Dark days await Taiwan cell makers as US AD decision looms

The U.S.-China solar trade war has produced many casualties over the past 24 months, and in 2014 Taiwanese solar companies have begun to feel the strain.

Solar cells produced in Taiwan were highly sought-after commodities during the height of the trade war. Chinese panel makers would use them in order to sidestep U.S. anti-dumping (AD) tariffs and continue supplying the U.S. market.

This loophole was duly closed in July when Washington imposed stinging AD tariffs on Taiwanese crystalline silicon solar cells and modules. The primary effect was to stem the tide of dumped solar products in the U.S. A secondary impact saw Chinese solar companies revert in their droves to their domestic market, resuming the production of cheaper, home-made solar cells for sale to the U.S. market.

But while many Chinese solar companies can afford to navigate the U.S. AD tariffs, higher costs in Taiwan mean the U.S. market is now prohibitively expensive for even Taiwan’s "Big Four" cell makers: Neo Solar Power Corp., Motech Industries Inc., Gintech Energy Corp, and Solartech. Preliminary AD duties of 26-165% are set to be finalized next month in a decision that could end Taiwanese solar cell makers’ involvement in the lucrative U.S. market.

"Once the final U.S. determination is announced, it could well prove fatal to Taiwanese cell makers," IHS solar analyst Jessica Jin told pv magazine. "It has been a bad year for Taiwanese solar cell companies. Cell prices fell from around $0.40/W in Q2 to just $0.32/W in Q3. In October they rose slightly to between $0.35-$0.38/W, but that is still a huge drop." Influenced by the price of wafers and panels, solar cell makers have little room for maneuver on cost, and so must look elsewhere in order to grow their bottom line.

Focus on China

Although most Chinese module manufacturers have deserted Taiwanese cell producers since July’s announcement, China’s own solar strength represents their best hope for survival. "Taiwan’s leading solar cell companies are still targeting Chinese module producers, only now it is not for sale into the U.S. market but rather China’s strong domestic market," said Jin. The feeling among industry experts is that there will be a shortage among Chinese cell makers, prompting them to look to Taiwanese suppliers to plug that gap.

The hope of brisk business in China may ultimately prove the best survival strategy. According to figures from GTM Research, Taiwanese cell manufacturers have a 1 GW-size shortfall in their order books since Chinese demand subsided. Production capacity was ramped up to around 10 GW, but those +86 phone calls have tailed off sharply. And with only approximately 200 MW of domestic PV demand, the extra 24% capacity added since 2013 is proving burdensome.

"Only the big four will have a real chance to survive," warned Jin. "It is going to be a huge struggle for the smaller solar cell companies in Taiwan." Shares of Gintech Energy and Motech have fallen around 20% since July, while Neo Solar’s are down by 18% over that same period. Neo Solar’s Q3 financial report revealed that sales are 13% lower this year than last year (at just $64.4 million).

In response to falling revenues, Taiwan’s Big Four have begun exploring the module sector. “All four have commenced OEM production for Japanese module makers – a decision that allows them to explore new revenue streams while avoiding competition with their own customers in China,” said Jin. However, Japan’s famously insular approach to solar supplies means that much of the market is closed to overseas companies – including those from Taiwan.

"Another strategy is looking towards new markets, such as India, but all markets are currently challenging for Taiwan cell makers because they do not have the brand strength to compete with Chinese module makers."

Aiming for higher efficiencies

As bottom lines have been decimated and the Chinese cash cow now grazing in pastures new, Taiwanese solar cell companies have reverted to what they do best – higher efficiencies. "Taiwan has always been ahead of the curve when it comes to cell efficiency, especially when compared to Chinese cell makers, which is why leading Chinese module companies are still purchasing cells from Taiwanese makers, often for sale in Japan and the U.S.;" revealed Jin.

If the Chinese domestic market continues to dominate next year – a market that places little emphasis on high efficiency – Taiwanese cell producers will still be called upon to plug the domestic cell shortage, believes Jin. But generally, the talk in Taiwan is the pursuance of improved efficiency.

"PERC [passivated emitter and rear cell] technology is high on the agenda," said Jin. "Taiwanese cell makers believe that PERC technology will represent the future, rather than normal P-type monocrystalline cells. And to achieve the required production capacity for these higher efficiency cells, most companies will only have to add one or two new machines to their production line. There will not be much Capex spending."

A difficult future

Planning strategies into 2015 and beyond is fraught with uncertainty for Taiwanese solar cell companies. The perceived "safe bet" of servicing Chinese module manufacturers proved short-lived, while international expansion – such as outsourcing production overseas in order to circumnavigate the U.S. AD tariffs – is a potentially fatal leap of faith.

Solartech is the only Taiwanese cell company currently with an overseas cell production facility, and Jin added that the creation of its Malaysia fab is widely regarded as a bad decision. "They opened the Malaysia factory largely to take advantage of the two out of three rule [whereby if the wafer and cell were made in Malaysia and the module in China, the solar panel could circumvent U.S. duties], but then in October the U.S. also closed this loophole."

Jin believes that the prospect of Taiwanese companies commencing cell production overseas is possible, but added that none of the leading companies have any concrete plans to do so for now. "Once the final AD decision is passed in December by the U.S. Department of Commerce, then we will see. But for now, it is a waiting game."

However, a recent report by Reuters revealed that Gintech is exploring the possibility of moving manufacturing to Thailand, Mexico and Malaysia, while a smaller company – Tainergy Tech Co Ltd – last month began making panels in Vietnam, which suggests that some Taiwanese players are not content to sit and wait until December to see what the future holds.