Tariffs are likely, China will remain dominant in regionalized manufacturing, and pricing will largely be unaffected.
Greentech Media has provided detailed analysis of the SolarWorld China solar panel dumping trade claim and provided a platform for perspectives on all sides of this dispute. We've published more than 20 pieces on the topic since the claim was filed in October of last year.
But in sitting with this issue for the last few months and with the help of a number of industry insiders, I've come to a conclusion.
It just doesn't matter.
China's solar companies and its government have seen the writing on the wall and realize that tariffs are likely. The U.S. government is going to mete out some punishment, and perhaps the EU and India will, as well. China might have to pay some retroactive fines and face a tariff.
The tariff will essentially force the regionalization of solar panel manufacturing.
Right now boats are shipping solar manufacturing equipment from China to Taiwan, adding module capacity to Taiwan's gigawatts' worth of cell capacity. Just as General Electric has established in-country corporations and operations close to its customers and markets, Chinese solar manufacturers will start new companies and joint ventures that can produce trade-compliant products via regionalized manufacturing.
And since regional module assembly alone doesn't avoid the tariff on cells, China will have to manufacture cells outside of China, or rely on their competitors in Taiwan.
We’ll see modules bound for the U.S. assembled in Mexico, Malaysia, Indian, Korea or Vietnam -- all places where the total landed cost to the U.S. is today pretty close to China. Certainly Yingli, Suntech, Trina and others are in the process of adapting to this new normal.
One can already get price quotes from Chinese solar manufacturers for trade-compliant (as well as non-trade-compliant) product ready to be delivered in Q2 and through year-end, according to industry insiders.
So what are the long-term results of the actions of CASM and a tariff on Chinese-manufactured solar?
- Will regionalized manufacturing result in significantly higher module pricing? Probably not. For example, Mexico’s low labor costs and close proximity to the U.S. keeps the cost within pennies per watt of China today.
- There’s no need to worry about product shortages in the U.S.
- Financial returns may be impacted slightly in the near term as things get sorted out, but the U.S. pipeline of business should not be significantly affected.
- China’s exchange rate issues and increasing labor and transportation costs make regional manufacturing attractive with or without tariffs.
- SolarWorld will still be manufacturing in Oregon with a cost-per-watt disadvantage. In fact, SolarWorld may have to set up shop in a region with lower cost than the U.S (like Mexico) to be competitive.
- The U.S. might lose solar jobs, but more from the failure to extend the 1603 tax grant than any trade-related price change.
- Higher environmental standards in Taiwan will improve the toxic side of solar panel manufacturing.
- Chinese solar industry employment could drop, but the growth of China's domestic market could mitigate the issue.
As Polly Shaw, Director of External Relations at Suntech America, said at GTM's recent U.S. Solar Market Insight Conference, the SolarWorld/CASM claim is a jobs program -- for lawyers
