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Are the Chinese Using Predatory Pricing to Knock America Out of Solar Manufacturing?

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"Are the Chinese Using Predatory Pricing to Knock America Out of Solar Manufacturing?"

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Armed with tens of billions in loans from the Chinese government, Chinese solar companies have scaled at a rate unthinkable only a few years ago. At the end of this year, there will likely be 50,000 MW of manufacturing capacity in place around the world, with much of that new capacity being developed in China and other Asian countries. (In the year 2000, there was only 100 MW of production capacity world-wide.)

In four years, the solar manufacturing sector shifted from being led by a geographically-dispersed number of companies to one dominated by Chinese companies. In 2006, there were two companies from China in the list of top-ten cell producers.  In 2010, there were six, according to Bloomberg New Energy Finance. There are currently only two non-Asian manufacturers in the top ten, and those companies — First Solar and Q-Cells — have shifted a lot of their production to Asia.

So what happened? How did the Chinese come to completely dominate the solar industry in such a short period of time?

Bryan Ashley, the Chief Marketing Officer for Suniva, an American company that produces high-efficiency solar cells in Georgia, doesn’t mince words.

The Chinese strategy is very clear. They are engaging in predatory financing and they’re trying to drive everybody else out of the market. When you’ve got free money you can out-dump everybody below cost,” Ashley said in an interview with Climate Progress.

That “free money” Ashley refers to is the cheap debt provided by the Chinese Development Bank (CDB).  Here’s how the CDB works its magic:

The CDB was originally set up as a “policy bank,” to operate as an arm of the Chinese central government, doling out public funding to support central government development programs.  Now it is a “joint stock company with limited liability” that often reports to China’s national cabinet on certain policy issues. This allows the Chinese government to get involved in CDB activities and direct loans toward projects officials want to support.

Unlike most regular commercial banks, CDB raises most of its money via long-term bonds. Funders cannot take that money back out until the term is up, so the bank can make longer-term loans to Chinese companies. CDB also gives borrowers very low interest rates, and, if the borrower cannot pay back the loan, it may be back-stopped by the Chinese government.

This makes it easier, cheaper and a lot less risky for solar companies to obtain financing.

In 2010 alone, the bank handed out $30 billion in low-cost loans to the top five manufacturers in the country.  [See chart above.]  This has enabled China’s solar producers to grow to GW-scale in a very short period of time, turning the country into a leading exporter of solar and pushing down prices dramatically.

From a project development perspective, those steep price drops are a very good thing. But manufacturers trying to make product outside of China and other Asian countries are getting hit hard.

“Free money is impossible to compete with,” said Ashley. “Even when global demand went down they were able to keep producing, producing, producing,” said Ashley. “And now they’re dumping. If something isn’t done, there will be no American product left on the market.”

Allegations of solar panel dumping have been made before in Europe and the U.S., but they have never been proven. In 2009, Suntech CEO Shi Zengrong explained in a conference call that his company was selling panels below marginal costs. But he reversed his statement shortly after, saying he misunderstood the reporter’s question.

With Chinese producers in a far more dominant position than in 2009 and a slew of solar manufacturing facility closures announced in the U.S. in recent months, concerns about dumping have resurfaced. Just yesterday, Oregon Senator Ron Wyden sent a letter to President Obama asking him to investigate whether or not Chinese companies are selling product below cost in order to push American producers out of the market. He also called on the administration to implement a trade tariff on Chinese modules:

Letting that happen is unacceptable. Please know that if your administration is unwilling to take the appropriate steps, with haste, I will advance a legislative effort, as provided by the U.S. trade remedy laws, to ensure that the American solar industry is not harmed by unfair trade.

Wyden’s letter comes after the high-profile bankruptcies of American solar manufacturers Solyndra and Evergreen. While a variety of technological and market-based factors contributed to the demise of these companies, the Chinese competition — driven by cheap, easy debt — played a central role.

Remarkably, even with all the pressure from China, the U.S. is a net exporter of solar products to the country. A new report issued by GTM Research and the Solar Energy Industries Association shows that America had a $247 million solar trade surplus with China in 2010, mostly because of polysilicon and equipment shipments.

“Yeah, that’s great. But we’re just sending the raw materials and buying back the finished goods,” explained Suniva’s Bryan Ashley. “That’s a going-out-of-business strategy. Pretty soon they’ll figure out how to produce quality polysilicon and they’ll be doing it all themselves. We need to re-learn how to make things in this country.”

Ashley would like to see a Buy America provision for certain installation programs and investigation into the dumping issue.

But rather than engage in trade battles, GTM Research’s Director of Solar Shayle Kann believes that America needs to put its focus on technological innovation. Testifying in front of the House Natural Resources Committee yesterday, Kann explained the strategy:

It will be difficult for the U.S. to compete with China at its own game — namely, high-volume manufacturing of a commoditized product — given the cost advantages available for Chinese manufacturing. However, the U.S. can and should continue to develop and commercialize innovative technologies that offer lower costs than traditional panels. These new technologies are generally proprietary, require a more skilled labor force, and are difficult to duplicate.

Suniva could be considered part of this category. Using a unique cell design, the company has created a high-efficiency mono-crystalline solar cell that could compete with SunPower. But with all the cheap debt that the Chinese government is throwing at domestic companies, Suniva is finding it increasingly tough to stay in the U.S.

“If something isn’t done, no one will be making solar PV in the U.S.,” said Ashley.

The situation is a difficult one. China’s domestic efforts are helping drop the price of solar at an astonishing pace — something that everyone in the solar industry wants. But it’s also making it extraordinarily difficult for American solar manufacturers to compete.

The United States invented the modern solar cell over a half century ago.  As China continues to boost domestic solar companies, the American solar industry will be asking some hard questions about how — and if — solar manufacturing can ever make it in a big way in the U.S.

Melanie Hart, Policy Analyst for Chinese Energy and Climate Policy at the Center for American Progress contributed to this report.

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20 Responses to Are the Chinese Using Predatory Pricing to Knock America Out of Solar Manufacturing?

  1. Pangolin says:

    If it isn’t already obvious China has functionally destroyed america’s industrial capacity by simply offering U.S. CEO’s the ability to obtain immense personal profits in exchange for selling their nation short.

    The current Chinese premier only has to make a phone call to his harbormasters to destroy the U.S. economy with the simple phrase “cancel all departures to North America.” A few more phone calls and the rest of Asia will snap into line.

    Free Trade is at it’s most disastrous when the U.S. exports it’s ability to produce solar panels and wind turbines. It bets our entire future on very thin political ice.

  2. Alex W says:

    Great/timely article Stephen!

    Note that such practices wouldn’t be considered “dumping” if China was actually installing as much solar as its financing (notwithstanding its brand new FIT). Then they would be supporting a policy outcome, not a trade/business outcome.

  3. Mulga Mumblebrain says:

    There’s not much future in high tech research and innovation either, because the Chinese are anything but ‘low-skilled’. Soon they will be the leading country in research, patents etc. Far better to not treat this as a ‘threat’ but rather an opportunity to co-operate with China to humanity’s benefit. Moreover, the Chinese form of state capitalism is proving far superior to the US ‘free market’ model, if only in the fact that there are no Chinese Kochs or Murdochs pulling the strings behind the scenes.

  4. Michael Tucker says:

    I thought China’s desire to dominate the solar industry was common knowledge. The central government decided China would eventually control the majority of the market share and use solar to boost exports. Even if China is not “dumping” they can still produce more and cheaper than the US. The US is caught flat-footed again!

  5. Sam Jaffe says:

    There’s no evidence that the CBD is providing subsidized loans. We don’t know what the interest rate and conditions were on those CBD loans, so to assume that they are subsidized is a bad move. Additonally, the cost of capital is not a major reason why module prices have been dropping. It’s mostly due to the maturity of the technology. Everybody is figuring out how to make these devices more cheaply. The Chinese are not beating American manufacturers in this game. They are beating the Europeans because they can’t compete with their older way of manufacturing the modules. The Americans, primarily First Solar and Sunpower, are winning this game even more than the Chinese. First Solar is the manufacturing cost leader and SunPower is the efficiency leader. They are both in a far better position than SunTech, Trina, etc., which have to figure out a way to make better margins at some point down the line.
    One more thing–the subsidization process is far more influential on the regional level than the federal level in China. The number one cost input into making PV modules is electricity. Local governments in China arrange for subsidized electricity to favored manufacturers, which in turn aids the cost economics of the modules considerably. If that’s what China wants to do, then let them. They are essentially paying a part of our price we are paying for modules out of government funds. Sounds like a worse deal for China than for America to me.

    • AlanInAz says:

      First Solar may be the manufacturing cost leader but it seems that much of that benefit is going to workers overseas. It is reported that 82% of 2012 production capacity will be outside the USA (0.5GW USA and 2.3GW overseas). Nothing new about this story.

  6. Don Pickard says:

    One, note that your chart doesn’t include LDK Solar, which was the recipient of the largest of the Credit lines at around 9 Billion Dollars. Nobody likes to talk about LDK though, because they’re special.

    Two, the credit lines aren’t necessarily going into the companies, themselves, to fund expansion, but are often to be used in order to fund third party projects, and provide the demand required to support the manufacturers.

    In any case, great article. The Chinese are taking the lead from us on alternatives for alot of reasons, IMO, the primary reason for this is simpmly that we in America are so dedicated politically and financially to fossils. Such massive interests in fossils (and Nuclear) have so much to lose if the paradigm changes, that they are doing all they can to stall the change, and keep demand from taking off (keeping their fossil subsidies, but arguing against new technology subsidies).

    Frankly, the way my country treats this issue makes me sick.

    • Mulga Mumblebrain says:

      A big difference is that the Chinese leadership rise meritocratically, not according to how many Dunning-Krugerite dullard’s votes they can buy with the money given them by the plutocratic rulers. They are generally well, often highly, educated and are tested at progressively more responsible levels along the way. They can read science and understand it, and I doubt that there are ANY denialists amongst them. They are burning coal because they must, but they are also moving rapidly to change to renewables, always surprising on the ‘up-side’ in their progress. They plan, not for the next profit season, or electoral cycle, but for the long term, in hundreds of years, a legacy, no doubt, of three thousand years of advanced civilization, and thousands more before of settled human life. The rational thing is to co-operate with them, which, I am certain, is their preference. They take their coming global leadership as a given, but I really doubt whether they wish to dominate the planet, and we have had enough of Messianic hegemons.

  7. Merrelyn Emery says:

    Isn’t it time, just for once, that we looked at this as a humanitarian issue and not a business one.

    I want to see solar everywhere, as soon as possible, for the good of everybody. And I have a sneaky feeling that the Chinese govt does as well. Their disasters aren’t as well publicized as others but they have already been massive and China knows perfectly well that it cannot see itself as anything but part of the global whole.

    It is in everybody’s interest that solar in its every form be as cheap and available as possible. Call it what you like but I can’t see my heart bleeding for a few companies that have always put their profits first and foremost and still do. Now is the time for global cooperation on a massive scale or there will be no profits to count, ME

  8. David B. Benson says:

    Yes, appears to be that the PRC is taking advantage of David Ricardo once again.

  9. Mike Roddy says:

    There is precedent for this, in the most strategic material of all: steel. In 1956, the US produced 154 million tons of steel (if my memory serves me correctly). Now, we are around 100 million tons, with a doubled population and at least tripled economy. Steel is used in everything- cars, construction, roads, bridges, you name it.

    China went from a tiny steel industry 50 years ago to a globally dominant one, 500 million tons a year.

    DeMiccio of Nucor Steel, who is a straight shooter, does not blame cheap Chinese labor or government funding. He pins it on the yuan, which does not float, and is essentially a phony currency, since China’s economy is hardly transparent. China could not crush the competition if their currency functioned the same way other countries’ do.

    I would guess that the same factor is operating in solar. And even though I agree with Merrelyn Emery that it’s critical to encourage solar, products made in the US will not attract R and D or venture capital without showing the ability to compete globally. If US companies atrophy, the world loses, because the US will not be able to leverage and therefore support our leadership in pure research.

    Except in Congress, where we lead the world in anti intellectualism.

  10. Sasparilla says:

    Great article. Was watching an analyst talking about the PV market on CNBC a couple of days ago – basically he said the market was way oversupplied (courtesy of Chinese companies), they were driving the prices below break even (even for them) and it would be difficult for most US makers to exist in a few years. (i.e. they were in the process of dumping everyone else out of the market)

    The Chinese want to own this industry, just like they did the rare earth elements markets (where they dumped all the other players out of the world market and once in monopoly position announced massive export restrictions and associated price increases, which could be avoided if you produced in China).

    The Republicans will probably stand by and let it happen since their sponsors would be happy and they could point to more government loan failures.

    Obama needs to stand up on this (and take serious action), for once, (especially in light of the bankruptcy) – we need a PV industry (I do not want to be buying Chinese PV modules for my house) – we can’t let them play dirty and take this market away from the rest of the world, and us.

  11. David B. Benson says:

    German solar PV manufacturers being crushed as well.

  12. Stephen Watson says:

    It must be hard for the USA to be on the receiving end after all those years of the World Bank and the WTO rigging everything for the advantage of American companies.

    Just have to live with it the way the rest of us have had to over the past decades.

  13. Todd says:

    It is for me very difficult to fault the Chinese for doing exactly what we should be doing, and that is to provide real, effective and direct support to the nascent renewable energy industry, including producing the components of the system. We could very easily out-subsidize them if we wanted. How much is all the fun in Afghanistan and Iraq costing, by the way? What is our net trade deficit due to importing oil? What will the new Joint Strike Fighter or whatever it is called cost?

  14. John Tucker says:

    Providing American companies with equivalent subsides would seem the better way to go in keeping solar power economical.

    Especially if funds for it were generated by heavier taxes on polluting fuels. This should had been done at the beginning of the Obama administration.

    The right doing nothing but celebrating the demise of American manufacturing by other nations is the most nauseating part of all this.

  15. I stumbled on this article (and others by Mr Lacey) while I was trying to get an overview of the state of the solar industry. This, and the other articles I found, are excellent.

    I don’t really have any answers to the problems of protecting American jobs in the solar industry. Even First Solar (the largest American solar panel manufacturer) has its manufacturing facilities in Maylasia.

    One thing you can be sure of. If protectionism is used there will be fewer installations in the U.S., and U.S. workers who do the installations will be in a contracting employment sector. I wish I had a magic wand to make that contradiction go away, but short of some incredible cutting edge technological advantage by U.S. firms, that Catch-22 is going to continue.

  16. AlanInAz says:

    It seems to me the biggest boost to US jobs from solar comes from the labor needed to install the systems. Based on First Solar I would surmise that it is difficult to compete in the export and maybe even domestic markets for panel manufacturing in the US. I think the biggest bang for the buck for job stimulus is to promote more solar installs in the US. This may also help domestic panel production.

  17. I did follow the Suniva link. It’s a particularly interesting company to me because it’s based here in metro Atlanta. The youtube video they released last year profiling the company is enjoyable. I hope they do well.