U.S. Solar Tariffs on Chinese Cells May Boost Prices

The U.S. yesterday imposed tariffs of as much as 250 percent on Chinese-made solar cells to aid domestic manufacturers beset by foreign competition, though critics said the decision may end up raising prices and hurting the U.S. renewable energy industry.

The U.S. Commerce Department ruled that Chinese manufacturers sold cells in the U.S. at prices below the cost of production and announced preliminary antidumping duties ranging from 31 percent to 250 percent, depending on the manufacturer. China criticized the action, saying the U.S. is hurting itself and cooperation between the world’s two largest economies.

The decision is meant to provide a boost to the U.S. solar manufacturing industry, where four companies filed for bankruptcy in the past year. The tariffs will probably inflame trade tensions and drive up prices for solar projects in the U.S., according to Shyam Mehta, an analyst with GTM Research in Boston. The duties may prompt Chinese companies to shift production to other countries to evade the duties.

“China-based manufacturers would certainly have to raise U.S. prices to turn a profit,” Mehta said in a statement. “This is likely to lead to module price increases in the U.S., which would serve to dampen demand and installation growth.”

The Commerce Department sided with companies including the U.S. unit of SolarWorld AG (SWV), which had argued that Chinese companies benefit from government subsidies, allowing them to sell solar products below cost.

Illegal Subsidies

“Commerce today put importers and purchasers on notice about the consequences of importing illegally subsidized and dumped products from China,” Gordon Brinser, president of SolarWorld’s U.S. unit, said in a statement.

Imposing tariffs “gives rise to the possibility that domestic solar manufacturing, environmentally sustainable solar production and robust global competition might one day soon return, boosting U.S. manufacturing jobs,” he said.

SolarWorld said its Hillsboro, Oregon-based U.S. unit can’t compete with Chinese exporters, including Suntech Power Holdings Co. (STP), the world’s largest solar-panel maker, and Trina Solar Ltd. (TSL) unless tariffs are imposed.

Suntech was told to pay 31.22 percent, Trina’s levies were set at 31.14 percent and 59 other Chinese companies were told to pay duties of 31.18 percent. All other Chinese producers received a rate of 249.96 percent.

‘Highly Concerned’

China is “highly concerned” by the U.S. action, which has damaged U.S.-China cooperation in the field of clean and new energy, Hong Lei, a Foreign Ministry spokesman, told reporters today in Beijing. Chinese companies have a price advantage because they have reduced costs through technological research, Hong said.

Shen Danyang, a spokesman for China’s Commerce Ministry, said the nation is “strongly dissatisfied” with the “unfair” U.S. judgment, which shows America’s inclination toward protectionism. China is urging the U.S. Commerce Department to correct the action, said Shen, who didn’t mention any countermeasures his ministry may take.

SolarWorld’s Brinser is also president of the Coalition for Solar Manufacturing, which is made up of seven U.S. solar manufacturers and spearheaded the trade suit.

His counterpart, Jigar Shah, president of the Coalition for Affordable Solar Energy, said duties won’t benefit the rest of the U.S. solar industry, including developers that buy solar panels and companies that sell the gear used to produce them.

Increasing Prices

The tariffs “will increase solar electricity prices in the U.S. precisely at the moment solar power is becoming competitive with fossil fuel generated electricity,” Shah said in a statement. “This new artificial tax will undermine the success of the U.S. solar industry.”

Protecting U.S. panel makers may not be the best way to promote renewable energy in the U.S., according to Tom Gutierrez, chief executive officer of GT Advanced Technologies Inc. (GTAT), a Merrimack, New Hampshire-based supplier of solar manufacturing gear.

“The war we are fighting is a technology way,” Gutierrez said in an interview. “If we get stuck protecting low level assembly jobs, we lose on the future.”

The prices of solar modules, or panels, fell 50 percent last year and continue falling, largely as a result of the cheap Chinese imports, Timothy Brightbill, an attorney for SolarWorld, said in an interview.

Trade Tensions

“A 50 percent price collapse has no relation to product improvement,” Brightbill said before the decision was announced. “It was all because of China’s massive overbuilt capacity and the flooding of the market with Chinese imports.”

The U.S. decision to impose import duties on Chinese solar panels will raise their price to $1.11 per watt, according to calculations by Bloomberg New Energy Finance, a London-based researcher owned by Bloomberg LP. That price is 17 percent higher than the current spot price of non-Chinese panels.

Charles Yonts, an alternative-energy analyst at CLSA Ltd. in Hong Kong, said China is likely to retaliate by targeting U.S. makers of polysilicon, the raw material that goes into solar cells. MEMC Electronic Materials Inc. is the largest publicly traded U.S. maker of polysilicon, according to data compiled by Bloomberg.

The lift for U.S. manufacturers “should be short-lived,” Yonts said. “They’ll still get smoked by the Chinese.”

Chinese panel-makers including Suntech and Trina earn about 10 percent to 15 percent on average from sales to the U.S., Yonts said. They can create a “workaround” of contracting manufacturing to Taiwan to avoid U.S. tariffs, he said.

Maintaining Market Shares

“With a workaround, they’re still the cheapest option out there and will maintain their market shares more or less,” Yonts said.

The U.S. has also been jousting with China over market access for products including steel pipes, poultry, tires and music. Along with the European Union and Japan, the U.S. filed a complaint in March with the World Trade Organization challenging the Asian nation’s export limits on rare-earth minerals.

President Barack Obama “is trying to create a market for solar in the U.S., so it’s curious why he wants to impose tariffs, which will make it more expensive,” said Dan Ikenson, director of the Washington-based Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies. “It will imperil jobs in the much more economically significant downstream.”

The antidumping tariffs add to duties as high as 4.73 percent imposed earlier for getting unfair subsidies from China’s government.

Potential ‘Trade War’

“We have thrown down the gauntlet and opened up the door for a potential global trade war in the global solar sector,” said Kelly Dougherty, an analyst with New York-based Macquarie Capital USA Inc. “That’s not what we need right now.”

The Commerce Department said a final determination on the tariffs would be made in early October. U.S. customs agents will collect a deposit or bond on solar cells made in China in the 90 days before today’s decision.

“These duties do not reflect the reality of a highly competitive global solar industry,” Andrew Beebe, Suntech’s chief commercial officer, said in an e-mailed statement.

Obama has been criticized for his support of solar- equipment manufacturers, including Solyndra LLC, with some Republicans in Congress doubting the industry can be profitable. The lawmakers are pushing Obama to take a tougher stance with China, citing a $295 billion trade deficit.

Solyndra is among U.S. solar companies that have failed since August, including SpectraWatt Inc., Evergreen Solar Inc. and Energy Conversion Devices Inc. (ENERQ)

Moving Production

Some Chinese solar companies may move production to other countries and avoid the duties. “It’s something we’ve been thinking about over the last year already,” said Isabelle Christensen, director of North American operations for JinkoSolar Holding Co., a Chinese solar module maker.

“We already have plans in place if the tariff is high,” Christensen said in an interview before the duties were announced. “In the long run, we’ll have switched to alternative manufacturing locations.”

The Commerce Department’s decision, while not final, will help to prevent market participants from skirting already established international rules, Senator Ron Wyden, an Oregon Democrat, said in a phone interview.

“My gut tells me that there’s going to be a temptation now to portray this as a win for U.S. solar manufacturers” and a loss for Chinese exporters, said Wyden, who leads the Senate Finance Committee’s trade panel. “This is going to be a win for a rules-based trading system.”

To contact the reporters on this story: Ehren Goossens in New York at egoossens1@bloomberg.net; Brian Wingfield in Washington at bwingfield3@bloomberg.net; William McQuillen in Washington at bmcquillen@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net

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