Tariffs could dim solar energy's rapid growth

Jun 9 - David R. Baker San Francisco Chronicle

A high-stakes fight that mixes renewable power, international relations and cyberespionage threatens to slow the American solar industry's rapid growth.

Last week, U.S. Department of Commerce officials tentatively agreed to slap tariffs as high as 35 percent on much of the solar equipment American companies import from China.

SolarWorld, a German company whose U.S. base is in Oregon, sought the tariffs, claiming China's government has unfairly subsidized its solar manufacturers and flooded the world with cheap panels. It's a familiar argument to anyone who remembers the 2011 bankruptcy of Solyndra, the federally funded startup that made tube-shaped solar panels in Fremont until plunging prices drove it out of business.

But many U.S. companies have come to rely on cheap panels from China. And they want SolarWorld to back off.

Companies that install, sell or lease solar arrays have seen their business boom as panel prices fall, tumbling 70 percent since the start of 2010. Tariffs, they say, will make solar power less affordable and slow its rapid spread across the country.

"It's going to do a huge amount of damage to the installers and developers," said Rhone Resch, chief executive officer of the Solar Energy Industries Association.

His trade group has been trying to broker a settlement between SolarWorld and Chinese solar companies. He noted that SolarWorld is partially owned by a government-backed company in Qatar.

"The sad truth is, here you have a company that's effectively owned by Germany and the Qataris instituting a trade case that's going to have a huge impact on the solar industry in the United States," Resch said.

Second such case

It's the second time SolarWorld has filed a U.S. trade case against China. And it may have brought the company some unwanted attention from the Chinese government.

Last month, the U.S. Department of Justice accused Chinese military officers of hacking into the computer systems of five companies in the United States -- including SolarWorld. According to the indictment, the hackers penetrated SolarWorld's systems in 2012, while the first trade case was pending. The hackers stole thousands of files detailing SolarWorld's financial health, manufacturing data and costs, as well as sensitive legal communications related to the trade case.

The Chinese government has rejected the charges.

"Right about the time SolarWorld was rapidly losing its market share to Chinese competitors that were pricing exports well below costs, these hackers were stealing cost, pricing and strategy information from SolarWorld's computers," said John Carlin, assistant attorney general for national security, announcing the charges in May.

Despite angering many of its peers, SolarWorld insists it is standing up for the American solar industry and trying to level a tilted playing field.

"We look forward to the end of illegal Chinese government intervention in the U.S. solar market, and we applaud Commerce for its work that supports fair trade," said Mukesh Dulani, president of SolarWorld Industries America, based in Hillsboro, Ore.

SolarWorld won the first round in its fight against China.

The company first complained to U.S. trade officials in 2011, claiming the Chinese government had enabled its solar companies to sell equipment at artificially low prices in a bid to seize control of the market. The following year, the Commerce Department agreed, imposing duties averaging 31 percent on Chinese solar cells.

Many Chinese companies responded by taking cells made in Taiwan and other countries, assembling them into panels in China and shipping them to America, sidestepping the tariffs. So SolarWorld filed a second complaint last year.

Under the new, preliminary decision, many Chinese companies face a 26.9 percent tariff on their cells and panels. For a handful of companies -- including Wuxi Suntech Power Co., one of the country's largest solar manufacturers -- the tariff climbs to 35.2 percent.

Low panel prices have been a boon to American solar leasing companies such as SolarCity, Sungevity and Sunrun, as well as smaller, "mom and pop" installation businesses. Last year, the American solar industry added 23,682 jobs, according to a census by the Solar Foundation research group. Only 100 new jobs were in manufacturing.

Possible problems

If a settlement can't be reached, the tariffs will have the biggest effect on larger projects, such as solar installations that supply power to utility companies or businesses. Those projects tend to have the slimmest profit margins, said Shayle Kann, senior vice president of research at Greentech Media. But homeowners interested in going solar will also see higher prices or less favorable leasing terms.

"There are customers at the margin, customers for whom the prices just work out right now," Kann said. "All the sudden, the deal will look a little less attractive to those homeowners."

Much of the industry still holds out hopes for a settlement agreement that would convince SolarWorld to drop the case.

"I think the Chinese and SolarWorld want to resolve this," Resch said. "Now that the preliminary decision from Commerce has been issued, there is renewed interest in sitting down and working it out."

David R. Baker is a San Francisco Chronicle staff writer. E-mail: dbaker@sfchronicle.com Twitter: @DavidBakerSF

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