If the remedies sought by Suniva in its Section 201 trade petition are implemented, the U.S. solar industry could lose up to 88,000 jobs, according to the Solar Energy Industries Association. As an industry, we should do everything we can to fight it, but the truth of the matter is that the 201 is here, and we are already feeling its effects.
Module prices have increased by more than 20 percent since the opening of the case, and module availability is extremely limited in Q4 of 2017. Companies are taking aggressive measures to prepare for the downturn, from stockpiling modules to selling off assets. Developers and contractors large and small need to plan for how they will do business under a restricted trade regime that could last for the next four years -- or longer. It’s critical that companies refine their business strategies today to manage potential outcomes of the 201 case.
Possible outcomes from a 201 petition
Most people in our industry believe the 201 petition will result in a minimum import price of 78 cents per watt for imported solar panel, as requested by Suniva. Others suggest that it will be closer to 55 cents per watt as a compromise to both support Suniva and avoid killing the market entirely. But while these are both rational assumptions, they are not steeped in the reality of the 201.
The truth is that the U.S. International Trade Commission has never established a minimum import price for a product in a 201 case. Instead, the ITC issues decisions based on tariffs, quotas and tariff-rate-quotas. So, as you are evaluating the best strategies for your company, it is important to understand all of the possible scenarios and develop strategies to minimize your exposure to rapidly rising panel prices.
Tariffs are a tax imposed on the import of all solar panels or cells. The tariff is paid by the importer of record and is absorbed through higher prices passed on to the consumer or lower profit margin.
Developer strategy:
- Ensure that your purchase orders clearly state that the panel manufacturer or affiliated sales arm is the importer of record, otherwise your company could be liable for the tariff.
- Establish business relationships with the approximately 10 crystalline silicon photovoltaic companies that manufacture in the U.S. (as long as they use U.S. cells) and thin film companies around the world, all of which will be exempt from any tariffs applied in this case.
Quotas are government-imposed trade restrictions that limit the number, or monetary value, of solar panels or cells that can be imported over a specific period. In our case, this means that the ITC could issue a restriction on the volume (either by megawatts or by value) of panels imported from any one country. For example, the ITC could issue a decision that limits annual imports from any one country to 1 gigawatt or $350 million. If applied uniformly across all import countries, we would experience a shortage of panels in the U.S., resulting in a rise in prices and a contraction of the solar market.
Developer strategy:
- Establish relationships with a diverse set of suppliers from different countries to help ensure you have an adequate supply of panels under a quota scenario.
Tariff-rate-quotas (TRQs) combine two policy instruments designed to restrict imports -- quotas and tariffs -- into a complex equation where quotas limit the amount of imports that come in from each country and tariffs are applied to all imports above and beyond the quota levels. For illustrative purposes, a TRQ could be applied that limits “tariff-free” imports to 500 megawatts. All imports beyond the quota would be subject to a tariff (for example, 25 cents per watt). The ITC could make this a fixed tariff or one that increases as further import levels are achieved. This is a common remedy at the ITC, and the most likely outcome from the Suniva petition.
Developer strategy:
- Purchase your modules early in the year to avoid rising tariff rates.
- Negotiate fixed price contracts that are not subject to increases from tariffs.
- Understand how the tariff structures change based on import levels.
- Monitor actual imports from countries that manufacture solar modules over the course of the year.
- Shift your purchases to a different country/manufacturer when each country reaches its quota and higher tariff levels are set to secure the best prices.
All countries are not treated the same
A 201 petition is designed to protect the domestic manufacturing industry and applies a penalty to all countries (yes, all) that import a product into the U.S. However, not all countries are treated the same. Any country can seek to negotiate special treatment (higher quota levels and lower tariffs), with special regard going those countries that have an existing trade agreement with the U.S. (there are 20). For our industry, this includes imports from Korea, Singapore, Mexico and Canada. The only real advantage, however, goes to NAFTA countries that will receive separate assessments.
Developer strategy:
- Foster business relationship with companies that manufacturer cells in Canada and Mexico, and as a second priority, Korea and Singapore.
Next steps
There are several milestones that the industry needs to look out for when tracking the 201 case. Here's a brief rundown:
- August 15: The ITC will hold a hearing to allow the petitioners and the respondents to voice their positions on the petition. While no decision will come from the hearing, the Q&A may give us some insights into areas of concern for the ITC.
- September 22: ITC decision on whether the domestic CSPV industry has suffered serious harm due to imports. This is a major milestone and will either end the case or begin the remedy process -- circle the date on your calendars.
- October 3: If the ITC determines that the industry has suffered harm, then an additional hearing on the remedy will be hosted by the ITC.
- November 13: The ITC will issue recommendations for action to President Trump.
- January 12, 2018: The president issues his decision on the remedy. He can either accept the ITC recommendations, throw them out completely, or adjust the remedy as he sees fit (more or less strict).
- January 27: This will be the effective date of the remedy if the president’s decision is consistent with the ITC’s recommendation and there are no special agreements with foreign countries.
- If the president makes a recommendation that is different from the ITC or if there are separate agreements with individual countries, then the effective date will be pushed out until April.
While we all hope that the ITC will reject the 201 petition, you must plan now for doing business under a restricted trade regime. The three best things that your company can do right now is to make sure you are not the importer of record; work with a diverse set of module suppliers in different geographical locations; and have a team on board that can monitor the situation and modify your strategy depending on industry developments. With solid planning, you will be prepared for any decision rendered in the case.
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Rhone Resch served as the president and CEO of the Solar Energy Industries Association for 12 years. He is now a managing partner for VIMAC Ventures and founder of Advanced Energy Advisors where he helps solar companies develop growth strategies in an uncertain political and business environment.