The weekend read: The specter of PV protectionism

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From pv magazine, September 2019

Frank Asbeck turned 60 years old on August 11, and many will remember him for his company SolarWorld AG, which once led German PV cell and module manufacturing before its bankruptcy in March 2018. But Asbeck also did pioneering work on another front: his efforts were critical in getting the European Union to adopt a Minimum Import Price (MIP) to protect European PV manufacturers from overseas competition, mainly from China.

Asbeck and SolarWorld were also instrumental in getting the Obama Administration to levy anti-dumping (AD) and countervailing (CVD) duties on Chinese manufacturers in 2012, the first round of trade measures adopted to protect U.S. manufacturers (like SolarWorld’s former operation in Oregon) from cheaper modules made in China.

In both cases the aim was to protect domestic industry from what was alleged to be unfair competition from Chinese manufacturers, which were (so the claim goes) either selling below their actual costs (antidumping) or benefiting from unfair subsidies their government was providing (the gist of countervailing duties or CVD).

These cases took a rather narrow view of “domestic industry”, being concerned mainly with upstream PV manufacturers and not the solar PV industry at large. On the downstream side, most consumers, installers, developers and EPCs were against putting up walls to shield domestic manufacturers. Protectionist policies, whether in the form of MIPs, AD or CVD, increase prices, making PV projects more expensive, and in some cases prohibitively so.

Since Asbeck and SolarWorld championed tariffs as the way to protect European and U.S. manufacturers, much has happened in the solar industry and for that matter, trade relations in general. The principles of free trade and globalization have come under attack from many sides, with the Trump Administration being the most vocal. In fact, the embodiment of free trade and globalization, the World Trade Organization (WTO), has been lambasted by Trump, who is blocking appointments to the WTO’s Appellate Body, saying its judges have overstepped their mandate.

For the solar PV industry, which became mainstream as a globalized industry around the turn of the century, the specter of increased trade tariffs in a wide range of countries risks undermining the great strides solar has made in reducing its LCOE. On the other hand, having an extended solar value chain in place has its benefits: if a country lacks a significant manufacturing base and relies to a great extent on imports to feed its solar installations, it will suffer in terms of energy independence, especially as PV and battery storage continue to displace conventional energy generation.

Each market also has its own characteristics (environment, roof structures, etc.) and the more extensive the solar value chain, the better the country can fashion its solutions to such characteristics. Finally, there is the employment argument, which equates a more extensive solar value chain with a more diverse and technologically advanced workforce in the strategically important field of renewable energy. The employment argument can also go the other way along the following lines: the lower the cost of solar, the more projects are planned and built, which in turn stimulates employment on the downstream side.

The United States probably offers the most complex picture, since the old AD and CVD duties remain in place and have been sandwiched together with myriad other tariffs established during the Trump presidency. These Trump tariffs include Section 201, 232 and 301 duties, the final of which is part of the Trump administration’s broader campaign to pressure China to change the way it handles foreign trade and investment.

Even before Donald Trump was elected, China had responded by introducing its own tariffs, with one of the victims being U.S. polysilicon producers. This was one of the last areas where the U.S. still has a significant production footprint in the PV industry. Unlike Section 301 duties, which apply only to China and cover cells, modules and inverters (at a duty rate of 25%, up from 10% starting May 10), Section 201 and 232 duties cover all countries exporting to the United States.

Chile’s open borders

Chile exempts the import of solar modules from custom duties. This has made it possible for the country to become the most dynamic PV market of Latin America over the past years, at least in the utility-scale segment, thanks to low module and project costs. As a consequence, however, zero efforts were made to create a local industry for panels, inverters, mounting structures or other components. Emiliano Bellini

In India a 25% safeguard duty has not stemmed the influx of foreign modules. According to analysts at Bridge to India, one year after the tariff was imposed in July 2018, the share of foreign modules continues to hover around 90%, showing how difficult it is for governments to steer markets with tariffs.

In the European Union, the abolition of the MIP created a virtual solar renaissance, with solar installations in the EU forecast to grow by as much as 80% year-on-year in 2019, after the MIP was rescinded last September.

In both India and the EU, the lack of manufacturing depth, not only on the PV side but also with batteries, remains a central issue. And with Trump erecting barriers across the Atlantic we could see governments in the Old World consider putting up their own walls to protect and grow their technology and manufacturing base.

The concern is that such measures and countermeasures could spiral out of control and turn a truly globalized market into many walled gardens with artificially high prices. This is clearly not a scenario in line with fostering clean energy and combating climate change. On the other hand, a mega-deal between the United States and China could bring us back to the path of globalization and free trade and with it the hope of addressing climate change on a truly global level.

Eckhart K. Gouras

Unintended consequences in Brazil

Brazil is currently applying a 12% tariff on imported capital goods and IT/telecommunications equipment, which also includes solar products. However, in June the Brazilian government published new regulations, with which it hopes to eliminate such barriers. The Ministry of Economics Affairs (MEA) claims that the duty can be removed, as imported panels should not be considered similar to those made in Brazil. The local electronics and solar industries, through their respective associations, Abinee and Absolar, said domestic panels can currently already be purchased at prices that are 30% higher than imported ones, while stressing how the latter are also exempt from the Industrial Product Tax (IPI) and Merchandise and Service Circulations Tax (ICMS) and another tax under a special program for infrastructure projects, while Brazilian panel makers are subject to the payment of several purchase taxes on raw materials. As a result of these requests, the Brazilian government decided to freeze the new regulation until August 30, with the associations urging senators to ask the MEA to include the import of raw materials in the new rules, which would exempt them from the duties. But regardless of how these new rules may be shaped, the production of solar modules in Brazil will remain quite challenging. Emiliano Bellini

Trump’s (clean energy) trade war

U.S: President Trump and Chinese leader Xi Jinping meet at the G20 summit in Osaka in June 2019.

The United States has developed a pugnacious trade policy under President Trump, and the solar and energy storage industries have found themselves caught in the middle of new trade wars. But while many have argued that the imposition of the Section 201 tariffs was an attempt by the Trump Administration to destroy the nation’s solar market, there is as much or even more evidence to suggest that this really is about protectionism and the use of trade as a weapon in international relations.

To make sense of this, it is important to recognize that President Trump is not the only player here. Most of the important actions that the Trump Administration has engaged in have come from the desk of U.S. Trade Representative Robert Lighthizer, a veteran of the Reagan Administration and a proponent of an aggressive, protectionist trade policy.

Tariffs, tariffs, tariffs

There have been multiple sets of trade duties initiated by Lighthizer’s office, often under dictates from Trump himself. The Section 201 global trade duties on solar cells and modules had the most obvious impact on the U.S. solar market, but there are also the Section 232 global tariffs on imports of steel and aluminum and several rounds of Section 301 duties on a wide range of products that include PV cells and modules, PV module components and inverters from China.

Taken together, there is essentially no part of the U.S. solar and energy storage markets that is not affected by one or more of these tariffs to some degree. As shown in the chart to the upper right, together the components affected by one or more tariffs make up more than half of the cost of a utility-scale PV system.

However, the Trump Administration has also provided two big exceptions to Section 201 – one for modules using SunPower’s Interdigitated Back Contact (IBC) PV cells, and a more recent one for bifacial solar panels.

And this is not over yet; Trump is planning to impose tariffs on a range of products being imported from China at a rate of 10% as of September 1, including lithium-ion batteries.

Market effects

None of this has been good for the U.S. solar market; however the actual effects are more complicated than one may guess. Even with the Section 201 tariffs most PV systems still pencil, and solar projects are still being built to comply with renewable energy mandates, to meet corporate clean energy goals, as well as simply because they make sense economically.

What Section 201 did more than anything was to interrupt the market for a good six months or so while the U.S. solar industry knew that a change was coming but did not know what level of tariffs would be set.

And even when taken together, the various tariffs imposed by this administration did not fundamentally change the attractive economics of PV systems in most areas. However, they did have more serious effects on specific companies and even whole industry segments.

Encouraging manufacturing?

Aside from the Section 301 tariffs, which appear to have been imposed primarily as a punishment/aggressive bargaining tactic by the Trump Administration, the rhetoric behind most of these tariffs, including the Section 201 duties, is that they will protect and enable U.S. manufacturing industries.

The Section 201 tariffs were definitely a key factor in the four large U.S. solar factories totaling 3.8 GW of annual production that have either come online or are currently under construction. However, every manufacturer who pv magazine spoke with also identified Republican tax reform, which cut corporate tax rates, as another main factor.

Also, by raising the costs of raw materials, these tariffs are negatively affecting the very industries they are supposed to be supporting. A prime example is the racking, tracking and mounting systems makers, who were affected by higher steel prices due to the Section 232 tariffs, and U.S. PV makers have also said that their supply of aluminum frames and other materials is being affected by Section 301 tariffs on their Chinese suppliers.

Additionally, some companies, including First Solar, are now arguing that the exemptions to Section 201 – more the bifacial exemption than the exemption for SunPower’s IBC – undermine the effectiveness of the tariffs as a tool to incentivize manufacturing.

So like other aspects of the Trump Administration’s trade policy, the rapid and unpredictable changes created by these exemptions makes long-term business planning difficult and throws supply chains into chaos.

In the end, nothing is certain except that under the current administration the trade war isn’t going away any time soon.

Christian Roselund

Shifting destinations

The impact of United States’ removal of preferential treatment for Indian PV cell imports, whether assembled into modules or not, will be fully reflected in Q2 2019 figures, however, it is clear that India’s PV manufacturers are already looking at alternative markets – and having some success.

The United States continued to be India’s largest export market at INR 16,500 lakh (US$23 million) in Q1 this year – the situation may change as figures for following months become available, with the impact of 25% tariffs coming into effect – but there is a huge jump in exports to some markets.

While the figures for Denmark, India’s second largest PV export market in 2018-19, are not available for the quarter, Belgium emerged as the second largest market at INR 3000 lakh (US$4 million) – more than for the full year 2018 total of INR 2400 lakh (US$3 million). Exports to South Africa stood third at INR 1100 lakh (US$1.5 million).

Open doors Down Under

As a country with a relatively small manufacturing sector and an economy heavily reliant on mineral and agricultural exports, Australia has few tariffs in place. With East Asian trading partners any attempts at a trade war with China would be folly. “Australia has quite a free and open market for solar power components compared to some countries such as the United States under President Donald Trump,” says Darren Gladman, Clean Energy Council director for distributed energy. Given this, Australia’s ports are wide open to PV imports resulting in low system prices and healthy run rate for the rooftop segment and strong pipeline of large scale projects. Low system prices are also a credit to Aussie installers given high labor costs within the country. Installed rooftop system costs are now a quarter what they were one decade ago. However, as PV antidumping disputes gripped other parts of the world, authorities did investigate the matter. “The Commonwealth Government’s Anti-Dumping Commission terminated an investigation into the importation of solar panels into the Australian market in 2015,” continues Gladman. “The introduction of additional tariffs or duties on these products would have made solar technology substantially more expensive for consumers.” He adds though that there are “some complications” regarding aluminum product imports – impacting some mounting structures.Jonathan Gifford

Topping the countries which registered significant growth in Q1 is Somalia, where India’s exports reached INR 900 lakh (US$1 million) against year 2018-19’s total of INR 2 lakh (US$2,800).

Market trends show the European Union (Belgium, Portugal, Sweden) and African countries (South Africa, Somalia and Ghana) – in addition to Asian countries like Korea and Pakistan – are emerging as significant markets for Indian modules.

These reported figures tend to be in line with the views of Vikram Solar’s Chief Financial Officer Rajendra Kumar Parakh, who said that with the United States becoming a costly proposition, Indian solar manufacturers that have already lost the domestic market to cheaper Chinese imports, “will now target Africa, The Middle East and North Africa (MENA) region, and other rapidly growing solar markets to export.”

However, given that Indian solar manufacturers are finding it challenging to match aggressive pricing of Chinese solar equipment within the global markets as well, the demands are rising for the Government of India to provide incentives on export to help them go toe-to-toe with the global suppliers.

Why exports?

In July 2018, India applied a two-year safeguarding duty on solar PV cells and modules from China and Malaysia, in order to protect domestic players from the steep rise in cheaper imports. In line with the notification issued by the ministry, a 25% safeguard duty was imposed between July 30, 2018 and July 29, 2019. The duty tapers down to 20% between July 30, 2019 and January 29, 2020, and to 15% from January 30 to July 29, 2020.

The duty, however, didn’t deliver the intended results: Solar developers have chosen to shift source of import rather than sourcing higher-priced products from domestic manufacturers. So, there has been a surge in cheaper imports being rerouted though locations such as Vietnam, Singapore and Thailand, where the duty is not applicable.

In fact, a recent Bridge to India report says that the share of imported solar modules used in Indian solar projects is still around 90% – the same as before imposition of safeguard duties.

With a foothold lost in the domestic market to cheaper solar imports, Indian solar manufacturers are eyeing the untapped and emerging solar markets globally to generate revenue.

Uma Gupta

One year without tariffs – alive and kicking still

The European minimum import price (MIP) came into effect in 2013. After it failed to save the upstream fleet, the EU waved goodbye to the anti-dumping measure about one year ago, to the delight of many in the European PV industry. Right now, the market is in full steam, and to some extent, this can be attributed to the scrapping of the MIP – modules have become cheaper after all. With current installation speeds, Europe will break the 20 GW mark by the end of the year, an 80% increase compared to last year. Several new entries, like Ukraine which exploded into a gigawatt market in little more than a year, and Spain, which catapulted itself right back to the top of the pack following a change in leadership, are to be held accountable for the increase in installations. In neither case, however, could one confidently claim it was the MIP that caused the wheel to turn. It was more political will or necessity to comply with the Paris Agreement that saw many new markets turning more towards renewable energy. A few percentages off module prices were a warmly welcomed confluence. An effect might be seen in the rise of subsidy-free projects. Severe financial tinkering and attention to detail for marginal savings allow the trick to be pulled off. Not very strong on volume yet, the segment could take off fairly soon, and cheap components will be a driver. On the business side of things, “we are also pleased to see [that] several European companies, both upstream and downstream, in the past months announced plans to expand their business in Europe,” SolarPower Europe CEO Walburga Hemetsberger told pv magazine. And that is probably where the real tenet can be drawn. Put in place to protect the domestic solar industry, the MIP did little but increase component prices for European module makers. Now without the measures in place, there are first reports that Europe could be producing modules on par with China. Marian Willuhn