Paula Mints: What’s With The Tariff Wars? Do They End?
Paula Mints is one of the top market researchers in the country. Her insights are sharp and incisive. She is also the founder and chief market research analyst for SPV Market Research. In this repost post, she says the trade wars currently raging in the solar industry must stop — or the long-term damage to the industry may be irreparable. You can read more of her insights at her blog, Notes From The Solar Underground.
This piece was originally posted to Solar Power World. It is cross-posted here with permission.
In the United States, as the acronym-laden PV tariff wars wage on, it’s time for other PV cell exporting countries to take note: Watch out — it could be you next.
Other countries exporting cell and/or module product to the United States include India, Singapore, Malaysia, South Korea and Germany, among others. Now that the tariff dispute may expand to include Taiwan as well as China, where it will all end?
The U.S. capacity to produce commercial cells and thin-film panels has steadily decreased and, at 1-GWP, is now 2% of global capacity, while the U.S. market for deployment of PV technology has increased and is now more than 4-GWp. The US is a technology importer, meaning it can’t produce enough technology to serve the available market.
U.S.-based PV manufacturing leaders such as First Solar and SunPower produce most of their technology in other countries. First Solar has a manufacturing facility in the United States, but produces most of its CdTe technology in Malaysia. SunPower produces its high-efficiency technology in the Philippines and in Malaysia with its joint venture AUO SunPower, and SolarWorld produces its cell technology in Germany and the United States.
We rely on other countries for the PV technology (c-Si cells and thin film panels) we install, and this is likely to accelerate as the end of the ITC in 2016 nears. Should new tariffs be assigned on product from Taiwan, manufacturers in other countries may well decide to build a risk cushion into the price or terms of their exports. In short, higher prices, or other means of quantifying risk, may be on the horizon.
One side of the dispute argues that the United States is a market for the deployment of PV systems and not a manufacturing center. This is currently true, but it was not always so. It is worth remembering, however, that no matter how robust the U.S. market for solar installations is currently, all markets are inherently fragile and, if history is any judge and there is a lot of it to observe (Europe for example), today’s robust market will eventually be tomorrow’s rapidly deflating market.
The other side argues that below cost or at cost pricing (aggressive pricing) has rendered U.S. manufacturing uncompetitive. This is true. However, this did not happen overnight and, while the U.S. solar industry was celebrating decreasing installation costs, a bit of insight (gross losses on quarterly reports would have provided this insight) as to why these costs were rapidly decreasing might have forestalled the wasteland that U.S. cell and thin-film manufacturing has become.
For example, some positive reinforcement for U.S. manufacturers from federal and state governments — for example, an incentive for buying U.S.-developed technology along with solid, patient funding from the government for U.S. crystalline manufacturing (still 90% or more of global deployment) would have helped immensely. But the short-sightedness of most policymakers prevented such proactive action.
The United States needs a healthy manufacturing base as well as strong domestic deployment of PV technologies. Manufacturing jobs are long term. Construction tends to be cyclical. A country that has both — manufacturing and deployment — is in a good position to offer stability to its stakeholders (employees, customers and others). Arguing that one is more important than the other is a not-useful chicken and the egg conundrum. A healthy domestic value chain also allows for better control over costs.
Trade disputes are common: the Untied States was a respondent in 121 cases listed on the WTO website. Retaliation is a common response when disputes are filed. Aside from the reality that those investigating the current PV dispute probably do not understand the dynamics of the extremely complex and fragile PV industry — its drivers, its constraints and the difficult upward battle its participants have fought and continue to fight — it is past time to talk about who the real winners and losers of these ongoing disputes will be.
The U.S. PV industry, which must compete globally, will be no stronger no matter the result of this dispute. People and companies will line up on one side or another and argue, prices will be destabilized (yet again) and producers of product in other countries may well become justifiably nervous. The real point — and it’s a question the solar industry must face lest it disappear — is where does it stop?
Want more? Try these articles:
Notes From The Solar Underground: Will The ITC Be Renewed?
Residential Solar Leases Are Encouraging Homeowners to Choose Solar
The Law Of Unintended Consequences: U.S. Challenges India’s Restrictions On Solar Exports
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Ms Mints fails to take into account the dominance of the US and Germany in the high-technology capital equipment side of the pv supply chain. Such specialisation – low-wage, low-skill China makes the modules, high-wage, high-skill Germany and the US make the equipment – is simply comparative advantage at work. If module fabs come back to either, they will be automated plants with few workers.
Mints: “if history is any judge and there is a lot of it to observe (Europe for example), today’s robust market will eventually be tomorrow’s rapidly deflating market.” The setback in Europe in 2011-12 was unusual in the fifty-year history of PV. It came just before solar reached grid parity, and was therefore vulnerable to sudden and steep reductions in subsidised incentives in Germany, Italy and Spain, driven by austerity politics not demand or technology shifts. The only country vulnerable to such a shock today is high-subsidy Japan, and post-Fukushima politics make this unlikely. Chinese subsidies are low (FIT of 15c/kwh, SFIK) and politically also very secure because of the smog crisis. The patchwork of US incentives add up to a quite low total net subsidy, and federalism means that no one component can produce a really big shock.
Pv solar is not on a cyclical upswing but a trend boom. This is characteristic of technology waves, like cars 1920-50, electricity 1880-1930(?), and mobile phones (1990 -). Look up S-curves.
James, you’re a jewel. You add so much valuable information to this site (and the others where you post).
Agreed – and thank you for such a constructive addition.
One question though – does the fact that PV Panels last longer create the potential for an overshot? (Underdamped response?) Mobile phones are replaced every 1.5-2 years on average. Electricity is a constant (and typically growing) demand, and cars are typically replaced every 3-5 years on average (though to be fair the cars are sold to second/third/forth owners who keep them on the road to an average age of 15 years. I see PV manufacturing as having the potential to overshoot the demand and put many of the factories out of business since they need to be replaced so rarely… (Though this problem is most definitely a few decades off…) That could cause a cyclical type response, could it not? (at least until the after ripple/ringing is minimized)
There is some point out there at which everyone on the planet has all the solar they can use and demand will fall. Same with wind turbines. We’ll most likely see rapid growth and in a few decades a tapering off.
Probably what will happen is that many old factories will no longer be refurbished. The industry will slow down.
Right, as with every industry… but since demand is filled for such a long time (Do we know a practical end-of-life for solar? Every 5 years they seem to make it 5 years longer…) I think demand may taper off much more quickly than supply. This will cause a saturation that kills off many solar suppliers. This in turn could be an overshot and make a shortage of suppliers a decade later when people go to buy solar to replace their panels. Repeating this behavior with smaller overshots and underflows would cause a ripple until the market slowly flattened out. This typically happens with lots of new products, but since the product lifetime is so short, many companies can weather the storm and it’s fixed in a few months without anyone really going out of business (or very few anyway). Simply because the lifecycle is so long for this product, it has the potential to have a more serious ripple.
This is, for the time, a purely academic discussion though as I don’t forsee this being an issue for at least a few decades. We’ll have more serious economic consequences when the FF bubble pops.