Reposted from The New York Times
Diane Cardwell | November 7, 2012 | NY Times
When the United States International Trade Commission decided on Wednesday to uphold tariffs of about 24 to 36 percent on most solar panels imported from China, the case’s proponents claimed a major victory. Domestic solar manufacturers said the duties, to be in place for five years, would make up for unfair business practices by Chinese companies that had harmed the domestic market and allow homegrown companies to hire more workers and thrive.
But whether the duties can help save the American solar industry is a matter of some dispute. Because they apply to panels made of Chinese-produced solar cells, Chinese companies are already avoiding the duties by assembling their panels from cells produced elsewhere, like Taiwan, even if the cell components come from China.
The case is also unlikely to have much effect on the central market dynamic that analysts say is driving companies out of business: oversupply.
About a dozen panel makers in the United States have gone bankrupt or closed factories since the start of last year. “The economics of today, and supply and demand of today, aren’t going to change because of this,” said Aaron Chew, a renewable energy analyst at the Maxim Group, an investment bank and asset management company. “I don’t think there’s actually any direct impact on the U.S. going forward.”
Many Chinese companies have adjusted their supply chains, shipping components to Taiwan or South Korea to be made into cells and then returning them to China or elsewhere for assembly into panels.
Although this has made production about 10 to 15 percent more expensive, China-based global players like Suntech and Yingli can spread that cost over all of their merchandise, not just what gets shipped to the United States, said Shayle Kann, the head of GTM Research, a unit of Greentech Media.
“We’re basically nowhere near having fixed the structural problem yet,” he said, adding that there were about 70 gigawatts worth of global production capacity but only about 30 gigawatts worth of demand. “There have been a few bankruptcies and a few plant closures and so on, but at this point it’s just a drop in the bucket.”
The industry’s financial problems may stick around for a while, even as panel prices continue to drop because of the glut. Weak or indebted companies are unlikely to go out of business quickly in China, said Ocean Yuan, the president of Grape Solar, an importer of solar panels in Eugene, Ore. That is because out of the 70 cents a watt in costs for a solar panel, much less than half is for labor, materials, shipping and other variable costs. The rest are fixed costs, mostly interest payments on money borrowed to buy the highly automated Western equipment that does most of the manufacturing.
So as long as companies can cover their variable costs and earn at least some revenue to put toward interest payments, they will continue to operate even at a loss, Mr. Yuan said.
Opponents of the tariffs, which include solar developers and installers who have benefited from the abundance of cheap panels, have argued that the tariffs will actually harm the domestic industry, making it more difficult for American companies to do business abroad.
In 2010, the United States was a net exporter of solar goods to China by $247 million to $540 million (and almost $2 billion globally), according to GTM Research. The trade figures are likely to have changed since GTM’s study, but American solar exports would be jeopardized by a trade war, tariff opponents say. The Chinese have already started trade actions aimed at American polysilicon exports as well as at subsidies provided to companies in Canada, Greece and Italy.
“We have more to lose,” said Tom Gutierrez, chief executive of GT Advanced Technologies, which sells equipment for making components like polysilicon wafers. “Instead of taking trade tariff actions that are very narrowly defined, you have to consider the unintended consequences.”
Keith Bradsher contributed reporting from Beijing.