Solar companies evaluate tariff options

Solar companies evaluate tariff options

June 01, 2017 | By Keith Martin in Washington, DC

Solar companies evaluate tariff options

Solar companies are evaluating what can be done to protect themselves against possible US tariffs on imported solar cells and panels. 

Tariffs could be imposed later this year.

Suniva, a US solar cell and panel manufacturer in Georgia, asked the US International Trade Commission in late April to impose duties of 40¢ a watt on imported solar cells and a floor price of 78¢ a watt on imported solar panels. Solar panels are selling currently for roughly 37¢ a watt. Suniva is in bankruptcy. SQN Capital, an institutional asset manager that advanced Suniva money after the bankruptcy to let the company continue operating, made it a condition to the post-bankruptcy DIP loan that the company had to ask the US government for protective tariffs. Suniva is owned roughly 63 percent by Shunfeng International Clean Energy, a Chinese solar developer and cell-and-panel manufacturer, that opposes the tariff request.

The tariffs Suniva wants would apply to solar cells and modules imported from any country, with the exception of Mexico, Canada, Israel, Jordan and certain Caribbean countries as long as they are not among the top five exporters of solar cells and panels to the United States. 

Thin-film products made from amorphous silicon, cadmium, telluride and copper indium gallium selenide would also not be affected.

SolarWorld said in late May that it would join in the request. The SolarWorld parent in Germany is also in bankruptcy.

Suniva laid off approximately 200 employees earlier in the year and has 35 remaining. It has factories in Georgia and Michigan.

The companies are asking for “safeguard” tariffs in a so-called section 201 proceeding. SolarWorld persuaded the US government to impose anti-dumping and countervailing duties in 2012 on solar cells imported from China (and later Taiwan). Those duties remain in place, but Suniva said they have been largely emasculated as Chinese manufacturers shifted manufacturing to other countries.

It is harder to make a section 201 case for safeguard tariffs against all imports than to make a case for anti-dumping or countervailing duties.

In order to prevail, Suniva must prove that solar cells and modules are being imported in such increased quantities as to cause serious injury to US manufacturers of the products. The increased imports must be a “substantial cause” of the serious injury, meaning no other cause can be more important. 

In addition, the World Trade Organization appellate body has held that a country must explicitly find that the escalating imports are a result of “unforeseen developments” before it may impose restrictions.

The government has investigated 73 requests for safeguard tariffs under section 201 since the section was enacted in 1974. Relief was granted in 35.6 percent of the cases. 

The US International Trade Commission has until September 22 to decide whether US solar cell and panel manufacturers have suffered serious injury from increased imports. Briefs are due in the case by August 8. If it finds such injury, then the commission will hold a separate hearing to decide on the relief to recommend to the president. Any recommendation to the president must be submitted by November 13. The president then has 60 days to make a decision.

The commission has recommended relief in 54.8 percent of the 73 cases to date that it investigated. Presidents have then granted relief in 65 percent of those cases. 

The last time the US imposed safeguard tariffs was a 30 percent tariff in 2002 to protect the US steel industry. The US justified the steel tariff by pointing to the Asian financial collapse in the late 1990s as the unforeseen development that led to higher steel exports to the United States. 

Suniva argues the unforeseen development in this case was the move by Chinese solar manufacturers to move production to other countries to avoid US anti-dumping and countervailing duties, leading to a surge in imports from these other countries. 

Any relief is supposed to be temporary and not remain in place for more than four years. However, the period can be extended for up to eight years.

The ITC can choose among several options, including tariffs, import quotas or orderly marketing agreements with other countries.

Any tariffs that will remain in place for more than a year must phase down at regular intervals.

Suniva is asking for tariffs declining over four years from 40¢ to 33¢ a watt on imported cells and a floor price declining from 78¢ to 68¢ a watt on modules. It also wants the US$1 billion in anti-dumping and countervailing duties collected to date on Chinese solar cells to be distributed 50 percent to US solar cell and panel manufacturers and 10 percent to US polysilicon producers. 

It wants 20 percent put into a fund that would be used by the US Department of Commerce to help reopen US solar cell and module factories that were shut down after anti-dumping and countervailing duties were imposed in early 2013. It wants the money collected under any new tariff to go into a separate fund to be used to help spur expansion of US solar manufacturing capacity. It also wants the US to negotiate directly with other countries to reduce the amount of product they are shipping to the United States.

Any tariffs at the level Suniva proposes would cripple further growth in US solar installations. Developers building utility-scale projects have had to make assumptions about future equipment costs when signing up to long-term power purchase agreements to supply electricity to utilities and corporate offtakers. The potential harm to project developers is immediate as the uncertainty created while the ITC and president consider the Suniva request makes it hard to bid on future contracts.

IHS Markit estimates the tariff Suniva wants would cause the US solar market to shrink 60 percent during 2018 to 2021.

Suniva says its two factories in 2016 were 50.6 percent of US manufacturing capacity for solar cells and 24 percent of capacity for combined cells and modules. Extrapolating from these numbers suggests 979 US manufacturing jobs are potentially at stake at US solar cell and module factories compared to some significant share that would be put at risk out of the 370,000 total jobs in the US solar sector.

Tariffs are imposed on the importer of record. Thus, where a foreign panel manufacturer sells its product in the United States through a US subsidiary, the US subsidiary must pay the tariff. The seller cannot reimburse the buyer for the tariff. Any such reimbursement must be paid to the US government as an additional import duty.

Section 201 allows an injured US manufacturer to ask for a tariff to be put in place on an emergency basis while its case runs the full course through the ITC as “provisional relief” to address critical circumstances. An example of critical circumstances is a rush to import solar equipment ahead of a possible tariff. Suniva has not asked for such relief. Any tariffs would apply to solar cells and modules passing through US Customs after the tariffs are imposed, with the caveat that the president has authority to apply any provisional relief in a manner he “considers necessary.”

The ITC notified the World Trade Organization in late May that the US is launching a safeguard investigation to determine whether it will impose tariffs. 

SQN Capital told a Chinese trade association by letter in early May that the trade case would disappear if its members bought the factory equipment that SQN financed so that a US$51 million debt by Suniva to it could be repaid, according to a report by Bloomberg. SQN Capital said later in May that it is no longer looking to negotiate such a sale.