The leadership of the solar industry let out a collective gasp of relief Tuesday. While it seems that tariffs will be imposed on China’s exports of photovoltaic cells, at least for now they are relatively minimal. Yet it’s still a fragile time for the industry and anything that raises cost within the supply chain or to the end customer needs to be viewed as a potential threat to continued market expansion.

The Department of Commerce announced its formal determination that China has in fact unfairly subsidized its solar industry and imposed tariffs ranging from 2.9 percent to 4.73 percent on three major Chinese exporters of solar PV modules. These “countervailing duties” are significantly lower than those anticipated by pundits on both sides of the issue. Many analysts had expected duties upwards of 20 percent. However, the duties announced Tuesday are just step one in a continuing process. Commerce is still reviewing the anti-dumping case and is expected to issue a ruling on it in May. Given this week’s decision, it’s a fair bet that U.S. authorities will determine additional duties should be imposed on PV trade from China.

So now it’s official. China’s hand has been slapped and we can all feel good that justice has been served. Meanwhile, in the U.S. PV module industry the slight increase in cost for Chinese PV modules will take a little pressure off of the marginal U.S.-based manufacturers that raised the original claims of unfair trade back in October. Stronger U.S. manufacturers like Sunpower and First Solar can breath a little easier, but for the rest of the PV industry, it may be different story.

Regardless of how small they are, the tariffs imposed Tuesday combined with additional uncertainty about what happens in May only add to the complex of challenges facing PV players operating downstream of the module manufacturers. This is an industry where, at least for the foreseeable future, market growth is driven by cost reduction. Unfortunately for everyone downstream of the module manufacturers, the “step” increase in module costs resulting from tariffs represents an immediate hit to the industry’s already slim margins. More importantly, if the higher costs are passed on to consumers, it threatens to put an unwelcome brake on the potential for continued demand growth.

Any sustained downturn in market demand for PV, where increased scale is the holy grail for cost reduction, will exacerbate existing pressure on industry margins. Combined with the thinner margins created by higher PV module costs, that would harm the near-term prospects for continuing solar PV adoption in the U.S. It’s likely to force a consolidation in the downstream industry; both in the number of players and on the regions where the remaining players focus. A consolidation in downstream players might be a good thing, since individual players can operate at a larger scale with greater efficiency, but a consolidation of the PV demand market is more challenging. This consolidation will most naturally be toward markets that have the most robust incentives and mandates, effectively leaving the rest of the country in a solar shadow. Furthermore, the surviving business models in the downstream PV industry will be streamlined to sell into on incentive/mandate driven markets.

With this scenario in mind, I’m most concerned about the medium- to long-term impact on the number of innovators and entrepreneurs who see a sustained opportunity for PV across the U.S. These are the unforeseen players who will jump in to create the new business models and products ultimately needed to replace cost reduction as the primary growth driver with real customer value that gets beyond simple, cheap kilowatt hours. When the downstream PV business models are streamlined to sell into an incentive/mandate driven markets there’s little extra incentive to pursue new models that create “value beyond cost reduction” for customers.

Yes, in my opinion the U.S. PV market dodged a bullet this week. We can only hope the anti-dumping case determination in May is similar. Hopefully, this will satisfy those who want to get even with China so that and they and rest of the industry can refocus on creating a robust domestic market for PV. A market that in relatively short order demands electricity services with value that goes well beyond low-cost kilowatt hours and creates the headroom in the industry to fund further innovation and new business models for suppliers, customers and electrical grid operators.

To this end, RMI is specifically working to accelerate PV deployment across the U.S. by focusing on three areas: Working with industry partners to decrease non-module (“balance of system”) costs to increase adoption and the scalability of the industry, finding solutions to increase investor confidence to ease access to lower-cost capital with lower transaction costs, and determining how utilities and other consumers of electricity services can profitably incorporate distributed, on-site solar generation into their operational and business models.

 

This post originally appeared at the RMI Outlet blog and was re-posted with permission.

Comments

  1. Wyatt
    May 24, 2012, 10:01 am

    Let the Chinese subsidize our solar power. Think of it as free money.

  2. Selena Saraniti
    Cleveland OHIO
    March 27, 2012, 7:55 am

    Lets not talk about China. They pay our bills. We will make it .

  3. Don McCallum
    USA
    March 26, 2012, 1:56 pm

    Well now, if the various governments that provide tax subsidies to purchasers of PV arrays were to withdraw those subsidies in order to ,say, reduce their monster revenue deficits then what would happen to said same PV industry? Then the industry would have to figure out how to provide a real ROI for those products which I assume would be very difficult because without those tax credits most if not all PV installations would have a negative ROI . And who would buy that?

  4. barney Linet
    geneva, ohio
    March 26, 2012, 12:52 pm

    among his other blunders, oblama is starting a fracas with China. what he should have done was to start a national project involving solar energy and funded it with the hundreds of billions that he blew on urban social “black holes” where the money has disappeared.

  5. John Mubs
    United Kingdom
    March 26, 2012, 12:21 pm

    And there was me thinking the U.S.A was for fair trade.. ahh thats right its only “Fair” if Americas making the profit.

  6. gh
    hawaii
    March 23, 2012, 8:31 pm

    so the president is making it more expensive for all of us to use solar energy