The US Solar Trade Case Against China, and Chinese Solar Industry Development
In this Content Package you’ll find a balanced, fact-based discussion of the anti-dumping and anti-subsidy trade case against China's solar manufacturers; an exploration of how China’s solar industry has grown so big so fast; and a thorough analysis of what might be the consequences – many of them likely unintended – of likely outcomes of this US-China trade case. We trust you will come away with a new sense of how the solar industry got to where it is and where we should go from here – a path that mutually benefits us all.
The anti-dumping and anti-subsidy trade case filed in October 2011 by SolarWorld Industries America and six other U.S.-based solar manufacturers followed close on the heels of a very rough two years for U.S. solar manufacturers. After spiking in 2006, prices of crystalline silicon photovoltaic (CSPV) solar cells and modules plummeted in 2008, falling about 70 percent through 2011.
Gordon Brinser, President of SolarWorld Industries America, says China is to blame. China, he said, has targeted the solar industry for global production and dominance. “Since 2010, employees of at least 12 U.S. solar manufacturing companies – in Arizona, California, Florida, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Texas and Wisconsin – have become road kill along China’s five-year planning superhighway.”
Indeed, China’s development in solar manufacturing has been big and fast. In 2001 China produced 1 percent of the world’s solar cells and modules. By 2010 it produced nearly half. Today, four of the top 5 solar cell producers are Chinese; three of the five module producers are.
But that meteoric rise to the top does not necessarily mean that the Chinese government has been illegally subsidizing its solar manufacturers. Chinese manufacturers’ super-low prices don’t necessarily mean they’re dumping product below the cost of production. In this report, we aim to sort out facts and well-founded opinions from unfounded opinions and half truths, to discern the role that subsidies have played, and to explore the other factors that might give China’s producers a legitimate competitive advantage.
The stakes are high. For one thing, countervailing (anti-subsidy) duties, if high enough, could dramatically affect the solar industry in the U.S. and around the world, as could anti-dumping tariffs. There are potentially severe unintended consequences of any policy action in this case – or inaction, for that matter.
And for another, this case is well-representative of a phenomenon that is happening in many industries: China-based manufacturers are rising at the cost of U.S-based manufacturers. Enforcing World Trade Organization (WTO) regulations, as well as domestic trade laws, is a vital way to ensure that the playing field is level and producers in the U.S., Germany, Japan, and elsewhere are given a fair chance to compete with Chinese producers. But perhaps there are other actions that U.S. policymakers must consider, as well, to ensure that U.S. firms remain productive and innovative through the next century as well.
In this Content Package you’ll find a balanced, fact-based discussion of the trade case; an exploration of how China’s solar industry has grown so big so fast; and a thorough analysis of what might be the consequences – many of them likely unintended – of likely outcomes of this trade case. We trust you will come away with a new sense of how the industry got to where it is and where we should go from here – a path that mutually benefits us all. Download the full solar manufacturing report now or continue reading highlights below.
Highlights from the report
Section 1 – The facts
The trade case – On October 19, 2011, a group of seven U.S. solar manufacturers, founding members of the Coalition for American Solar Manufacturing (CASM), filed petitions with the U.S. International Trade Commission and Department of Commerce International Trade Administration seeking relief for the U.S. domestic producers injured by Chinese imports of crystalline silicon photovoltaic (CSPV) products.
On March 20, 2012 the Department of Commerce announced its affirmative preliminary determination in the countervailing duty (anti-subsidy) investigation. Suntech Power received a preliminary countervailing duty of 2.90 percent; Trina Solar 4.73 percent; and all other Chinese producers 3.61 percent. Commerce is currently scheduled to make its final determination in June 2012.
On May 17, 2012 the Department of Commerce announced preliminary anti-dumping duties on Chinese manufacturers of crystalline silicon photovoltaic (CSPV) cells. Suntech Power and Trina Solar were assessed preliminary tariffs of 31.22 and 31.14 percent, respectively. 59 other manufacturers, including JA Solar, Yingli, Hanwha SolarOne, Canadian Solar, LDK Solar, and Jiawei Solar China were assessed a tariff of 31.18 percent (see the full list of anti-dumping duties in the table here). All other Chinese producers received a preliminary tariff of 249.96 percent. The duties will be retroactive to 90 days before the determination. Get more detail on the solar trade case anti-dumping determination.
Section 1.2 – Data on the global solar PV market
Demand – Demand for solar photovoltaic systems is driven largely by the relative price of the electricity produced by those systems compared to electricity generated by other means. Since the early 2000s, on-grid installation of PV systems has grown exponentially (45 percent per year on average between 2003 and 2009), driven almost exclusively by government policies in Germany, Spain, Italy, Japan, and the U.S. These policies are designed, in one way or another, to subsidize the cost of solar power so that it is competitive with other on-grid electricity sources.
Through 2010 Germany had 43 percent of the world’s cumulative (total) installed solar PV capacity. The United States had 6 percent of the world’s total installed capacity and China had just 2 percent. But Germany and Italy’s shares of PV installations are shrinking, while China’s is growing. Germany’s annual demand for solar modules will be just 15 percent of the world’s total by 2015, and China’s will be 19 percent. Like Germany’s, Italy’s share of annual installations is expected to fall, while the United States and Japan’s will rise.
Supply – Global production of solar photovoltaics has risen dramatically in the last decade – from 371 megawatts in 2001 to more than 24 gigawatts in 2010, an increase of 6,376 percent. In 2001, Japan was the single largest producer of photovoltaics, supplying 46 percent of the world production. By 2010, China was the single largest producer, with 45 percent of the world market. The United States’ share fell from 27 percent to 5 percent over the same period. By 2006, China was producing more photovoltaics than the U.S.
Price – The overall global trend in the price of solar cells and modules has historically been downward. Price declines accelerated beginning in 2008. Estimates are that global CSPV module prices declined from about $3.30 per watt in 2008 to about $1.80 per watt at the beginning of 2011 and $1.00 per watt at the end of 2011. The price is projected to fall to $0.74 per watt by 2014.
Five factors determine the price of solar cells and modules, and have driven the general downward trend (save the spike between 2004 and 2008) in prices. Those factors include: 1) Declining prices for inputs, most importantly polysilicon; 2) competition from lower-priced thin film products; 3) waning government incentives and demand subsidies; 4) increasing economies of scale and efficiency improvements (driven by learning and innovation); and 5) oversupply.
Section 1.3 – Who has received subsidies, and how much?
As Melanie Hart, Policy Analyst for Chinese Energy and Climate Policy at the Center for American Progress, points out, subsidy programs are “not necessarily anticompetitive.” In fact, “policy assistance is often required to help new technologies compete with existing market alternatives – especially when the existing alternatives such as coal already receive explicit and implicit public subsidies. We have similar green energy programs here in the United States.”
U.S. subsidies – The United States offers subsidies that both aim to nurture green energy technologies and to strengthen America’s exports. The U.S. Department of Energy’s SUNPATH initiative is designed not only to help domestic PV manufacturers commercialize solar technology, but to “restore the United States’ position at the forefront of solar manufacturing.” And in his 2012 State of the Union address, U.S. President Obama said “I will not cede the wind or solar or battery industry to China or Germany because we refuse to make the same commitment here.”
The federal policies that currently support (or have recently supported) the solar industry in the U.S. include the Investment Tax Credit (ITC), 1603 Treasury Program, Advanced Energy Manufacturing Tax Credit (MTC), Temporary Loan Guarantee Program for Deployment of Renewable Energy, and Department of Energy SunShot. Many U.S. states offer additional support.
China subsidies – Many of the U.S. credits, guarantees, subsidies, and grants to solar manufacturers (as well as consumers and producers of solar power) look quite similar, in fact, to those that China offers. But one tool that the U.S. doesn’t employ to promote solar manufacturing, which China does very well, is industrial policy – a very clear and specific strategic national policy that directs (and then promotes) the development of a specific industry. The pinnacle of industrial policy in China is the Five Year Plan. This plan, according to Gordon Brinser, President of SolarWorld Industries America, is one of the key reasons why China’s solar manufacturers have grown so big so fast.
It is clear that a number of China’s provinces offer support for solar manufacturers above and beyond what is offered at the national level. It’s not clear, however, exactly how this support is doled out – and to what extent. Determining the specific mechanisms that the provincial governments use to build the solar industry is “extremely difficult.”
Section 1.4 – Who are the players and what are they doing, where?
Of the top fifteen solar cell manufacturers in 2010, six were Chinese companies. Two were American. Of the fifteen solar module manufacturers in 2010, eight were Chinese. One was American.
Solar manufacturing is currently experiencing a global “shakeout” due to difficult global business conditions, stiff competition particularly from Chinese manufacturers, and slowing demand for solar panels. While lower-cost Chinese producers play a significant role in this “shakeout” they are themselves not immune to the other global pressures – notably reduced subsidies in Europe that will likely lead to a reduction in demand (or, at least, demand growth) there.
Section 2 – Why has China’s solar industry grown so big so fast?
Section 2.1 – How much has government support fueled industry development?
While it is difficult to parse exactly which companies are receiving what kinds of subsidies from whom in China, it is clear that the Chinese government strongly supports the development of a world-leading solar manufacturing industry there – not least of all by direction in the Five Year Plan.
Section 2.2 – Do Chinese manufacturers have a cost advantage?
18-30 percent cost advantage – Estimates of the cost advantage of top tier Chinese cell and module manufacturers compared to their U.S. counterparts range from about 18 percent to 30 percent. According to GTM Research analyst Shyam Mehta, the cost differential between U.S. and Chinese manufacturers is about 25 to 30 percent in 2012. Rob Wanless, Director of Business Development at SOLON Corporation, said that the cost of solar panels from Chinese manufacturers is about $1 per watt, and $1.20-1.30 per watt from U.S. manufacturers. One executive at a Chinese module manufacturer suggested similarly, that China has about a cost advantage of about $0.20 per watt on modules and about $0.10 per watt on cells.
NREL study grossly misrepresented – In a study that was publicized by many solar-related media outlets, analysts at the National Renewable Energy Laboratory (NREL) conducted an analysis of cost of solar cell and module production in China and in the U.S. All of the popular reports on the study argued that it demonstrates that Chinese solar manufacturers have a 5 percent cost disadvantage compared to U.S. manufacturers when the cost of shipping from China to the U.S. is included. But that was, in fact, not the conclusion of the study at all.
According to NREL, China’s core cost advantage of 18-20 percent in cell manufacturing comes largely from manufacturer scale and vertical integration; the analysts compare a 60 MW plant in the U.S. to a 2,000 MW plant in China. That scale and integration gives China’s manufacturers a 10 percent discount on all materials (“due to supplier leverage and captive production strategies”) and a 50 percent discount on equipment from Chinese equipment vendors. Labor costs are certainly much lower in China, but labor only makes up about 5-10 percent of the cost of a module, and U.S.-based manufacturers make up for higher labor costs with more highly automated plants.
Section 2.3 – What has been the role of foreign direct investment (FDI) and technology transfer?
The development of some industries in China – integrated circuits and automotives, for example – has been fueled at least in part by foreign invested enterprises. The presence of foreign invested enterprises (FIEs) fuels development of China’s own industry in a couple of ways, including through technology transfer and the rapid diffusion of know-how.
Foreign invested enterprises have not played that kind of role in the development of China’s solar industry, which has largely been homegrown. That’s not to say, however, that the transfer of technology and know-how into China has not been a factor; indeed, it has been a critical element in the growth of China’s solar manufacturing industry.
Technology transfer from equipment manufacturers and through licensing and research collaboration, and know-how from the Chinese diaspora – In particular, technology transfer from American, German, and Swiss equipment makers has allowed Chinese manufacturers to nearly plug-and-play solar production lines into their factories. Technology transfer through licensing and research collaboration continues to play an important role in innovation within Chinese solar firms. And know-how from the Chinese diaspora has been invaluable as well; many of the top companies’ founders and executives first worked at solar firms in other countries and/or studied at solar research facilities outside China.
Section 2.4 – The role of trade credits
Another advantage that China’s manufacturers have is the ability to provide what Jigar Shah, President of the Coalition for Affordable Solar Energy, calls “trade credits” – more often referred to as vendor financing. Instead of requiring payment from customers before shipping the solar cells or modules, a number of top tier Chinese manufacturers offer 60-day payment windows.
Section 2.5 – The role of Chinese domestic demand
China has not to date been a very large market for solar power installations. But that is clearly changing. In 2010 China’s annual installations of CSPV solar was just 3 percent of the world total. But by the end of 2013 analysts expect China’s share to have grown to 21 percent. The two most significant drivers of domestic demand for solar power in China are feed-in-tariffs, at both the regional and the national levels, and the national Golden Sun program.
Are Chinese manufacturers gearing up to meet domestic demand? – To put China’s installed capacity targets in perspective, consider that total installed capacity for the whole world was just under 40 GW in 2010. China is planning to have that much capacity on its own within the decade. Even given current oversupply of cells and modules, Chinese manufacturers will have to continue producing at very high levels to meet targeted domestic demand there.
Section 3 – What might be the consequences of significant tariffs on Chinese solar PV cells and modules?
Section 3.1 – How might China react?
China could stop its dumping and illegal subsidies –One potential outcome of the preliminary finding that Chinese manufacturers did indeed dump solar cells on the U.S. market is that China could remove its (relatively modest) subsidies and stop dumping. And there is precedent for that kind of outcome.
Chinese manufacturers could retaliate – The U.S. is still an important supplier of polysilicon, as well as CSPV manufacturing equipment. But Chinese manufacturers could ramp up their own production of polysilicon (which they have already begun doing) and turn to Germany and Switzerland to fill the equipment gap – effectively cutting out the U.S. firms that are still competitive in the solar supply chain.
Chinese solar manufacturers could ramp up production in the U.S. – There is a case to be made for locating solar module assembly facilities in the end market. But to avoid the tariffs, Chinese manufacturers would have to locate their cell production facilities in the United States as well. To achieve the kind of scale and vertical integration that allow them to keep costs low, Chinese manufacturers would have to invest huge sums of money in the United States – to essentially recreate the Chinese solar supply chain here. It’s not clear that the United States is a large enough market – not yet at least – to warrant that kind of capital investment.
Chinese firms could move manufacturing to Taiwan – A far more likely response to significant (punitive) tariffs would be for Chinese firms to move cell production to Taiwan. In fact, if manufacturing cells in Taiwan would allow Chinese manufacturers to keep their upstream supply chains intact, that could be their best solution. They could then assemble the modules anywhere in the world – in Taiwan, in China, in Mexico, in the end-use country.
Section 3.2 – The net economic effects of tariffs
Effect on sellers, distributors, and installers of solar PV in the U.S. – Punitive tariffs against Chinese cell imports could affect solar PV sellers, distributors, and installers in the U.S. – and the 76,000 Americans they employ – in a number of ways. Most significantly, low-cost cell and module imports from China have dramatically reduced total PV system cost. And low total system cost is critical to the growth of the solar industry given that solar power is still not, in many cases, cost competitive with traditional power sources. So if the imposition of tariffs causes costs to increase (which they probably will, by somewhere around 10 percent), that could cause demand for solar products to decline – and an associated reduction in American jobs in areas like marketing, sales, installation, construction, engineering, and distribution.
In addition to employing more people, those activities outside of cell and module manufacturing create more value for the U.S. economy as well. According to GTM Research, 71 percent of total CSPV system value in 2010 was created domestically. Domestic value creation is particularly high in mounting structures, site preparation, labor, soft costs, and value chain markup for the module distributor and system installer. It is these activities that stand to lose the most if tariffs raise the price of solar panels in the U.S.
Effect on U.S.-based polysilicon producers – The U.S. produces about 25 percent of the world’s polysilicon – a key photovoltaic material and the first step in the CSPV value chain. In 2010, U.S. net exports (exports less imports) of polysilicon to the world was almost $2.4 billion, up 125 percent from 2009, and $869 million to China alone. In 2011, net exports of polysilicon to the world was just under $2.3 billion, $673 million to China alone. That’s why Rob Wanless, Director of Business Development at SOLON Corporation, said that he’s particularly nervous about China retaliating and imposing tariffs on polysilicon imports from the U.S.
Effect on U.S.-based solar equipment manufacturers – The story is essentially the same for U.S. manufacturers of PV capital equipment as for polysilicon producers. In 2010, U.S. net exports (exports less imports) of PV capital equipment to the world was just over $975 million, up 137 percent from 2009, and $761 million to China alone. In 2011, net exports of capital equipment to China was $602 million.
Yet there are some who argue that refraining from assessing tariffs on subsidized and dumped Chinese imports just because China might retaliate and cause losses in the U.S. polysilicon and PV capital equipment industries would be short-sighted. They argue that China will seek to dominate the polysilicon and capital equipment industries just as they have cell and module manufacturing.
There are, broadly, two problems with China’s rise in the polysilicon industry. For one, if China’s rise takes away production from the U.S. (which is not inevitable) that would represent a further deterioration of the solar manufacturing industry in the U.S. And that would send ripple effects across the economy. Secondly, China’s leading solar cell and module manufacturers are equally as innovative as U.S. manufacturers today. But if China develops a monopoly across the solar supply chain, that could drive out innovation – which is still critical to reach grid parity (where the unsubsidized price of solar power equals the price of power generated by coal or natural gas).
Effect on the growth of solar power as an alternative energy source – Adam Hersh, Economist at the Center for American Progress, argued that if Chinese producers have an unfair advantage it will undermine the world’s transition to renewable energy as a source of power. Others argue that imposing tariffs on China’s low-cost solar products will raise the price of solar systems dramatically enough to curb demand for them. Low total system cost is critical to the growth of the solar industry given that solar power is still not, in many cases, cost competitive with traditional power sources. So if the imposition of tariffs causes costs to increase, that could cause demand for solar products to decline – and slow the transition to solar energy as an alternative power source.
Section 4 – Moving forward
Irrespective of the magnitude of countervailing and anti-dumping duties, U.S. solar manufacturers will still struggle with the difficulties that have plagued them the past several years. Chinese manufacturers will still have the scale, the vertical integration, the discounted materials and equipment, and the low labor costs that allow them to sell cells for significantly less than their American competitors – even accounting for the higher cost that will likely be associated with manufacturing cells outside of China. And they will still have the significant support of the Chinese government’s industrial policy.
According to Shyam Mehta, Senior Analyst at GTM Research, Western and Japanese crystalline silicon manufacturers will never beat China at the CSPV game because China has such lower costs. For non-Chinese companies, he said, the future lies in either differentiated technology or a new business model. Others suggest that the U.S. develop an industrial policy. “U.S. incentives can level the playing field. The scale of Chinese incentives dwarf U.S. efforts. Access to capital is a critical compliment to the United States’ capacity to innovate.” Speaking at the Conference on the Renaissance of American Manufacturing, Gordon Brinser, President of SolarWorld Industries America, said that the U.S. must respond more quickly when there is evidence that China is violating international or domestic trade laws.
These are all steps that could help – the U.S. should help its manufacturers and enforce international and domestic trade laws. But it’s important to realize, as this report and the preliminary countervailing duty from the Department of Commerce have made clear, that China’s top tier solar cell and module manufacturers are highly competitive for many more reasons than having received subsidies on the order of 3-5 percent.
 Melanie Hart. Shining a Light on U.S.-China Clean Energy Cooperation. Center for American Progress, Feb. 2011: Print.
 SEMI North American PV Advisory Committee, Manufacturing Solar Photovoltaic Products in the United States (Washington: SEMI North American PV Advisory Committee, 2012)
 Melanie Hart. Shining a Light on U.S.-China Clean Energy Cooperation. Center for American Progress, Feb. 2011: Print.
 Michaela D. Platzer. Congressional Research Service. U.S. Solar Manufacturing: Industry Trends, Global Competition, Federal Support. Washington: Congressional Research Service, 2012. Print.
 National Solar Jobs Census 2011
 GTM Research. U.S. Solar Energy Trade Assessment 2011: Trade Flows and Domestic Content for Solar Energy-Related Goods and Services in the United States. Washington: GTM, 2011. Web. 2012.
 Alan Goodrich, Ted James and Michael Woodhouse. Solar PV Manufacturing Cost Analysis: U.S. Competitiveness in a Global Industry, Power Point Presentation, Stanford University: Precourt Institute for Energy, 10 Oct. 2011.
The US Solar Trade Case Against China, and Chinese Solar Industry Development by ChinaGlobalTrade.com is licensed under a Creative Commons Attribution-ShareAlike 3.0 Unported License.
Based on a work at www.chinaglobaltrade.com.