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6 Ways to Encourage American Solar Manufacturing Without Import Duties

6 Ways to Encourage American Solar Manufacturing Without Import Duties

The U.S. needs solar manufacturing. But not through Section 201.

The verdict is in: By unanimous ruling, the U.S. International Trade Commission found that increased imports are causing serious harm to U.S. solar cell and module manufacturing.

While domestic deployments of solar have grown nearly eightfold in the past five years, U.S. manufacturing has fallen behind. Previous trade cases were intended to stabilize pricing and result in new U.S. module capacity. But domestic production still hasn’t kept pace with deployments.

We estimate that 87 percent of U.S. solar installations in 2016 used foreign-produced panels.

Source: GTM Research Solar Supply Chain Service; GTM Research/SEIA U.S. Solar Market Insight Q3 2017

This is not an endorsement for Section 201-driven remedies. Far from it. We estimate that the remedies requested by the Section 201 petition would eliminate half of potential solar deployments over their term in exchange for limited new domestic module manufacturing.

But that doesn’t mean solutions for domestic upstream solar manufacturing should be abandoned.

Source: GTM Research U.S. Solar Outlook Under Section 201

Why is domestic solar manufacturing important?

Quite simply, manufacturing drives technology innovation. The National Science Foundation estimates that two-thirds of U.S. research and development dollars are spent by manufacturers (over 80 percent of which are from their own funds).

The 50+ percent reduction in solar costs over the past five years has primarily been brought about by innovations in the supply chain, from low-cost polysilicon production, to better throughput on materials, to improvements in efficiency.

If we believe that solar is a key part of the future of electricity, that the U.S. should be a leader in the clean electricity future, and that technology innovation is key driver toward that realization, then we must increase investment in domestic manufacturing.

It is possible to invest in R&D from the U.S. without domestic manufacturing; in fact, the U.S. boasts two global solar module leaders in SunPower and First Solar, who conduct much of their R&D in the U.S. while manufacturing most of their product abroad. However, the environment is changing, with more research-heavy competitors and less patient capital.

We also don’t dismiss the innovations and contribution from balance-of-systems technologies, which make up most of the remaining U.S. solar manufacturing landscape. But the module represents nearly one-third of PV system costs, and more than half of all hardware costs. No technology leadership strategy for solar can leave the module supply chain behind.

Nor are modules simply a commodity better suited for outsourced manufacturing. Even a simple survey of the Solar Power International exhibition floor in Vegas showed that foreign module providers are eager to compete on technologies beyond standard multicrystalline silicon: passivated emitter rear contact, half-cut cells, shingled cells, bifacial and even whispers of new challengers in n-type mono.

Upstream process improvements, from low-cost mono to diamond wire saw wafering, are a commercial reality. The bill of materials is cheaper than ever, and yet suppliers are comfortable offering better and longer warranties. These invisible innovations in the manufacturing process are driving lower costs for foreign manufacturers — not just cheap labor.

The U.S. doesn’t risk losing the lead in solar technology. It needs to catch up.

Why Section 201 is unlikely to reinvigorate domestic manufacturing

Despite all this, levying tariffs or other protectionist measures is misguided. To quote one policymaker: “We should be in a race toward low-cost solar, not higher-cost solar.”

Tariffs that aren’t based on preventing illegal dumping (which, to be clear, is not the rationale for a Section 201 petition) fundamentally accept that the U.S. has been left behind. They aim to attack the symptoms and not the root cause, which is a systemic unwillingness to craft clear, long-term policies that support U.S. solar manufacturing.

Research further indicates that benefits to the domestic industry in safeguard cases are short-lived. For example, a 2013 Georgetown University Law Center study of three U.S. trade cases petitioned under Section 201 of the Trade Act of 1974 found that “none of the three industries achieved sustained competitiveness after safeguards terminated.”

For solar, the timeline for Section 201 creates many risks for manufacturers considering investing in U.S. capacity. To reach reasonably competitive costs, manufacturers must build at scale — at least 500 megawatts, if not a true 1 GW facility.

And remember, the petition scope is on PV cell manufacturing at a minimum, a more difficult and expensive production stage than the final module assembly. This requires investments in the range of low triple-digit millions, all of which must be recovered within the period of the tariff. That will certainly prove tricky.

Section 201 remedies are set for a period of up to four years, with a potential extension up to eight. However, none of the six Section 201 safeguards initiated since the formation of the World Trade Organization have lasted for the full four-year term. Indeed, international pressure, whether through the WTO or retaliatory tariffs, could shorten the duration of any proposed safeguard.

Meanwhile, new equipment (and moving equipment from outside the U.S.) would likely take 12-18 months to reach completion — and longer to ramp up to full capacity. By the time most new manufacturers are shipping modules in bulk, the tariffs could be nearing sunset.

Any investment in manufacturing would have to be predicated on a belief in long-term competitiveness at scale without tariffs. With potential exclusions for Free Trade Agreement countries in the ITC’s injury determination, the U.S. would also compete with other geographies that may offer better support or cheaper costs.

But U.S. upstream solar manufacturing isn’t impossible (and given the interest, one or two suppliers might pull the trigger regardless). Paper exercises by manufacturers indicate that pricing (with good margins) for domestically produced multicrystalline modules could be between $0.42 per watt to $0.50 per watt at the gigawatt-scale by 2020. That’s compared to projected average volume pricing of $0.25 per watt to $0.34 per watt for Chinese Tier 1 suppliers. And while the gulf seems large, a number of creative alternatives to tariffs could help bridge the gap.

Six alternatives to tariffs

So what could the U.S. do to support real investment in domestic solar manufacturing without sacrificing a strategic market?

1) Support domestic products with a tiered investment tax credit

The federal Investment Tax Credit has been a clear driver for historical solar growth and will soon step down as solar begins to compete economically with traditional power generation. Instead of stepping the ITC down from 30 percent to 10 percent, keep it at 30 percent for domestic manufacturing.

With turnkey utility PV system engineering, procurement and construction (EPC) prices nearing $0.85 per watt by 2020, a 20 percent difference in the ITC would level the playing field between foreign and domestic manufacturing. Arguably, it could also drive up the federal government’s returns on the ITC.

2) Expand federal targets for renewable procurement

Government and military renewable purchases can already give preferential treatment to U.S. products through the Buy American Act and Trade Agreements Act-compliant procurement. By expanding federal renewable (specifically solar) procurement targets, the federal government can reduce costs, increase energy independence and support domestic suppliers at the same time.

3) Direct collected duties toward supporting domestic manufacturing

If the Trump administration truly believes in the art of a (good) deal, it should take the duties collected from existing tariffs on Chinese and Taiwanese solar products and equitably redirect them toward new manufacturing investment. In other words, let’s build a wall of solar manufacturing and get China to pay for it.

4) Provide loan support or guarantees for U.S. suppliers

The much-maligned DOE loan guarantee program could be another effective tool in two ways. First, the program can offer loan guarantees directly to domestic manufacturing facilities (hopefully conducting heavy diligence to avoid another Solyndra). Second, the program can offer preferential treatment to loan guarantees for power plants that utilize innovative, domestically manufactured technology.

5) Subsidize the solar supply chain

A dated (but still informative) research study by NREL from 2013 indicated that China’s advantage in cost of module production primarily came from purchasing power at scale, as well as low-cost regional equipment and material supply.

Indeed, part of the Department of Commerce’s rationale to levy existing anti-dumping/countervailing duty tariffs on Chinese solar modules (which have been in place since 2012) was predicated on its belief that China’s government involvement distorted pricing on key materials like polysilicon and aluminum extrusions.

To beat China at its own game, the U.S. needs to invest in the full bill of materials, not just the primary pieces of the module value chain. Copying from China’s textbook, low-cost loans, technology development assistance, cheap land and other forms of non-monetary encouragement should go beyond silicon, wafer, cells and modules to include encapsulants, coatings, solar glass and other solar materials.

6) Provide assistance for workforce and technology development

One common reason for not bringing manufacturing to the U.S. is the relative scarcity of experienced solar manufacturing engineers. Like the proposal to invest in technology, the U.S. also needs to invest in ideas and people.

While a talent pool of solar production engineers may not seem like much, we always point to knowledge-sharing as a key driver toward pushing crystalline-silicon solar costs down. Indeed, a parallel example for CdTe came just a year after First Solar acquired the IP from GE’s failed CdTe effort (PrimeStar) — efficiencies skyrocketed to parity with standard multicrystalline silicon in the span of a few years.

Proliferation and free movement of solar manufacturing expertise increases the chances of continued innovation that can further drive down solar costs — and R&D with day-to-day access of operating factories at scale smooths the path of technology from lab to roof.

We can’t say for certain that these investments will yield a thriving U.S. solar manufacturing sector for years to come. But if the U.S. hopes to lead solar innovation, an investment that seeks to lower the cost of domestic solar is the better path.


MJ Shiao is the head of Americas Research at GTM. Shayle Kann is the senior vice president at GTM and head of GTM Research.



Source: gtm

September 25, 2017



Suniva, SolarWorld and Their Opponents File New Trade Remedy Proposals

Photo Credit: Suniva

The Section 201 solar trade case moved into the remedy phase this week as stakeholders filed recommendations on how to shore up the U.S. solar cell and module manufacturing business.

The proposals were submitted in response to the U.S. International Trade Commission’s determination last week that imported solar cells and modules have caused “injury” to U.S. producers of crystalline silicon photovoltaic (CSPV) products.

Pre-hearing briefs and statements on possible remedies were due by Wednesday, September 27 and made public on Thursday, ahead of a public hearing on October 3.

In their filings, trade case petitioners Suniva and SolarWorld urged commissioners to take swift and strong action to “stop the bleeding” and allow U.S. solar panel manufacturers to “grow and thrive.”

“The crisis caused by foreign market overcapacity now facing the U.S. CSPV cell and module industry is so extreme, the financial losses so great, that, to be effective, any remedy that is recommended to the president by the commission must be bold, extensive, and multifaceted,” wrote Suniva, which launched the Section 201 trade case in April.

With respect to proposed remedies, the financially troubled solar manufacturer recommended a tariff of 25 cents per watt on CSPV cells — down from its initial 40 cents per watt request — and 32 cents per watt on CSPV modules. A 32-cent per watt tariff on modules would bring prices in line with those that existed in late 2015.

According to Suniva, 32 cents is equivalent to 50 percent of the average unit value for solar modules during the case reference period of 2013 to 2015. A 50 percent ad valorem is the statutory threshold for a new tariff. However, as Suniva’s filing notes, module prices are likely to settle between 35 and 40 cents per watt once the hoarding prompted by the trade case ends. If that’s the case, the proposed tariff for modules would be closer to 100 percent of the present day unit value.

In order to attract new investment in the domestic manufacturing industry, Suniva also urged commissioners to recommend four-year tariffs on cells and modules. In accordance with the statute, the tariffs would ramp down over the four-year period.

Additionally, Suniva requested a floor price on all imported solar products of 74 cents per watt, down modestly from the 78 cents per watt in the initial petition. The proposed floor price would also decline over time.

Suniva’s co-petitioner SolarWorld made the same tariff request for cells and modules in its filing — starting at 25 cents and 32 cents per watt, respectively. But rather than request a floor price, SolarWorld proposed an import quota starting at 0.22 gigawatts for cells and 5.7 gigawatts for modules.

Similar to Suniva’s proposal, the quotas become modestly less severe over the requested four-year remedy period.

Setting a minimum import price is unprecedented for this type of trade case and could cause a major setback for the broader U.S. solar industry, said Shayle Kann, senior vice president at GTM. In practice, though, quotas could have an equally damaging effect on U.S. solar industry players that rely on low-cost solar products to do business.

“I’m inclined to say the volume quote would be slightly preferable for the downstream industry to the minimum import price,” said Kann. “But it’s still a very big tariff.”

Petitioners presented the quota and the floor price options “to illustrate to the commission the necessity of having an effective remedy,” according to a Suniva statement.

Both companies said they believe an effective remedy must include two parts: either the requested tariff plus Suniva’s requested module floor price or the requested tariff plus SolarWorld’s requested quota.

Additional remedies: Buy American, tax credits, direct assistance

The remedy proposals don’t end there.

Suniva’s and SolarWorld’s briefs go on to suggest additional efforts to shore up the few remaining U.S.-based solar cell and module manufacturers, including executive orders directing U.S. governmental agencies to adopt a “Buy American” policy for all solar cells and modules purchased by federal agencies.

The petitioners also proposed that the U.S. conduct a study of cyber, electrical grid and national security risks by using non-U.S. manufactured CSPV cells and modules; initiate bilateral and multilateral negotiations to reduce global excess capacity of cells and modules and restore a supply and demand balance in the global market; and consider the disbursement of funds to those seeking the development of new or additional manufacturing capacity relating to the CSPV cell/module supply chain.

SolarWorld went further to propose that the government to fully fund the Department of Energy’s SunShot program’s research grants for the duration of the tariff period. It also recommended amending the Investment Tax Credit program to keep the incentive at 30 percent in place from January 1, 2020 — when the credit is slated to start ramping down — for projects that use domestically produced cells and panels.

The idea of extending the ITC for U.S.-made products also appeared in a recent Greentech Media article by GTM Research analysts Shayle Kann and MJ Shiao entitled “6 Ways to Encourage American Solar Manufacturing Without Import Duties.” All in all, the petitioners cited three of the analysts’ six recommendations.

However, SolarWorld’s brief does not include material from the GTM article that depicts the damage likely to befall the solar industry if the petitioners’ demands are met. In a scenario where the ITC approves a 78-cent floor price, GTM Research estimates that the remedies would eliminate nearly half of potential solar deployments over the four-year remedy term in exchange for limited new domestic module manufacturing.

Both Suniva and SolarWorld’s filings also reference a news story Greentech Media published before the injury finding that explored how foreign manufacturers were preparing to cope with the obstacle of tariffs, should they be imposed.

The article was submitted as evidence that trade remedies could increase foreign investment in U.S. manufacturing. However, the filings do not acknowledge reporting that explains why the limited timeline of the tariffs and capital investment needed to set up a factory make it highly unlikely that a manufacturer could profit from building a new U.S. plant before the remedy expires.

The Solar Energy Industries Association (SEIA) underscored this point in its ITC filing this week. Global trade restrictions at the maximum level permitted would provide little benefit to the domestic solar cell and module manufacturing industry, the group argued, because tariffs that impose a greater cost on importers would logically push cell and module prices higher. Higher prices then hurt demand.

“[T]he adverse demand effects and limitation on domestic industry capacity will make it impossible for the industry to become profitable,” SEIA wrote. At the same time, downstream and service segments of the industry, as well as other solar parts manufacturers, would see significant harm.

As a result, SEIA said restrictive trade relief would fail two critical statutory requirements: 1) that any ITC trade remedies “effectively assist the domestic industry in adjusting to import competition,” and 2) that any remedy “cause greater economic and social benefits than costs.”

To accomplish these objectives, the best solution is to offer direct assistance to ailing domestic cell and module producers — not to impose trade-restrictive measures, SEIA argued. Among other things, the trade group proposed offering up to $10 million per year to help the petitioners achieve scale and compete in all segments of the solar market.

How much tariff-free capacity is out there?

On timing, SolarWorld urged the ITC to deliver a remedy to the president ahead of the November 13 deadline in order to prevent further imports before the remedy takes effect. The surge in imports occurred in response to the threat of tariffs, as developers scramble to stockpile modules before a tariff artificially inflates the price.

“The build-up of even more inventories prior to the remedy date would render the proclaimed remedy ineffectual,” the brief states.

Based on currently available manufacturing data, GTM Research counts total tariff-free capacity of 4.7 gigawatts, including U.S.-made cells and modules, available thin film, and imports from free trade partners not covered by the tariffs.

Factoring in SolarWorld’s proposed import quotas, the U.S. market would access a total of 10.6 gigawatts of potential solar capacity for 2018. GTM Research predicts an 11.1-gigawatt market for that year, meaning a slight shortfall in product compared to demand.

Volume alone doesn’t tell the full story though, because in order for these modules to get installed there has to be someone willing to buy them. Projects that would have penciled out under the previous market won’t after prices go up, and simply having access to a certain volume of modules won’t change that.

Additionally, Suniva and SolarWorld are teetering on the precipice; there’s no guarantee that they can ramp their factories to full production capacity in a timely manner. Neither company has submitted an adjustment plan to explain how trade remedies will enable them to get ahead of the foreign competition.

If they do pull that off, and successfully reboot their manufacturing facilities, the next concern will be bankability — do buyers trust or want their product? The testimony against the two at the ITC included damning accounts from several high-profile former customers.

In many ways, the Section 201 trade case is about to get more complicated “as the ITC shifts from a data-driven injury phase to a more economic-theory and policy-driven remedy phase,” according to Morten Lund, partner at Stoel Rives practicing in the Energy Development group.

“Yet to come are the hard decisions about whether the domestic producer industry can return to a competitive position, what measures can best facilitate that transition, and the timing and content of such measures,” he wrote in a post this week.

This week’s filings are just recommendations. The ITC will take them into consideration, but will also conduct its own analysis and could arrive somewhere else entirely. Those conclusions will be sent to the president by November 13. Ultimately, the final remedy decisions rest with President Trump, who has yet to take a public position on the case.

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