Who Are the Winners and Losers From the New Tariff on Chinese Solar Panels?

Ladies and gentlemen, we have a decision. On Thursday, the U.S. Department of Commerce (DOC) announced the imposition of antidumping tariffs of more than 31 percent on solar panels from China. The preliminary ruling, if affirmed by the DOC this fall, is expected to have significant implications on the solar industry, creating, presumably, both winners and losers. Yet, although it might be too early to evaluate the impact of the new ruling, we have a feeling there’s a good chance no one will benefit from this tariff. Is it possible?

Let’s see first what the decision is all about. According to the DOC’s announcement more than 60 Chinese firms, including companies like Suntech Power, the world's largest solar panel maker, JA Solar, LDK Solar and Trina Solar will face a 31 percent duty on their exports to the U.S., retroactive to shipments made in February. All other Chinese exporters of solar cells will be hit with a tariff of 250 percent. These anti-dumping tariffs are in addition to antisubsidy tariffs of 2.9 to 4.73 percent that the DOC imposed in March.

It is also important to note that the tariffs would apply to Chinese solar cells, regardless of where the panels are made. This is a key element here because it means that Chinese solar companies could avoid the tariffs by outsourcing the production of solar cells to other countries like Taiwan for example, then bringing those cells back to China for assembly into panels. In such case, according to the estimate of Shyam Mehta, an analyst with GTM Research, Chinese costs would increase only by 6-12 percent, which he describes as “meaningful but manageable."

“At these margins, China-based manufacturers would certainly have to raise U.S. prices to turn a profit,” Mehta added. So wouldn’t it benefit U.S.-based solar manufactures who filed the complaint against the Chinese companies in the first place? Well, not really. If Chinese companies will absorb the full tariff, their costs will be close to parity with many U.S.-based suppliers, but if Chinese companies will absorb only a 6-12 percent price increase then they can still offer panels that are 15-20 percent cheaper compared to U.S. made panels. So basically the tariff doesn’t really change much for American manufacturers – they will still be in a disadvantageous position comparing to their Chinese competitors.

There’s also a very good chance the new tariff will also result in retaliatory measures against U.S. makers of polysilicon, the raw material that goes into solar cells. “We are very concerned about the increased likelihood that China will retaliate with their own tariffs on polysilicon exports from U.S. producers such as REC Silicon. Triggering a solar trade war is not in the best interests of the U.S. solar industry or its customers,” Tore Torvund, CEO of REC Silicon, told Greentech Media.

What about solar installers? It’s not surprising to hear that they’re not happy about the decision. “If finalized, this decision would move us backward in the effort to make solar affordable for Americans. It would make prices higher at the exact moment when solar power is starting to become competitive with fossil fuels in more markets,” Sunrun’s spokeswoman told Forbes.

Estimates provided by Bloomberg New Energy Finance indicate the new tariff will raise the price to $1.11 per watt - a 17 percent increase over the current spot price of non-Chinese panels. Yet, it’s not clear yet what part of the added cost will be absorbed by installers and what part will eventually make its way back to customers. Interestingly, as GigaOm’s Ucilia Wang wrote, solar panels account for only about 20 percent of the price of a solar electric system and the rest comes from the costs of other components, sales and marketing, permits and labor. It means that solar installers actually should be able to find ways to absorb some of the cost, if not all of it, without too much pain.

And what about the consumers? It’s still early to say if and to what extent consumers will see a rise in the price of solar power. According to some researchers innovation and demand-side policy, not cheap imports, are the real keys for solid and sustainable solar growth in the United States. So if they’re right, the tariff shouldn’t make any real difference for consumers. Others however believe that there’s a good chance the trend we have seen in the past few years, where the price of solar power in the U.S. has been dropping at a dramatic pace, will be stopped at least for a short term – after all, about half of all solar systems installed in the U.S. last year used panels made in China. Still, it probably won’t stay that way for long because of growing competition between installers and the fact that the solar market is far from being saturated.

Looking back at the question of winners and losers it seems that the only ones that might actually benefit from the tariff are Taiwanese solar cells manufacturers. All the rest will probably gain nothing out of it. If this is going to be the case, the question to be asked will be - is the tariff really worth the trouble? As long as Chinese solar companies can find ways to bypass it, the answer is probably no.

Raz Godelnik is the co-founder of Eco-Libris, a green company working to green up the book industry in the digital age. He is an adjunct faculty at the University of Delaware’s Department of Business Administration, CUNY and the New School, teaching courses in green business and new product development.