It is not unusual for a solar power company to go bankrupt, but it is unusual when a bankrupt company’s death throes threaten the rest of the industry.
Ever lower prices has put relentless pressure on solar panel manufacturers, and the demands of financing continuous rapid growth have led to a long list of bankruptcies of solar power developers with the prospect of more to come.
Last month, solar installer Sungevity joined that list, and his month solar panel manufacturer Suniva filed for bankruptcy, citing competition from cheap Asian solar panels.
But Suniva is not going gently into Chapter 11. Shortly after filing for bankruptcy, the Norcross, Ga., company filed a petition with the U.S. International Trade Commission under Section 201 of the Trade Act seeking relief from foreign manufactured crystalline silicon photovoltaic cells and modules.
The solar panel invasion
A flood of cheap Asian solar panels has hurt many manufacturers, but lower overall prices resulted in a boom in solar installations, which, in turn, contributed to Suniva's demise.
There is an inverse relationship between solar panel costs and solar installations. The cost of solar power has fallen by 1/150 compared with 1970’s level costs, while installations have risen 115,000 fold, according the Bloomberg New Energy Finance.
Suniva wants to stop that flood. The company is asking for tariffs on all solar panels imported into the U.S., not just panels from China. The company also wants the establishment of a floor price on solar panels. Suniva is seeking an initial additional tariff of $0.40/watt and a floor price of $0.78/watt.
China was able to circumvent past trade restrictions by moving its manufacturing facilities to other countries. Chinese overseas investment in solar panel manufacturing has sunk the capital costs of panel prices to about $0.10/watt in some emerging markets.
Suniva, which 64% of it is owned by Shunfeng of China, is obviously trying to protect its manufacturing business against cheap imports. If the company is successful in its efforts, there could be positive implications for other U.S. solar manufacturers, but there could be widespread implications for the rest of the industry.
“There is the potential for a harmful effect on many segments of the market,” said Abigail Ross Hopper, executive director of the Solar Energy Industries Association.
If Suniva is successful, many in the solar power industry would have to pay higher prices for solar panels, and those prices would be passed on to consumers. The result could be a decrease in solar installations and it could even mean that some existing solar power contracts could be rendered uneconomic, Hopper says. “It could affect the livelihoods of hundreds of thousands of American workers,” she said.
Among the “most obvious beneficiaries,” if a tariff were to be imposed, would be First Solar and Tesla’s SolarCity, which both have U.S. panel factories, UBS analyst Julien Dumoulin-Smith said in an April 28 report.
Overall, though, he noted that the imposition of a tariff or price floor “would be an unequivocal negative for the wider solar industry domestically, outside of the relative few with domestic manufacturing.”
Dumoulin-Smith noted that much of the increase in solar installations has been driven by price declines. And, with pricing roughly about $0.35//watt, a $0.78/watt price floor would represent about a 120% price increase. That could wreak havoc for developers who have already submitted bids that include assumptions about continued price declines. That could render developers’ returns into the “mid-single digit range,” well below their cost of capital, he said.
The result, according to Dumoulin-Smith, could be that developers might not be able to profitably build projects. And to an extent, he said, “we would expect developers to walk away from projects – leaving significant stranded assets in the pipeline as costs on projects shoot up in a relatively short period of time.”
As these effects increase the cost of capital for developers and drive up the break-even point for large solar projects, “we would expect to see development significantly scale back in competitive solicitations,” Dumoulin-Smith wrote.
The ITC now has four months to investigate Suniva’s claim. If the agency finds that an increase in Chinese solar panels is causing or threatening “serious injury,” it would have two months to come up with a remedy and make a recommendation to the White House, which then would determine whether or not to implement those recommendations.
It is hard to know where the Trump Administration would come down on the matter. During his campaign, Donald Trump repeatedly said he would revise trade agreements that he viewed as unfair to American interests.
The Trump Administration could view the case as a chance to champion American manufacturing. On the other hand, the Trump administration has not so far shown itself to be a champion of renewable energy.
Ironically, imposing stiffer tariffs or trade restrictions on foreign solar panels could allow the administration to achieve both those goals. It could level the playing field for some U.S. solar panel manufacturers, and by raising the cost of panels could make solar power less competitive compared with other forms of generation.
Dumoulin-Smith notes that higher solar panel prices could possibly provide marginal support coal and be beneficial for both power markets and gas-fired power plants.
