Will Biden’s Commerce Department Really Penalize Solar Power in Asia?

They are baa-aack.

The Commerce Department is again probing US solar imports from Southeast Asia, most of them by Chinese multinationals, after dropping a similar probe late last year. Solar stocks take it on the chin.

In the past five days alone, NextEra (NEE) — a Florida-based solar importer and electricity producer — lost $10 a share. first sun

, an Ohio-based manufacturer with its own facilities in Southeast Asia, has lost about $6 a share. In the five days to Friday, NextEra shares are down 11.2%, underperforming exchange-traded fund Invesco Solar (TAN) and First Solar, which is down just 7%, likely due to the fact that the Market assumes that this would be less affected by tariffs.

About a month ago, California-based solar manufacturer Auxin asked Solar Commerce to reopen its investigations into Southeast Asian solar cell and solar panel manufacturers.

According to Auxin, Chinese multinationals are circumventing existing tariffs and anti-dumping duties imposed on them by establishing themselves in Vietnam, Cambodia, Malaysia and Thailand. All of these countries accounted for over 80% of solar panel imports to the US last year. Neither of these countries had major solar factories until tariffs were imposed on China to build the US solar industry.

The petition to impose anti-dumping and countervailing duties on Southeast Asian suppliers, which would likely also affect non-Chinese companies there, includes five complaints that Commerce will investigate in the coming weeks. A preliminary decision is not expected until August.

During a conference call Thursday on the results, NextEra’s chief financial officer, Kirk Crews, said companies in Southeast Asia are holding back shipments of solar cells and modules.

“A number of suppliers are not expected to ship panels to the United States until the Department of Commerce makes a preliminary decision,” Crews said on the call. “We anticipate that some of our solar projects will be affected by this delay. Based on what we know today, we believe about 2.1 to 2.8 gigawatts of our expected 2022 solar and storage build could be delayed to 2023,” he said.

The delays in shipments appear as if companies in the region are holding US solar systems hostage in hopes of tricking importers into persuading Washington to waive tariffs.

Trade has already rejected anti-dumping and countervailing tariffs on Southeast Asian suppliers four times, and the industry – which has been overshadowed by somber comments this month from the Solar Energy Industries Association (SEIA) in Washington – suspects trade will maintain the status quo.

NextEra declined to comment on which companies they are working with in Southeast Asia.

They bought from Chinese solar giant JinkoSolar in the past. JinkoSolar manufactures solar panels in Jacksonville, Florida, but imports solar cells from its factories and partners in Southeast Asia. Jinko has been a member of SEIA’s board of directors since 2019.

Importers are now trying to argue that high natural gas and oil prices make solar more attractive, but adding tariffs to the price will hurt demand for clean energy. “Solar energy is deflationary,” Crews said.

Crews said NextEra is likely to switch to wind power projects as Southeast Asia’s solar power loses its battle in commerce.

In addition, importers also try to argue that if Southeast Asia is punished with anti-dumping and countervailing duties, they will simply buy from China. Solar power in China is already tariffed, so importers would not argue strongly for lower prices.

Crews told analysts Thursday that U.S. domestic solar panel manufacturers are “sold out by 2024” and even at full capacity “will only be able to meet 10 to 20 percent of U.S. solar panel demand at all.”

One reason for the solar protection tariffs introduced in the Trump years and partially renewed by President Biden in February, albeit at a weaker level, was the increase in solar production here. If the US is to move toward a solar-electric future, depending on Asia for all the technology to build it would be an energy security risk. The US is already energy secure thanks to its fossil fuel resources.

The domestic solar industry was not able to pick up speed as hoped. One reason: The 2020 pandemic slowed demand and closed factories in Asia.

The other reason: Lawsuits from SEIA have frozen solar tariffs for utilities, one of the most promising markets because power producers like NextEra need it for their power generation facilities.

Crews further told analysts that most module makers in the US are entirely dependent on solar cells imported from Asia, including China, to manufacture their solar panels. The US solar cell industry collapsed years ago due to China dumping, hence the tariffs.

An analyst asked NextEra CEO John Ketchum what would happen if tariffs were imposed.

“It would have an impact. We would see it in our own portfolio, with potentially 2.8 GW deferred to 2023,” Ketchum reiterated.

All participants in the call asked about the Commerce investigation. It was paramount for solar investors.

“Right now, the Department of Commerce has distributed questionnaires to various groups, and those questionnaires are being finalized,” Ketchum said. “Once they have all of this information, the groups that have standing are allowed to weigh the matter. We have reputation, so we will contribute.”

Anti-dumping tariffs coupled with Section 201 solar protection tariffs increased domestic solar supply in the US, which by 2018 had a single-digit market share.

Companies like Auxin argue that an ideal solar world would be one where the local manufacturer accounts for nearly half of demand, rather than current levels, which NextEra estimates at no more than 20 percent.

Still, a tariff on Southeast Asia would have to be quite high to offset currencies there, which trade for pennies against the dollar.

On bypass alone, it will be difficult for traders to know what China is bypassing at factories in Vietnam, for example, as many of these companies are told not to comply with US questions about supply chains.

On the inflation side, the price of solar panels has fallen over the years, in part due to technological improvements and because China is driving the price down through overcapacity. This also forces the competition to compete against China’s artificially low price points.

The current supply chain issues – caused by a mix of Covid lockdown policies and some retail play – should make China less attractive. But China has played so well before. It has made Southeast Asia its offshore manufacturing hub for solar power, among others.

Since the early 2000s, Beijing has been aligning itself with both Brussels and Washington on the future of clean energy.

Talks about climate change and a post-fossil fuel economy have sparked China’s interest in controlling these new economy supply chains.

In solar, they managed to push Europeans out of the solar business and keep alive the US solar industry, an industry that first invested in Silicon Valley.

China is currently building up its wind power industry and will become a world leader in this field in the coming years.

About Christine Geisler

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