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20 April 2022

SEIA puts a number on how many US jobs Asian action will kill

The elephant in the room around the US solar industry is the new investigation by the Commerce Department into a circumvention case against imports of solar goods from Cambodia, Malaysia, Thailand and Vietnam.

The US Solar Energy Industries Association (SEIA) a trade body that is exceptionally vocal around solar policy, says that in a survey of its members 90% of them have had severe or devastating impacts on their bottom line and 74% say that PV module shipments have been either delayed or canceled resulting in about 78% of total module orders being canceled.

Given that the Department of Commerce only introduced this investigation – effectively looking into whether or not modules assembled outside of China are avoiding import tariffs – on March 28th, that’s an awful lot of frozen projects that will cripple the entire solar industry there.

There is much vitriol vocalized against the initial complainant – Auxin Solar – a San Jose, Californian business making 100 MW of panels, with all of its own cells. It is not clear where its Polysilicon comes from?

Only about 160,000 Megatons of Polysilicon is currently made outside of China (about 80% is made inside China) from Wacker,  REC Silicon, OCI and Hemlock and while that might seem to be plenty for companies like Auxin to flourish, companies like Hanwha have secured significant chunks of that by buying shares in companies like REC, and that will tie up a lot of supply and companies like Wacker have secured most of their business selling to Chinese PV cell makers.

Auxin’s website makes great play that it is 100% American, and currently has under 100 employees. It hopes to rise from making 100 MW to 200 MW, a step it says it can manage with just 2 quarters notice and says that its premises are planned to make 600 MW. It is on a roll, but that might mostly be due to the tariffs placed on Chinese module imports since 2018.

Auxin’s co-complainants have been added subsequently and include Suniva, Hanwha Q Cells, LG Electronics and Mission Solar in Texas.

It is almost certainly right that Chinese cells are coming to the US through other Asian countries, but the SEIA says that the price will be paid with something like 70,000 US jobs.

This is essentially the same problem that India has, importing as it does 80% of its cells from China, and introducing tariffs to prevent the easy flow of modules and cells, at the same time as stimulating the production of factories and R&D within India to catch up with Chinese technology. It has been forced to withdraw 40% tariffs temporarily, in order to keep its solar industry on its feet. India has therefore failed to make ambitious solar targets due to both trying to stimulate a solar industry of its own, at the same time as blocking imports. And if that’s the outcome in India, it will be no different in the US.

American policy now needs to establish whether the horse has bolted since the 2010s when US solar companies were closing their doors left right and center, or if protecting the handful of smaller US PV suppliers causes more harm than good.

The collective voice of the US solar industry is clear – forecasting a loss of some 70,000 jobs installing solar on projects, out of a total of 231,000 in the industry. The SEIA said in February that the existing tariffs had already cost the US 62,000 solar jobs, perversely it includes in this some 6,000 in solar manufacturing.

This sudden drop in overseas solar orders is partly a case of US developers not wishing to buy panels that may suddenly get caught up in a Commerce Department action, but mostly it is about suppliers of solar modules not wanting their goods seized and left unpaid for at some US dock, so sending them elsewhere. If there was nowhere else to send them this entire action might have a different outcome.

This is not a problem that is going to go away fast and the question about whether or not China is “Dumping” solar panels on the rest of the world remain open – where dumping means selling below their manufacturing price in order to bankrupt all other suppliers – or if it has simply reached the scale and efficiency to make panels cheaper than everyone else. In manufacturing areas scale leads to improved learning curves, which leads to lower pricing and this is well established in solar.

Has the world got time to stand still and go from making and installing 160,000 GW of solar capacity last year, to something close to 600,000 GW a year by 2030, if it gets caught up in this kind of trade ware? These are the numbers it will need to achieve to decarbonize the global grids. And can it do this at the same time as rebalancing the solar trade deficit with China?

For the US this means installing something like 30 GW of solar this year up from 24.3 GW last year – and this now looks like something that simply cannot happen. This needs to keep rising until it reaches 86 GW a year by 2030 (See the Rethink Energy Annual Primary Electricity forecast just out).

Given that the maximum output from local US manufacturers working at full capacity, including the thin-film operations of First Solar is around 8 GW, if the US cuts itself off from the 80% global supply of China. This is not something that the US can fix without a huge manufacturing stimulus plan and even then it is unlikely, since every other country in the world can now sell all the cells/modules it can import. That manufacturing stimulus is part of Joe Biden’s agenda, but so far he has not managed to pass his manufacturing tax credits in the Build Back Better Act.

The truth is that Biden could ensure that these US businesses flourish by giving them US Federal and State Government solar business exclusively, plus manufacturing loans and grants – and could help both sides of the solar equation in the US not just the manufacturers.

The ban also has a top end for solar cells of 2.5 GW tariff free each year for import, but module assemblers have not managed to meet this quota for the past 4 years – ever since the tariffs were first introduced.

Australia is an advanced solar country, without being an advanced manufacturer of solar panels, and it relies on China for 90% its solar imports – but it will likely convert much of the capacity into its own hydrogen manufacturing industry. Europe is much the same with a €6.2 billion deficit with China on solar panels in 2020, rising to €8 billion last year.

What the Solar Energy Industries Association wants is for the Department of Commerce to issue a quick preliminary decision in the negative, and for everyone to get back to work. What common practice will lead to is at least a year will be lost in deciding this matter, in what is a ten year battle for the US to reach carbon neutrality in its electricity generation – all to underwrite under 100 jobs in California.

Interestingly more profit is being made by the developers of solar installations, using Chinese panels, than all the US solar manufacturers put together, many times over.

A guilty verdict will be a disaster for US solar, and in the end, a future President will have to reverse the position and find a way to catch up the solar installation shortfall – with even less time on his hands.

A queue of people have recently been asking Rethink Energy for a forecast on this outcome, and all we’ve been able to do is point them at European and US manufacturers – right now the industry has been hit with a perfect storm, first tariffs on 80% of the world’s supply, then a Polysilicon price rise and other rises caused by the Pandemic, such as transport knock on effects to the price of glass, steel aluminum and copper. The final nail in the coffin is extending the ban to another 10% of the world’s supply of panels all at a time when the US wants to increase sales by at least double what they are today.

A far better circumvention is for developers to build ONLY those installations that can make use of Bifacial panels, which are excluded from the new February tariff extension – this time not by a court, but by design.

And finally investors in solar farms are going to have to get their heads around the new energy equation – electricity prices are rising on the back of natural gas price hikes, caused by the entire world trying to rid itself of Russian sourced gas as soon as it possibly can – that’s like trying to make 80% of the world’s supply last over 100% of demand – and supply and demand pressures are sure to keep electricity prices up around the world for at least five years. That means that slightly less attractive solar deals WILL make money, and investors need to understand this and work with it, not yearn for higher profitability of prior years.