Solar Trade Case Analysis and Implications

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by Paula Mints

In terms of the current trade petition and the USITC decision, government interference will not correct an imbalance that is embedded in the industry (globally) particularly when it is put in place by a body that does not understand the nuances of the problem. Despite evidence to the contrary, attorneys and consultants for Suniva/SolarWorld seem to have convinced the USITC that cell manufacturing in the US can be resuscitated and that tariffs and quotas the mechanism that will stimulate manufacturing. In reality, this situation is stimulating uncertainty and doing harm.

Table 1: Tariff Recommendations

 

Commissioner

Cells

Modules

Impact

~Per WP impact

Chairman Schmidtlein

4-year tariff rate quota (TRQ) with an in-quota tariff rate of 10% ad valorem up to 0.5 GW; for imports exceeding 0.5 GW, a tariff rate of 30% ad valorem.

Ad valorem tariff of 35% to be incrementally reduced during the 4-year remedy period.

Moderate for Cells

Cells: Up to 500-MWp $0.022/Wp for a final price of $0.24/Wp on a cell imported into the US at $0.22/Wp

 

High for Modules

 

The in-quota tariff rate to be incrementally reduced by 0.5% and the over-quota tariff rate by 1%, and the quota level to be incrementally raised by 0.1 GW each year during the remedy period.  

 

Modules: $0.21/Wp for a final price of $0.81/Wp for modules imported into the US at $0.60/Wp

Commissioner Williamson and Vice Chairman Johansen

4-year TRQ: 30% ad valorem tariff on imports over 1 GW. The over-quota tariff rate to be incrementally reduced by 5% and the quota level to be incrementally raised by 0.2 GW each year during the remedy period.

Increased rates of duty: an additional 30% ad valorem tariff, to be phased down by 5% each year for 4 years.

Negligible for Cells as cell imports per manufacturer of >1-GWp are a non-issue,

High for Modules

No tariff on cells imported in amounts <1-GWp.

For cell imports >1-GWp $0.07/Wp on cells imported into the US at $.22/Wp for a final price of $0.29/Wp, $0.18/Wp on modules imported into the US at $0.60/WP final price $0.78/Wp

Commissioner Broadbent

4-year quota (including cells and modules): 8.9 GW in the first year, increased by 1.4 GW each year.

Negligible for cells

None

 

 

 

Import license auction (at a minimum price of 1 cent per watt) with funds going to adjustment assistance to the domestic industry.

Negligible to moderate for modules

Depends on Auction

Chairman Schmidtlein: Along with recommending tariffs, Chairman Schmidtlein recommends that the president initiate negotiations with countries subject to tariffs to address the underlying cause of the trade petition. Chairman Schmidtlein excluded Australia, the CAFTA-DR countries, Colombia, Israel, Jordan, Panama, Peru, Singapore, and the beneficiary countries under the Caribbean Basin Economic Recovery Act from remedies.

Commentary on Chairman Schmidtlein’s proposed remedy: Concerning Chairman’s recommendations the suggested tariff on cells is negligible and will likely be absorbed by larger producers while the tariff on imported modules is too high to be blanket-absorbed but likely will be absorbed for large quantity or multi-megawatt level buyers. Another option for producers is to ship product through the excluded countries. The remedy does not apply to First Solar (3.6-GWp CdTe capacity), Solar Frontier (1-GWp CIS capacity) and REC (1.3-GWp multicrystalline capacity in Singapore). REC, which is already ramping capacity is likely to be encouraged if this recommendation is adopted.

Vice Chairman David S. Johanson and Commissioner Irving A. Williamson: Along with tariffs recommend expedited consideration of some unnamed sort for those harmed by imports (Suniva and SolarWorld), as well as exclusion of certain products and domestic support of some unnamed sort for US companies. Excludes imports from Canada, Australia, Colombia, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Nicaragua, Panama, Peru, Singapore and the Caribbean Basin Economic Recovery Act.

Commentary on Vice Chairman Johanson and Commissioner Williamson’s recommendation: Impact on cell imports negligible as the US has only slightly over 1-GWp of module assembly capacity. The likelihood of a manufacturer shipping >1-GWp of cells into the US approaches zero. The higher tariff on modules is unlikely to be absorbed even for larger buyers. An option for producers is to ship product through the excluded countries.

Commissioner Meredith M. Broadbent: In her recommendation statement Commissioner Broadbent wrote: “Pursuant to Section 202 of the Trade Act of 1974, I have determined that CSPV products subject to this investigation are being imported into the United States in such increased quantities as to be a substantial cause of serious injury to the domestic industry producing CSPV products.” Her solution is to leave the tariff remedy ambiguous while limiting the amount that can be imported and thus potentially limiting the market size. Her assessment suggests a breathtakingly poor understanding of the US solar market and would insinuate a high degree of turmoil and uncertainty into an already vulnerable market.

On the other hand, Commissioner Broadbent indicated an understanding of the need to avoid further damage: “My recommendations are intended to address the serious injury while seeking to avoid inflicting additional damage on the broader solar energy industry in the United States. The U.S. solar energy industry has been a relative success story in making progress toward grid parity with a carbon neutral source of power.”

Commissioner Broadbent’s suggestion to use an auction mechanism to set tariffs would insert even more uncertainty into the market and is a likely nonstarter. The imposition of a quota (8.9-GWp for year one) has the potential of limiting the market in that the US has slightly over 900-MWp of cell capacity (including First Solar) and must import cells for its slightly over 1-GWp of module assembly capacity. REC, First Solar (including its US capacity) and Solar Frontier have ~6-GWp of thin film and crystalline capacity considered together. Without considering inventory, this indicates an availability of 6.6-GWp of imports not subject to tariff and, including the quota for year one, a market ceiling of 15.5-GWp.

Commissioner Broadbent assumes that the 1-cent/Wp will result in $89-million in additional revenue for the US, rising annually. However, there is no guarantee that the auction will result in a tariff of just one cent or that anyone will participate in it. Broadbent excludes the countries mentioned by the other commissioners while suggesting Mexico have annual import quota of 720-MWp increasing by 115-MWp annually. Manufacturers could ship product through the excluded countries.

What does it mean?
Unfortunately, the US solar industry must now contend with several weeks of uncertainty while SEIA lobbies Commerce Secretary Wilbur Ross and US Trade Representative Robert Lighthizer. Both Ross and Lighthizer reportedly have views similar to Trump’s on tariffs that is, they support imposition of tariffs with the view that there will be a positive impact on US manufacturing. Ross recently favored tariffs on Canadian lumber but has chosen to defer the decision on steel imports until after tax reform. Lighthizer has advocated increasing tariffs on imports of certain products and commodities while arguing against Japan’s imposition of tariffs on US beef.

President Trump’s position on tariffs is clear in that he favors them. However, as he has also been clear about his preference of coal over solar and wind, it is unclear what he will choose to do with the three options that will be presented to him. Trump could choose to impose tariffs simply to make a point and without regard to the impact on the US solar industry.

Again, this means that the US and global solar industry will need to contend with uncertainty as well as whether Ross, Lighthizer and eventually President Trump will decide to make any remedy retroactive to November 1 – he may, or, he may not insinuate a retroactive component to what is frankly, a messy and unfortunate situation that harms many and benefits no one.

Paula Mints is founder of SPV Market Research, a classic solar market research practice focused on gathering data through primary research and providing analyses of the global solar industry.  You can find her on Twitter @PaulaMints1 and read her blog here

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