The EC is threatening to levy import duties on Chinese modules ranging from 37.2% to 67.9%. European Union member states are expected to vote on the proposals in the next two weeks, with a preliminary decision coming into force by June 6.
That decision could send prices for Chinese modules soaring to $0.97/W next month. The average price of Chinese modules in March was $0.66/W; before the EC announced the planned import duties, that figure was expected to increase to $0.67/W in June, based on a forecast from the IHS Solar Module Price Index.
The IHS report predicts the increase in module prices will lead to a rise in PV system costs in Europe. Installers and engineering, procurement and construction companies are likely to absorb some of the additional costs while sacrificing their margins to limit the price increases they pass on to customers.
Large installations that tend to favor low-priced modules will be most impacted, while smaller rooftop installations that tend to use German, Korean and Japanese modules will be less affected, according to the study.
The most price-sensitive market segments are German ground-mounted and large rooftops without self-consumption, says Henning Wicht, IHS senior director of solar research. "A system price increase of 10% in Germany would reduce the return on investment to less than 7%, seriously dampening investor appetite for this sector. This change could eliminate nearly 2 GW of installations that would have otherwise occurred."
Installations remain the most profitable part of the value chain in many segments and countries. However, it seems highly likely that margins will be squeezed following introduction of import duties, mirroring the evaporating margins at every stage upstream, the IHS report finds.
In addition, installers, particularly for smaller installations, are likely to increasingly utilize low-cost Chinese inverters as a means to reduce their costs.
"An unintended consequence of the EUs decision may be that in an attempt to protect European solar module producers, they harm European inverter suppliers," the report observes.
The threatened duties are also certain to pose a severe danger for Chinese players.
"In recent months, prices of Chinese modules have crept upwards in key European markets as a result of the additional overhead incurred from the mandatory registration of imported modules from China," says Ash Sharma, IHS senior director of solar research. "However, when the duties go into effect, prices for Chinese modules will rise dramatically as they cannot absorb these additional costs due to the poor state of their balance sheets."
The development, adds Sharma, will force many Chinese PV module suppliers out of the European market and could increase costs for installations.
With much of the European market closed to them, Chinese suppliers are likely to direct their attentions to other regions, including Japan and markets in Southeast Asia, according to the report.
In addition, China will have to install a large volume of modules domestically in order to make up for the European sales deficit a move that may prove difficult. "Given the low prices and the long delays in receiving payments for installation projects in China, this may prove to be challenging," the study finds.
IHS predicts Chinese vendors will suffer a huge impact in 2013 in view of the levies on Chinese modules already in place in the U.S. and the relatively low demand in emerging markets in places such as Latin America. "Such a development is likely to accelerate the consolidation of the Chinese module supplier base and result in more bankruptcies."
However, the study says outsourcing of module production to PV original equipment manufacturers outside of China may be one strategy suppliers employ to circumvent the duties.
At the same time, benefits for non-Chinese suppliers may be limited. Western vendors will be unable to raise prices significantly as incentives throughout Europe have wound down due to severe price declines for both module and systems.
"Any major prices increases would seriously deteriorate the internal rate of return on solar projects and make PV financially unviable in many segments of the market. Resulting price increases would need to be absorbed by the installer/EPC and/or the owner/investor of the project," the study finds.
Module producers in other low-cost regions outside of China, such as Taiwan, may see a short-term upside as a result of the situation. Total module production capacity in these regions is currently limited to just 3.4 GW — less than one-tenth of Chinas 35 GW.