The U.S. government has launched an investigation into a controversial trade petition initiated by bankrupt manufacturer Suniva and later joined by SolarWorld Americas. Specifically, the petition seeks new import tariffs on crystalline silicon photovoltaic (CSPV) cells and minimum import prices on CSPV modules made anywhere outside the U.S.
The two companies, which are the sole petitioners as of press time, argue new trade measures are necessary in order to protect domestic manufacturers amid cheap imports. Meanwhile, the Solar Energy Industries Association (SEIA) has vowed to lead a battle against the trade case, claiming it puts thousands of U.S. jobs in jeopardy.
Suniva, a Georgia-based manufacturer of CSPV cells and modules, entered Chapter 11 bankruptcy in April after laying off employees at both of its U.S. plants. The company had publicly blamed its financial troubles on “global manufacturing overcapacity, particularly in Asia, and the ongoing influx of foreign imports, which continue to drive down domestic prices.”
Suniva soon filed a petition with the U.S. International Trade Commission (ITC) asking the federal agency to conduct a “global safeguard” probe under an obscure trade law known as Section 201 of the Trade Act of 1974. The ITC officially accepted the company’s petition in May and agreed to investigate whether CSPV imports are causing “serious injury” to U.S. manufacturers. Unlike the U.S. government’s previous trade actions against Chinese and Taiwanese imports, though, the Section 201 petition would implement any new import tariffs on a global scale, rather than focus on CSPV products from a particular country. Suniva has argued that foreign manufacturers set up shop in other markets to successfully avoid tariffs. (Oddly enough, Suniva itself has been majority owned by Shunfeng International Clean Energy [SFCE], a China-based company, since 2015.)
When SolarWorld Americas, which famously spearheaded those previous U.S. solar trade cases, eventually announced it was joining Suniva as a co-petitioner, the news came as a shock – the company had initially suggested it did not support the Section 201 petition back in April. Since then, however, German parent company SolarWorld AG declared insolvency in local court. The U.S. subsidiary, which has long operated a large cell and module manufacturing facility in Hillsboro, Ore., also notified all of its employees in late May about an impending mass layoff and potential plant closure. (As of press time, how many SolarWorld Americas workers might be affected and the ultimate fate of the plant are unclear.)
In a statement, SolarWorld Americas claims the “surge” of cheap imports continues and the U.S. solar market “remains highly distorted by state-sponsored overcapacity and exports from China and other countries.”
“We have hoped and waited for serious proposals for settling the overall U.S. solar industry’s trade tensions with China, but we have received none,” says Juergen Stein, president of SolarWorld Americas. “Therefore, we have decided to join the [Section 201] case to pursue the best remedy available to us to restore fair competition in the U.S. market.”
The ITC has deemed the case “extraordinarily complicated” and plans to make its injury determination by Sept. 22. If it finds injury, the ITC will recommend a remedy to President Donald Trump by Nov. 13. However, the choice to implement a trade remedy – and, if so, to what degree – will be up to Trump.
For its part, Suniva has proposed an initial import tariff of $0.40/W per CSPV cell and a minimum import price of $0.78/W per CSPV module. According to several analysts, that would effectively double current module prices, making foreign-imported modules into the U.S. the most expensive in the world.
As of press time, SolarWorld Americas has not recommended its own remedy in the investigation. Tim Brightbill, partner at Wiley Rein LLP and trade counsel to SolarWorld Americas, states, “We will propose a remedy at the appropriate time.”
Opposition
Since the beginning, Suniva’s Section 201 petition has faced backlash from a number of industry stakeholders, both domestic and abroad, but none has been as vocal as Abigail Ross Hopper, president and CEO of SEIA.
“I want to be clear: SEIA is going to lead the fight on this petition every step of the way,” declares Hopper. She argues that the Section 201 petition “poses an existential threat to the broad solar industry and its 260,000 American jobs.”
If Suniva’s proposed trade measures get approved, SEIA claims a total of 88,000 of those U.S. solar jobs across various segments of the industry would be lost next year, with the California, South Carolina and Texas markets getting hit the hardest. Hopper says, “Our estimates show that even in the states where Suniva and its lone supporter, SolarWorld, have operations, if the petition succeeds, there would be many times more jobs lost than expected gains for two struggling companies.”
Christian Hudson, counsel for Suniva, takes issue with such rhetoric. He says, “First, we heard the scare tactic that 260,000 jobs were in jeopardy; now we hear a revised number of 88,000 – and while this is yet another inaccurate scare tactic, at this rate, we might hear accurate numbers by the end of summer.”
Notably, the ITC’s ruling to move forward with an investigation and SolarWorld’s decision to join as a co-petitioner help solidify the agency’s determination that the petitioners are “representative” of the U.S. solar manufacturing industry – an important requirement for a Section 201 case.
Hopper acknowledges that SolarWorld’s participation “certainly helps” Suniva. However, she charges, “Suniva is a bankrupt company owned by the Chinese, and SolarWorld is owned by a German parent company that is insolvent. They see this as a life raft. What seems to be an afterthought to them are the thousands of families and billions of dollars in private investment that would be left drowning in their wake if this comes to pass.”
Brightbill says, “We fundamentally disagree with these claims by SEIA, many of which were made in the prior trade cases and proved to be entirely false when relief was issued in those cases. The solar manufacturing industry, including upstream/downstream suppliers to the industry, also comprise tens of thousands of critical U.S. jobs, and solar demand will continue to grow regardless of any relief imposed. We believe that the U.S. should not be only a nation of installers. Having a strong cell and module manufacturing industry is beneficial to the U.S. solar industry as a whole and the country overall. Safeguard relief as a result of this investigation will allow struggling U.S. cell and module producers to stay in business and to grow, thrive and expand.”
Hudson adds, “Suniva believes that with a global safeguard, all aspects of the U.S. solar industry – including manufacturing and its research and development – will have the opportunity to succeed, and the U.S. marketplace will ultimately benefit from predictable behavior.”
Nonetheless, Hopper calls the proposed global measures a “blunt instrument” that “would not correct, but instead exacerbate, the underlying problem of an excess global supply of CSPV modules.” She states that SEIA advocates for “free and fair trade” and is working with stakeholders to come up with alternative solutions to the Section 201 proposal.
“Raising walls around the U.S. and inhibiting the import of fairly traded goods is not going to jump-start U.S. cell and module manufacturing,” she says. “In fact, there are better ways forward, and we’re speaking with representatives from across the industry to come up with creative options to boost the manufacturing that already exists here.”
As for what those “creative” solutions might be, Hopper admits, “That’s sort of the 640-million-dollar question – how do we support domestic manufacturing of healthy competitive companies while not putting a damper on the solar business?” According to her, potential options include work to improve domestic research and development and lock in more government support for U.S. manufacturers, among other solutions.
In its battle against the Section 201 case, SEIA has launched a “Save America’s Solar Jobs” campaign. Hopper notes SEIA’s board of directors voted “overwhelmingly,” though not unanimously, for the organization to take a leading stand. Although representatives from First Solar and SunPower, both U.S.-based PV manufacturers, are members of the board, Hopper has declined to reveal how those representatives voted. As of press time, neither company has publicly spoken out for or against the Section 201 petition.
In addition, several other industry stakeholders filed letters with the ITC opposing the Suniva petition, including U.S.-based residential solar service provider Sunnova and China-based manufacturer Jolywood (Taizhou) Solar Technology Co. Ltd. Perhaps most surprising, though, is an opposition letter to the ITC from China-based SFCE – Suniva’s majority shareholder.
Although SFCE had supported Suniva’s Chapter 11 bankruptcy filing and agreed with its subsidiary that “fierce” competition in the U.S. market and ongoing imports “from other photovoltaic manufacturers in southeast Asia at a decreasing cost” were damaging, the Chinese company disagrees with Suniva’s choice to pursue global trade actions. In an announcement, SFCE says, “As the majority shareholder (63.13 percent) of Suniva Inc., Shunfeng believes it is not in the best interests of the global solar industry for the chief restructuring officer of Suniva Inc. to file the Section 201 petition for global safeguard relief, nor does it represent the correct path to a viable solution for all stakeholders to the earlier petition for relief under Chapter 11.”
Shunfeng adds, “The global trade cooperation is vital to the sound and prosperous growth of the solar energy industry, and the U.S. solar market would not thrive if the fundamental principles of free market economy were not abided by.”
Analysis
An initial study from IHS Markit says the Section 201 petition has already “created great uncertainty” and puts the future of the U.S. solar market at risk. In a research note, Sam Wilkinson, senior research manager of solar and energy storage at IHS Markit, says the petition “poses a severe threat to the deployment of PV in the United States through 2021, as well as to the global PV supply chain.”
“Irrespective of the outcome, the case has the immediate impact that it obscures the outlook for module prices in the U.S., with module suppliers now unable to provide any future price guarantees to clients. Non-U.S. manufacturers of c-Si cells and modules do not know what prices they can offer beyond 2017,” says Wilkinson. (Please note Wilkinson uses the common phrase “c-Si” in lieu of the “CSPV” acronym.) He adds, “The price uncertainty blocks the contracting process for new PV projects in the U.S., as developers are unable to commit to bid prices.”
Although SolarWorld has yet to recommend its own remedy and the outcome of the Section 201 case remains uncertain, Wilkinson calls the full implementation of Suniva’s proposed measures the “worst-case scenario.” In that scenario, he says, “IHS Markit estimates that PV demand in the U.S. would shrink by 60 percent for the period 2018-2021 compared to its current forecast, as the market would be constrained by the relatively small amount of manufacturing within its borders.”
Furthermore, he says, “The number of economically attractive state markets for utility-scale PV using c-Si modules in 2018 would likely fall from 43 to 32 markets. This would effectively take the market back to attractiveness levels seen in 2015 and 2016.”
According to Wilkinson, the resultant drop in U.S. PV demand also would “shake up” the global supply chain and “throw the rest of the world into an oversupply situation.”
“Further price declines could accelerate demand in other price-sensitive PV markets or potentially open up emerging markets; however, this additional demand could only partially offset the reduction of demand in the U.S.,” he explains. “A projected slump in the U.S. also could impact future PV policy in China, as the government would seek to protect its industry.”
At the same time, Wilkinson says, both thin-film PV suppliers and U.S. manufacturers, such as First Solar and the Tesla/Panasonic partnership, would actually prosper, as they would not be subject to the proposed trade measures.
“These suppliers would stand to benefit significantly in the U.S. PV market and capture significant market share in their respective segments,” he states. “The lack of competition would also enable these suppliers to capture more margin.”
Complicating matters, though, is the uncertain fate of SolarWorld Americas as of press time. Wilkinson says that if the U.S. subsidiary were to follow its German parent into bankruptcy, it “could mean a reduction in the amount of capacity available that would not be subject to the import tariffs.”
Outlook
As previously mentioned, the decision to implement new global trade measures on CSPV products could ultimately be up to the U.S. president. Trump had campaigned on a promise to revive U.S. manufacturing, and his administration has already specifically mentioned the Section 201 option for separate trade issues. So, does Suniva’s case have a chance of getting approved by the Trump administration?
“With this president and his rhetoric on trade on the campaign trail, there is definitely more than a chance,” says Raj Prabhu, CEO and co-founder of clean energy communications and research firm Mercom Capital Group. “I am sure Suniva filed a Section 201 petition with the Trump campaign’s trade views and comments on 201 in mind. They are teeing it up for him if he wants to bite and get a win that he can tout.”
Matt West, a partner at law firm Baker Botts’ Washington, D.C., office, further explains, “The Trump administration made significant statements in its 2017 Trade Policy Agenda about the importance of Section 201, noting that these safeguard measures ‘can be a vital tool for industries needing temporary relief from imports to become more competitive.’ Given the president’s position in his Trade Policy Agenda, it would be politically difficult for the administration to refuse to impose relief if the ITC makes an affirmative finding of injury to the domestic industry represented by Suniva. Also, if the president imposes the trade relief measures requested by Suniva, he may be able to indirectly benefit traditional energy providers, which he has been supportive of in the past.”
Both Suniva and SolarWorld believe they have a strong case. Hudson says, “We are very confident in the picture that the facts paint – that U.S. manufacturers have suffered greatly, to the point of near-extinction, as a growing influx of foreign imports have flooded our shores, at increasingly reduced prices, due to a significant and still-growing worldwide manufacturing overcapacity.”
“Despite two successful anti-dumping and countervailing duty orders against dumped and subsidized Chinese imports into the U.S. market, global imports of solar cells and modules have steadily increased over the past few years,” says Brightbill, who, like Suniva, argues Chinese manufacturers re-located operations in order to avoid trade duties.
“As a result of these increased imports, U.S. solar manufacturers have been seriously injured,” he continues. “During the last several years, numerous U.S. solar companies have been forced to curtail production, lay off American workers, and even shut down completely. Thus, SolarWorld believes that the evidence strongly supports an affirmative finding in the safeguard investigation.”
Given that the Section 201 petition targets all foreign-made modules outside the U.S., though, would other countries likely fight back?
“This can easily lead to a global trade war,” warns Prabhu.
However, Jenny Chase, head of solar analysis at Bloomberg New Energy Finance, says, “The global solar trade war can’t get much worse. China already has stringent anti-dumping duties on imports of U.S. polysilicon, which cause U.S. manufacturers Hemlock and REC Silicon much suffering. Aside from polysilicon, the U.S. doesn’t export much in solar that the world wants. I think that the effects would be limited to the U.S., with Chinese companies regretting the lost market.”
Morten Lund, a Stoel Rives energy development partner who chairs the firm’s solar energy initiative, notes the “vast majority of cells and modules are manufactured in a small number of Asian countries,” but he “would certainly expect significant pushback.”
“China, of course, has the most at stake, and China wields significant power on the international stage. Other countries, like Malaysia, have recently made significant investments to encourage local manufacturing and will also be motivated to take action. I would certainly not expect the principal host countries to accept a broad significant tariff without objection.”
West says, “While it is possible other countries may unilaterally impose trade measures against U.S. exports, it is more likely that countries that produce CSPV cells that have exports to the U.S. impacted by Section 201 relief measures will challenge the U.S. measures before the World Trade Organization (WTO) dispute settlement body. Historically, the U.S. has not fared well before the WTO in challenges of Section 201 relief, so it is possible that if Section 201 trade relief is successfully challenged at the WTO, the U.S. could find that it will either need to revoke the trade relief or face WTO-authorized trade measures being imposed against U.S. exports.”
To help with its decision, the ITC will be holding a hearing on Aug. 14 in Washington, D.C., and if it finds injury, the agency will hold another hearing on a potential trade remedy on Oct. 3.
In the end, as Prabhu notes, “It goes without saying that it is difficult to predict what Trump might do.”
