by Marco Mangelsdorf

On May 17 the International Trade Administration, part of the U.S. Department of Commerce, announced the imposition of punitive tariffs against Chinese photovoltaic module manufacturers (modcos) for allegedly dumping product into the U.S. market below the costs of manufacturing those products. In addition to previous tariffs of 3-4 percent announced in March. These new tariff amounts vary from about 30 percent to 250 percent, depending on the Chinese manufacturer. And while these findings are preliminary and not final, Chinese modcos will have to put up bonds immediately worth of hundreds of millions pending final determination of tariff levels later this year.

This is huge news in the PV industry and will likely lead to number of consequences, intended and otherwise.

1) A whole slew of small and medium Chinese modcos that have been exporting to the U.S. that are already on shaky financial ground will go under.

2) One or more of these top ten Chinese modcos will likely not survive. It is too soon to tell which one(s). Suntech already lost more than $600 million last year. Yingli lost more than $400 million in 2011. JA Solar lost more than $60 million.

DEBT / EQUITY RATIO (Degree of leverage for selected solar module manufacturers)

3) The Chinese government will almost certainly retaliate. A most likely target will be the American suppliers of crystalline silicon to Chinese PV manufacturers and semiconductor industries. If this happens this likely puts Hoku Scientific at risk given the outstanding contracts that they have with numerous Chinese modcos from which they have received large pre-payments for crystalline silicon that has yet to ship.

4) The 30+ percent to almost 250 percent anti-dumping tariffs would be levied against the Chinese modcos and not directly penalize those Hawaii PV integrators or recent PV system purchasers who have been purchasing Chinese modules over the past months.

5) If, as seems likely, multiple Chinese modcos do go under, the value of the manufacturers’ warranties from those insolvent companies becomes something of questionable value depending on whether the modco put money aside in an escrow account to cover its warranty liabilities.

6) The overall cost for PV modules will likely increase over the next months due to these tariffs and the fact that non-Chinese modcos will feel more comfortable in raising their prices some since so many of them have been making little to no profit over the past 6-12 months due to the oversupply of modules worldwide and the fierce competition.

7) As this news filters down to the general public, what kind of effect(s) are we likely to see? Will consumer confidence in PV be shaken? Probably not. Those project developers and PV integrators who have been using Chinese modules have already shifted to other non-Chinese suppliers or will do so immediately.

8) The potential for a wider U.S.-China trade war is much greater now than it was yesterday. Chinese government officials are furious at this action and in order to maintain face and to protect the solar industry that Beijing has so assiduously promoted these past years strong countermeasures can be expected.

Few, if any, energy industries whether in the U.S. or abroad compete on a completely level playing field free of government subsidies, support or incentives of some kind. The lead company—SolarWorld AG, based in Germany—that brought these complaints of unfair trade practices to the Commerce Department last year was the recipient itself of varying degrees of government support to establish its production line in Oregon. To what degree the Chinese, or PV manufacturers in other countries, have been recipients of unfair subsidies that have allowed them to dump product in the U.S. at below cost is in the eye of the beholder. In this case the Commerce Department decided that sufficient evidence existed that warranted the firing of a huge shot in what will likely be an expanding trade dispute, if not war, in the months and years to come.

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Marco Mangelsdorf has been in the renewable energy industry for 34 years, is President of Pro-Vision Solar in Hilo and teaches energy politics at UH Hilo.

LINK: US Department of Commerce Announcement