the benefit of the solar power customer and industry participant:  Foster collaboration between U.S. and Chinese entities that lead to jointly owned factories in the U.S. that service the domestic market. The Chinese makers want access to the U.S. market and the U.S. market needs investment and the ability to create more jobs. Let the Chinese use Chinese-made cells—without penalty tariffs—if deployed in U.S.-assembled modules. Encourage the Chinese solar industry to invest in U.S. factories that produce solar products “made in the USA.”

Of course this simple suggestion is not so simple.  The complication lies in keeping the cost low for normally more expensive U.S. labor and non-silicon expenses. However, I believe U.S. manufacturing could benefit from the challenge. The same ingenuity that created commercially produced photovoltaics in the first place can be used to develop new, low cost manufacturing procedures and practices.

Also, for this idea to become a reality a “Buy American” provision needs to be put in place where taxpayer-funded incentives (including tax incentives) would be tied to mandatory American content. This idea is not loved by all, but my view is that if the taxpayers are funding the programs then taxpayers should be given some of the jobs thus making incentivizing solar power twice as valuable.

Ron Kenedi is a solar industry veteran with more than 30 years of experience, including senior management roles at LDK Solar, Sharp Electronics Solar Division, Kyocera Solar Inc., and Photocomm, Inc. This piece was originally published at Clean Edge and is reprinted with permission.

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6 Responses to A ‘Third Way’ Approach for U.S.-China Solar Trade

  1. Great contribution! Sheds more light than most of the other assessments that I have seen!

  2. Leif says:

    Yet another solution would be to have a carbon tax that would pay for the production of distributed green power development, (a cash cow in every yard), in appropriate areas, or a dividend to those without green resources. Rummer has it that the fossil industry is doing quite well of late. Stop profits from the pollution of the commons in other words. That money by all rights belongs to “We the People.” The same “We the People” that will be stuck holding the bag for mitigation of a failed capitalistic paradigm of the first order. The ability of the few to profit from the exploitation and pollution of the commons…

    • Mulga Mumblebrain says:

      The capitalist system puts enrichment of rent-seekers before collective interests. Therefore you get companies that have failed at capitalist competition resorting to legal machinations, that result in cost increases which delay renewable installation. Market ‘logic’ is enforced, and catastrophic climate destabilisation ensues. The US is being particularly hypocritical here as it subsidises many businesses and runs a trade deficit with China only because it refuses to sell China ‘high-tech’ equipment. The Chinese have simply removed the distortions of plutocratic capitalism and replaced it with a technocratic capitalism where strategic decisions are not left to ‘The Market’ (ie the money power of the rich) but are carefully planned and implemented by following the laws of supply and demand and with scientific and technological advance and education lavishly subsidised. The kleptocratic elites of the West, brainwashed by their own agit-prop to see themselves as the highest stage of human development, not just now but (‘End of History’ anybody?)ever possible, are affronted to the point of rage by the success of the Chinese model, which, I’m afraid, is why war between the USA and China is simply inevitable, unless the collapse of one or the other intervenes.

  3. prokaryotes says:

    7/26/12
    Chinese Firms Warn EU against Solar Trade War

    This week, a group of European solar panel firms asked the European Commission to levy punitive tariffs on their Chinese rivals, who they accuse of selling products at unfairly low prices. Chinese manufacturers are outraged, warning on Thursday that a trade war could be brewing. http://www.spiegel.de/international/business/trade-war-brews-between-eu-and-china-over-solar-panels-a-846622.html

  4. Merrelyn Emery says:

    Well, there’s the problem. Even at this late stage, companies and countries are still putting money ahead of the urgency of covering every available space with solar. They are still seeing themselves and others as separate rather than as one species suffering the consequences of destroying their one planet, ME

  5. Dave Bradley says:

    How about instead of using the term “low cost labor” we use “de-facto slave labor”. And PV cells are very electricity intensive to make -PV manufacture in China is very coal intensive. Yum. And then there is the $30 billion in low cost, no cost or less than no cost capital given to PV manufacturers and also the whole supply chain. With that $30 billion, about twice the manufacturing capacity of PV versus what people can afford was created, and with the resulting glut, we are told that over 12 GW of non-China manufacturing now has to close down. Cute, eh?

    The goal was to achieve world dominnce in the PV market by undercutting other manufacturers across the world. In many cases, using subsidies paid by taxpayers of those countries, no less. For 2011 and looks like 2012, essentially everybody in the biz lost money. So how is that supposed to be a viable $100 billion/ yr biz if multiple billions per year a lost?

    Here is an easy solution. China can install the ~ 25 GW of PVs they can manufacture….. in China. Even though wages for manufacturing and labor are next to nothing, this will still make for PV electricity that costs several times what coal based electricity is going for. Oh well, that’s what PV is all about – pricey, value added electricity, which can employ a lot of people to make and install PV systems, providing the money/credit is obtained for this investment.

    Importing PV into the US is a crime in so many ways, especially when we have the better part of 25 million people in need to work. Importing PVs is importing unemployment. And if you think that China will continue to import technology at a price equal to the exports made using all that labor that never gets paid what it is really worth, think again. Of course, using slave priced labor to drive down wages in the USA and Europe is where it’s at. Our corporate masters/wannabe masters don’t care much about anything but enriching themselevs and their class and the clmbination of cheaper than cheap wages and pricey products is one way to do that.

    So,those pushing PVs get introduced to the morality and downside of employing slaves in China to make these products. It is not pretty, and even when PVs are made with slaves and coal, they still aren’t cheap. And this (widespread PV installation in China) is certainly not the way China can keep manufacturing costs low, and especially electricity prices low. 30 GW per year pf PV is only equivalent to between 4 to 5 GW of coal capacity, but it sure does cost a lot more. So China Inc exports it, instead of installing them in China, where they really seem needed and at rates far in excess of 25 GW capacity per year.