In anticipation of the ruling, both the Coalition for American Solar Manufacturing (CASM), which is led by SolarWorld Americas who started the initial investigation and the Coalition for Affordable Solar Energy (CASE), led by Jigar Shah have issued statements.  In its statement, CASM quoted an article by Matthew Stepp and Clifton Yen in which they state, “China knows it just needs to dial up the subsidies for only a little while longer until American producers give up or go bankrupt.  Once it knocks out foreign producers, Chinese solar manufacturers will dominate global production and can increase their prices.” CASM also points out that more than 24 U.S. solar manufacturers have already given up the business of making solar panels.

In conducting interviews for an article I recently wrote about mergers and acquisitions in the solar industry (to be published in the next issue of Renewable Energy World magazine and online soon), I spoke with several key solar industry players who made it very clear to me China’s actions regarding the funding it has given to solar panel manufacturers are outside of the scope of what most people would consider normal ways of doing business.

Here’s the situation as Arno Harris, CEO of Recurrent Energy, explained it to me.  Harris admits that his company as a developer has benefitted (and still is) from the low prices that have driven so many manufacturers out of business.  While he is very happy about the low module costs, he recognizes that true market dynamics are not at play. “In solar for the past 5 years, we’ve seen a cycle where the investment in capacity seems almost divorced from any conventional notion of meeting demand,” he said.

“Again, that has been a boon to solar overall, it’s enabled us to reach a price point that I don’t think any of us though we’d reach much, much quicker, but it does suggest that there is a building business problem upstream that we’re seeing reflected in the challenges that all of those businesses are facing.”

Harris explained how market dynamics work in a normal business cycle and he used a poly-silicon plant or memory chip manufacturing as an example:

The industry goes through growth phases. Supply will get tight relative to demand, and that stimulates investment in a new poly-silicon plant or a new memory chip processing facility and then the market moves into a slight overcapacity, prices come down a little bit but then it finds equilibrium again and then it grows until, you know, you reach the limits again and then you repeat that cycle.

Harris believes that the Chinese government, in continuing to lend money to solar manufacturing companies, has really skewed the way normal economics work. “I’d say we’re dealing with companies whose access to capital is somewhat separated from capital markets. So the discipline that capital markets would impose on a company in the western world is not being imposed,” he said.

Raj Prabhu, managing partner at Mercom Capital offered similar comments on the situation.  He said that Asian companies’ continuing to add capacity in the midst of an oversupplied market “defies logic.” He said so far he had tracked more than $50 billion in credit that had been given from the Chinese-owned banks to manufacturers.  He explained further:

Basically China Development Bank is saying we will provide [some large amount] of loan and credit, etc. to one of these Chinese manufacturers and then that doesn’t mean that they give them the money but they have some sort of an agreement that they can draw down upon. This cheap and easy credit being available is one of the factors why it [the solar industry] is overbuilt. You know you didn’t see overbuilding anywhere else.

Finally, GTM Research’s Shyam Mehta said he doesn’t see the situation improving anytime soon.  I asked him if he thought the Chinese government would eventually force companies to merge or consolidate and he offered the following:

At this time we haven’t seen any signs that China is going to enforce consolidation directly.  A couple of weeks ago the China Development Bank announced that it was going to renew a pledge of support for 12 Chinese manufactures and six of them were named and six weren’t.   They are borrowing more money, losing more money and continuing to get supported.  That is not sustainable, basically, not for the entire industry is what I think.

Jigar Shah: Unsustainable but Understandable and Not Illegal

The fact that what China is doing unsustainable is undisputed by all, even by staunch solar advocate Jigar Shah, who founded the Coalition for Affordable Solar Energy (CASE) in order to fight against CASM.

Shah told me that many times throughout history governments have made decisions about what industries to support and then have offered that support outside of market dynamics.  “The truth of the matter is that this is exactly what country after country after country does in the solar industry,” he explained. Shah said that Japan overbuilt solar capacity in 1999 and then cut prices, “and it’s exactly what SolarWorld did in 2004 when the German government decided to provide a 50 percent subsidy to anybody who builds a plant in Germany.”

He doesn’t see this as a malicious attempt to dominate the solar manufacturing industry and put other countries out of business. Rather it’s a job creation bet made by governments all over the world who see solar as the next big moneymaker.

“They all think that they’re going to be the last country to really figure this out and they’re going win solar manufacturing for the rest of time,” said Shah.

He maintains that China will soon give up. “I think China is now saying ‘wow, that didn’t work out for us so well,’ said Shah. “And when that happens Korea is going to take over,” he said. 

Shah thinks that four years after Korea takes up the solar manufacturing torch, India will take over then maybe Brazil, he said.  “This is so common and I don’t think there is anything illegal here.”

Can the matter be boiled down to public sector interests over private sector interests? Perhaps. SolarWorld’s President Gordon Brisner said in a statement that his company would be just fine if it weren’t for the unfair trade practices being employed by the Chinese. “We have no doubt – none – about our ability to compete with Chinese producers on fair footing,” said Brinser. “But we have said all along that U.S. solar manufacturers cannot compete with the Chinese government and, as a matter of basic trade law, should not be confronted with doing so.”

But Shah counters that the public sector sometimes has other interests than the private sector. “This is about China building jobs for the millions of people that are joining urban ventures every month to make sure that they prevent riots from occurring in their country. So they do this in iPads, they do this in computer manufacturing,” he said.

Further Shah believes it’s about solving a global crisis.  He said if the Saudi Arabians decided that they wanted to provide the U.S. with oil at prices lower than the price of oil that we can recover out of the Bakkan Shale then “we would take that all day.” 

He concluded:

So this is happening in China (and I don’t think they are trying to put us out of business – we never had a vibrant solar manufacturing industry anyway) but if they are providing us with panels at a very affordable cost and therefore allowing us to decarbonize our grid, I’m just trying to figure out how this is a bad thing for all of us.

Good or bad, tomorrow it is expected that the International Trade Commission will rule that the Chinese government has indeed harmed the U.S. solar manufacturing industry. With that ruling the tariffs will go into effect and the next chapter in solar manufacturing will begin.  

 

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