Published on January 26th, 2018 | by Steve Hanley0
Trump Tax On Solar — About More Than You Think
January 26th, 2018 by Steve Hanley
Figuring out who wins and who loses as a result of the new solar panel and solar cell tariffs imposed by the alleged US government is tricky stuff. As senior editor Zachary Shahan has pointed out, most major news organizations don’t understand what just happened and are filling the airwaves with misinformation, disinformation, and outright lies.
The Known Unknowns
Here’s what we know. China has made solar energy a national priority. After catapulting itself into a leading role in international manufacturing — thanks in large part to electricity generated by burning massive amounts of coal — China found itself choking to death on the detritus created by its own success. China decided to stop poisoning its citizens with filthy air (something the current administration is happy to do) and invested billions in solar energy research, technology, and development.
Not surprisingly, all that emphasis on solar energy made China the world leader in manufacturing solar panels and solar cells. Until very recently, about 80% of panels and cells used in the US came from Asia, a fact that helped two foreign-owned solar panel and cell manufacturers — Suniva and SolarWorld Americas — located in the US to go out of business. You might think both companies were the ones who complained to the US International Trade Commission, but hold on, kemo sabe, there’s more here than meets the eye.
Who Are The Real Parties In Interest?
According to Bloomberg, the real parties in interest are Wall Street investment banks looking to find a way to get their money back after loans they made to those two companies went sour. Centerbridge Partners specializes in so-called “distressed assets” and is one of the largest creditors of SolarWorld AG, the parent company of SolarWorld Americas. SolarWorld AG filed for bankruptcy last May.
JP Morgan Chase & Co is a creditor of both Suniva and SolarWorld Americas. The new tariffs may help Centerbridge and JP Morgan Chase recoup some of their losses, especially if a buyer can be found for either or both companies. The tariffs are expected to boost the liquidation value of both.
Another player behind the scenes is SQN Capital Management. It loaned $50 million to Suniva and would like its money back, please and thank you. Suniva was the first to bring a complaint to the International Trade Commission. Jeremiah Silkowski is SQN’s chief executive officer. He tells Bloomberg, “We are not in this as a hedge fund looking to make a killing, but the market is distorted and this was our only appropriate action. We are the ones trying to protect US manufacturing jobs. We are the ones trying to protect U.S. energy independence.” And trying to protect their own wallets, one might add. (Note: Tariffs were placed on specific Chinese solar cells and solar panels in 2012 for dumping and excessive subsidies from the Chinese government to support their manufacturers. This 2017 case does not go down the same road — there’s no official claim of dumping or excessive subsidy. The argument is just that the low price of imported solar products hurt these two companies — while helping thousands of solar installation companies and tens of thousands of employees at those companies.)
Other predators lurking in the financial swamp of creditors who might possibly benefit from the new tariffs are Marathon Asset Management and Bank of America’s Merrill Lynch International.
How Much Will Cost Go Up?
There is a lot of speculation about how much the new tariffs will cause prices for solar panels and cells to go up. Bloomberg New Energy Finance projects that the price of large solar power plant installations will increase by less than 10%. The panels themselves represent less than 30% of the total costs for such projects. Residential solar prices should rise by 3% or less because the cost of equipment for rooftop solar installations is not the predominant factor. Sales, engineering, and permitting costs represent the largest part of rooftop solar systems.
Markets seem to have already discounted the effect of the tariffs. “Investors are not too worried about the news, because these sectors have already discounted possible tariff moves by Trump,” Linus Yip, chief strategist at First Shanghai Securities, told BNEF by phone. “The implementation isn’t a shock or a surprise to them.”
Meanwhile, GTM Research predicts “a 11% decrease in installations over the next 5 years, a reduction of around 7.6 gigawatts of installed solar between 2018 and 2022,” as Joshua Hill has reported, and the US Solar Energy Industries Association estimates 23,000 job losses in 2018 alone.
What’s The Real Deal Here?
Some Chinese solar manufacturers such as Longi Green Energy Technology and JinkoSolar are hinting the new tariffs could induce them to build new factories in the United States. But the tariffs expire after only 4 years. It takes almost that long to buy land, build a factory, and get it into production. “Are you going to spend millions of dollars over the next few years for four years of tariffs?” asks Gordon Johnson, a New York-based analyst at the Vertical Group. “When it goes away, that plant is priced out of the market.”
The US and China have been bickering over solar products and pricing since at least 2011. Some may recall Solyndra, the solar start up that blew up in President Obama’s face and took a lot of taxpayer dollars down with it when it failed, something that was in good part attributed to low solar prices out of China. A little noticed part of the latest tariff decision is a directive to the US Trade Representative to open a dialog with China that could resolve all of the outstanding solar trade issues that exist between the two countries.
Suan Teck Kin, head of research at United Overseas Bank Ltd in Singapore, told Bloomberg in a phone interview, “That’s why the markets aren’t reacting in a very negative way. From the US point of view, they probably want to send a message, ‘Get to the table, let’s negotiate’ rather than really punish these producers.”
Would Donald Trump really put tens of thousands of jobs at risk and delay America’s transition to renewable energy in order to satiate the salivating jackals of Wall Street and try to strong arm the Chinese into making trade concessions? You bet your sweet bippy he would. Of all the people in the world who are misinformed on these issues, he may be the most clueless. It is simply unfortunate that so many have to suffer at the hands of an egomaniac who doesn’t read and spends his days learning about the world from Faux News.
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