Will Biden’s Commerce Department really punish solar in Asia?

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They are crazy.

The Commerce Department is back to investigate U.S. solar imports from Southeast Asia, most from Chinese multinationals, after dropping a similar probe late last year. Solar stocks take it on the chin.

In the past five days alone, NextEra (NEE) – a Florida-based solar importer and power producer – has lost $10 per share. First Solar

FSLR
, an Ohio-based manufacturer with its own facilities in Southeast Asia, lost about $6 a share. In the past five days ending Friday, NextEra shares fell 11.2%, underperforming the exchange-traded fund Invesco Solar (TAN) and First Solar, which was down only 7%, likely in because the market assumes they would be less impacted by tariffs.

About a month ago, California-based solar maker Auxin Solar asked Commerce to reopen its investigation into Southeast Asian solar cell and solar module makers.

Auxin says Chinese multinationals are circumventing tariffs and anti-dumping duties imposed on them by setting up shop in Vietnam, Cambodia, Malaysia and Thailand. All of these countries accounted for more than 80% of US solar panel imports last year. None of these countries had large solar factories until tariffs were imposed on China in an effort to develop the US solar industry.

The petition to add anti-dumping and countervailing duties to Southeast Asian suppliers, which would likely impact non-Chinese companies there as well, includes five complaints that Commerce will investigate in the coming weeks. A preliminary decision is not expected before August.

During earnings call On Thursday, NextEra chief financial officer Kirk Crews said companies in Southeast Asia were holding back shipments of solar cells and modules.

“A number of suppliers are not expected to ship panels to the United States until the Commerce Department issues a preliminary ruling,” crews said On call. “We anticipate that some of our solar projects will be impacted by this delay. Based on what we know today, we believe about 2.1 to 2.8 gigawatts of our planned 2022 solar and storage construction could grow to 2023,” he said.

The shipping delays seem to give the impression that companies in the region are holding U.S. solar power hostage in hopes of getting importers to pressure Washington to get away from tariffs.

Commerce has already rejected anti-dumping and countervailing duties on Southeast Asian suppliers four times, and the industry – ripe with misfortune and sadness remark from the Solar Energy Industries Association (SEIA) in Washington this month – suspects the trade will maintain the status quo.

NextEra declined to comment on which companies they partner with in Southeast Asia.

They purchased from Chinese solar giant JinkoSolar in the old days. JinkoSolar manufactures solar panels in Jacksonville, Florida, but imports solar cells from its factories and partners in Southeast Asia. Jinko is a member of SEIA Board of Directors from 2019.

Importers are now busy trying to argue that high natural gas and oil prices make solar power more attractive, but if tariffs are added to the price, it will hurt demand for clean energy. “Solar is deflationary,” Crews said.

Crews said NextEra would likely switch to wind power projects if Southeast Asian solar loses its trade fight.

Moreover, importers are also trying to argue that if Southeast Asia is punished with anti-dumping and countervailing duties, they will simply buy from China. Solar power in China is already priced, so importers would not argue for lower prices.

Crews told analysts Thursday that domestic solar panel makers in the United States were “sold out of solar panels through 2024” and even at full capacity were “capable of meeting only 10-20% of the American demand for solar panels in the first place”.

One of the reasons for the solar backup tariffs put in place in the Trump years and renewed, in part, by President Biden in February, albeit at a lower level, was to increase solar manufacturing here. If the United States is to move toward a solar-electric future, reliance on Asia for all the technology needed to build it would pose an energy security risk. The United States is already energy secure thanks to its fossil fuel resources.

The home solar sector has not been able to gain the traction it was hoping for. One reason: The 2020 pandemic slowed demand and closed factories in Asia.

The other reason: SEIA lawsuits suspended utility-grade solar tariffs, one of the most promising markets because it’s what power producers like NextEra need for their power generation plants. .

Crews went on to tell analysts that most panel makers in the United States depend entirely on imported solar cells from Asia, including China, to make their solar panels. The US solar cell industry collapsed years ago due to Chinese dumping, hence the tariffs.

An analyst asked NextEra CEO John Ketchum what would happen if tariffs were imposed.

“It would have an impact. We would see it in our own portfolio with potentially 2.8 GW displaced in 2023,” Ketchum reiterated.

Everyone on the call asked about Commerce’s investigation. It was a priority for solar investors.

“Right now, the Commerce Department has provided questionnaires to different groups and those questionnaires are being filled out,” Ketchum said. “Once they have all of this information, groups that have standing are allowed to weigh in on the matter. We have a position, so we will weigh in.

Anti-dumping tariffs associated with Section 201 solar backup tariffs have increased home solar supply in the United States, which held a single-digit market share in 2018.

For companies like Auxin, their argument is that an ideal solar world would be one in which the local manufacturer is responsible for almost half of the demand, rather than the current levels that NextEra estimates at no more than 20%.

Still, a tariff on Southeast Asia should be high enough to offset the currencies there that trade at pennies on the dollar.

In terms of circumvention alone, it will be difficult for the Commerce Department to know what China is circumventing in factories in Vietnam, for example, because many of these companies are being told not to comply with US questions on supply chains.

On the inflation side, the price of solar panels has come down over the years thanks in part to improvements in technology and because China is driving prices down through overcapacity. It also forces the competition to compete with China’s artificially low prices.

Ongoing supply chain issues – caused by a mix of Covid lockdown policies and some trading games – should make China less attractive. But China has played that well before. It has turned Southeast Asia into its offshore manufacturing hub for solar power, among other things.

Since the early 2000s, Beijing has taken inspiration from both Brussels and Washington on the future prospects of clean energy.

Discussions of climate change and the post-fossil economy have sparked Chinese interest in controlling these new economy supply chains.

They succeeded in solar, kicking Europeans out of the solar sector and putting the US solar industry, an industry first invested in Silicon Valley, on life support.

China is currently busy developing its wind industry and is expected to become a world leader in this field in the coming years.

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