New Tariffs Address Loophole, But With Widespread Ramifications

BMI View : The new tariffs proposed by the US government on Chinese solar panel makers will effectively seal a loophole used by these manufacturers to circumvent tariffs imposed on Chinese solar cells in 2012. These companies will now have to move production of both solar cells and panels overseas in order to avoid tariffs. We believe that US solar manufacturers stand to gain the most from these tariffs, but their gain will be to the detriment of US-based project developers, investors, and consumers.

On June 3 2014, the US Department of Commerce announced its preliminary decision to impose steep import duties on Chinese solar panel makers, asserting that these manufacturers had benefited from unfair subsidies. The key details of the tariffs are as follows:

  • Preliminary duties of 35.2% and 18.6% would be imposed on imports of Suntech and Trina Solar respectively, while other Chinese solar producers will immediately receive tariffs of 27%.

  • Growth Already Set To Slow
    US - Solar Capacity, MW (LHS) and %y-o-y (RHS)

BMI View : The new tariffs proposed by the US government on Chinese solar panel makers will effectively seal a loophole used by these manufacturers to circumvent tariffs imposed on Chinese solar cells in 2012. These companies will now have to move production of both solar cells and panels overseas in order to avoid tariffs. We believe that US solar manufacturers stand to gain the most from these tariffs, but their gain will be to the detriment of US-based project developers, investors, and consumers.

On June 3 2014, the US Department of Commerce announced its preliminary decision to impose steep import duties on Chinese solar panel makers, asserting that these manufacturers had benefited from unfair subsidies. The key details of the tariffs are as follows:

  • Preliminary duties of 35.2% and 18.6% would be imposed on imports of Suntech and Trina Solar respectively, while other Chinese solar producers will immediately receive tariffs of 27%.

  • The duties will be levied on solar photovoltaic (PV) panels and the cells used to make them. This is in contrast to the 2012 tariff, which only affected Chinese solar cells.

  • US Customs have started collecting cash deposits on imports based on the duty rates, and these deposits will be repaid if the tariffs are not confirmed.

  • The Commerce Department is still conducting an investigation on the dumping issue (a separate issue from unfair subsidies), and could decide to increase or introduce new tariffs. A decision is due on July 25 2014.

  • The tariffs will be reviewed by the US International Trade Commission (ITC) in October 2014 before a final decision is made.

This ruling will effectively seal a loophole that Chinese solar manufacturers have allegedly used to circumvent tariffs imposed by the US on Chinese solar cells in 2012, when the US government imposed tariffs of between 18% and 250% on Chinese solar cells ( see 'Changing Dynamics Of Renewables Manufacturers', October 18 2012). However, Chinese producers were able to evade these tariffs by purchasing solar cells or moving their production overseas (with the most common alternative being Taiwan) before shipping these cells back to China for assembly into solar panels. In many instances, the cells manufactured outside of China were derived from components - namely solar ingots and wafers - from China. The new tariffs will mean that Chinese companies will not be able to exploit this loophole any longer, and will have to move production and assembly of both solar cells and panels overseas in order to avoid tariffs.

Effects Of The Tariff

We believe that the imposition of these tariffs will have effects on several parts of the US solar sector:

  • Domestic manufacturers: Solar equipment manufacturers with sizeable production bases in the US - such as First Solar, Sunpower and Germany's SolarWorld - will benefit from these tariffs as the prices of panels imported from China will increase. It is estimated that at least half of the solar equipment (and up to 70% of the rooftop solar market) installed in the US in 2013 was sourced from China. International panel manufacturers may also benefit from these tariffs on Chinese manufacturers.

  • Domestic project developers, investors, and consumers: Developers, investors, and consumers in the US are likely to be negatively affected by elevated project development costs arising from higher panel prices. The elevated project costs will reduce margins for all three groups, increasing the length of time needed for solar projects to breakeven. This could negatively affect growth in solar capacity, and poses a significant downside risk to our solar forecasts ( see 'Solar Forecasts Boosted As Market Conditions Strengthen', June 5).

Growth Already Set To Slow
US - Solar Capacity, MW (LHS) and %y-o-y (RHS)

We note that some of the larger solar developers in the US have taken steps to reduce their exposure to solar trade disputes and price fluctuations. One of the country's largest developers, SolarCity, announced that it would be purchasing solar panel manufacturer Silevo on June 17 2014. SolarCity currently obtains its solar panels from China's Yingli and Trina Solar, but announced plans to build a massive solar panel factory in New York on the day of the Silevo acquisition. This will give SolarCity a greater control over its supply and protect it from price fluctuation that can vary greatly as a result of trade disputes or market forces governing supply and demand.

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This article is tagged to:
Related sectors of this article: Renewables, Solar - Renewable, Solar - PV - Renewable, Regulatory/Policy, Manufacturing/Technology
Geography: United States, China
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