U.S. government antidumping penalties on imports of Photovoltaic (PV) cells from China could suspend nearly half of solar module shipments to North America this year, impacting pricing, inventories and project timelines, according to an IHS iSuppli PV Perspectives report from information and analytics provider IHS (NYSE: IHS).
The U.S. Department of Commerce on May 17 announced a preliminary determination in its antidumping duty investigation of imports of crystalline silicon photovoltaic cells from China. These cells are used in modules that form complete solar systems installed on houses, buildings or commercial PV-generation facilities.
Before this announcement was made, IHS estimated that 2 Gigawatts (GW) worth of solar modules shipped into North America in 2012 would be imported from Chinese manufacturers. This would have represented as much as 60% of the market for North American use.
Given the high tariffs proposed by the Commerce Department, many Chinese players will suspend shipments to North America while business plans are modified to account for the tariff. This could represent the temporary removal of up to 1.5 GW worth of stopped shipments to the region, accounting for 45% of the total market in 2012.
¡°The Commerce Department action will have a major impact on the North American solar market, constraining supplies and driving up prices for modules and systems,¡± said Mike Sheppard, photovoltaics analyst with IHS. ¡°Even when alternative supply lines are adopted, the penalties are likely to add as much as 12% to the cost of solar modules, lowering the average Return on Investment (ROI) for solar systems in the region by as much as 2.5 percent.¡±
Solar Flare Up
The Commerce Department preliminarily determined that Chinese producers/exporters sold solar cells in the United States at dumping margins ranging from 31.14% to 249.96%.
The Commerce Department¡¯s mandatory respondents were Suntech Power and Trina Solar, and these two companies were subject to unique tariff rates of 31.22 and 31.14%, respectively. All other companies singled out in the investigation received an average duty of 31.2%. However, Chinese companies not singled out in the investigation will receive an even larger 250% duty.
The reasoning the Commerce Department gave for the large tariff on these players is to deter Chinese companies from forming new joint-venture companies with existing firms that are not on the list of penalized entities.
The duties to be imposed are preliminary in nature and will need to be finalized by both the Commerce Department and International Trade Commission (ITC) through final determinations on October 9 and November 23 of this year. However, these duties will be enacted retroactively 90 days prior to the date of the preliminary decision in February 2012 if they are imposed.
The Outsourcing Option
Interestingly, the Commerce Department included this statement in its announcement:
¡°Modules, laminates, and panels produced in a third country from cells produced in the PRC are covered by this investigation; however, modules, laminates, and panels produced in the PRC from cells produced in a third country are not covered by this investigation.¡±
For the Chinese module suppliers, this represents an opportunity to sidestep the tariffs.
¡°The Commerce Department statement means that many Chinese cell manufacturers will be incentivized to outsource to third-party companies in other countries in order to get around the duties,¡± Sheppard said. ¡°A popular option will be to utilize cell specialists operating in Taiwan. This will allow the Chinese players to avoid the high tariffs ranging from 34 to 250%. However, such a strategy also will add 10 to 12% additional cost for the modules, based on the margins required from the third-party contract manufacturers and from additional logistics charges.¡±
The impact of the outsourcing to Taiwan will be somewhat more limited on solar system prices compared to module prices. System pricing behaves in a different manner from module pricing given the additional cost elements involved.
Accounting for a 10% increase in total module cost based on the cell outsourcing strategy mentioned above, the cost of installation for a ground solar system rises to US$2.65 per watt, up from US$2.56 per watt.
As a result, the ROI for solar installations is expected to only decline by 1.5% to 2.5% based on the cell outsourcing strategy.
¡°This reduced ROI means some investors may think twice when valuing other vehicles to put their money,¡± Sheppard said. ¡°However, most investors will not be deterred.¡±
The attached figure presents how the breakdown of costs in solar systems changes when the cost of solar modules rises.
Solar module inventory levels will quickly deplete in North America based on the lower shipments from Chinese players, increasing module prices as a result given that Chinese modules were also the most aggressively priced. These price increases will be passed onto the system level, negatively affecting ROI for projects installed this year.
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