Stephen Lacey: Today we're forming a podcasting supergroup. In the second half of the show, I'll bring my Energy Gang cohosts, Jigar Shah and Katherine Hamilton, together with my Interchange cohost, Shayle Kann, for a roundtable on what Trump's tariffs mean for solar demand, solar economics, and solar jobs. We'll answer your Twitter questions, first though, some context, and some number crunching. The US International Trade Commission, ruled this fall, that domestic solar manufacturers had faced serious injury from imported solar cells, and modules.
After review of that case, the Trump administration largely followed tariff recommendations of commissioners. On Monday, the Office of the US Trade Representative, issued 30 percent tariffs on cells and modules coming from outside America. Those tariffs step down 5 percent each year over the next four years. I asked Cory Honeyman, the Associate Director of GTM Research's Solar practice what that means for added cost per watt?
Cory Honeyman: What that equates to, is approximately a 10 cents per watt tariff in 2018, stepping down to approximately four cents a watt in year four.
Stephen Lacey: Okay, so slice that up a bit more, how does that break down by segment? How are the impacts felt differently in residential, versus utility-scale solar on opposite ends of the spectrum?
Cory Honeyman: First, and foremost, it's worth beginning with the impacts to utility scale solar, which is expected to be the most sensitive segment to the introduction of tariffs. The expectation is that of the 7.6 GW of loss demand from our base-case forecast over the next five years, around 65 percent of that loss demand is expected to come from the utility scale solar segment. That's because with every additional 10 cent per watt, or so, increase to system pricing, that equates to around a $2.50 to $3.50 per megawatt-hour addition to competitive PPA pricing for utility-scale solar. [Note: this system pricing number was changed from the original statement to more accurately reflect the impact.]
For that larger scale PV segment, you have an overwhelming majority of what's being procured by utilities being driven by large-scale solar's cost competitiveness with new build natural gas, and displacing certain coal fleets that are retiring ahead of schedule. With an equivalent tariff that begins at ten cents a watt, and steps down even still to just 4 cents a watt in year four, that's still enough of a difference to put certain emerging markets for utility scale solar, especially those in the Southeast, like Florida, Georgia and South Carolina, into a more challenging territory for being cost competitive with new build natural gas.
Then when you look on distributed solar, which is expected to be a bit more resilient to the introduction of tariffs, especially residential solar, compared to commercial solar, you still have a number of emerging markets that are just beginning to hit grid parity, offering year one savings, and some other ones that are just beginning to hit a tipping point of at least 10 percent year one savings, or payback period say less than seven years, or so. When you look at certain markets in the Southeast for residential solar, like South Carolina, and some other emerging markets in the Mountain West, like say Utah or, Nevada, that's beginning to have a comeback, a lot of those markets are just beginning to eclipse a tipping point in economics of say 10 percent year one savings, at around 2019, or so.
These are states that are beginning to scale up over the past couple of years, attracting the likes of SolarCity, and Vivint, and Sunrun, and some of those national installers, and the expectation, is that it basically pushes back a lot of these emerging markets for distributed solar, in terms of their economic attractiveness by a year, or so, as well. That's the backdrop that we're looking at, both for distributing, and utility scale with these kinds of tariff levels.
Stephen Lacey: These penalties were priced into some module supply agreements, developers, and installers were scooping up a lot of product in anticipation of these tariffs, does that blunt the impact at all?
Cory Honeyman: Yeah, that's good point, because I think when you look at how the tariffs will impact demand on a year-to-year basis, there is some messiness, in particular, over the rest of this year in 2018. What we've tracked over the past half year or so, is somewhere around 2 GW or so of modules that have been procured in advance, that can be tariff free, and support deployment in the first half of 2018 still for primarily the utility scale solar segment. There's also the role that any tariff free module suppliers, so specifically both First Solar, with its thin-film supply, and then to the extent that any domestic manufacturers, both in Suniva, and SolarWorld, can play a role in supporting supply, in particular, for the distributed segment, for SolarWorld.
All of that said, you have two factors to keep in mind that can mute some of the downturn effects in 2018, so one is the extent to which you can see advanced procurement that has taken place over the past half year, or so, and any supply that can be ramped up from domestic manufacturers, namely SolarWorld. Then the second factor to keep in mind, is that there has been an increase in module pricing already in anticipation of the introduction of tariffs, and also just due to the fact that you had this wave of advanced procurement that did shift the supply demand balance within the vacuum of the US solar market, despite global module oversupply.
For this latter point, what we've seen is an increase in module pricing over the past six months that's pushed module supply agreements priced to be above $0.40 a watt. In the near term, there is a possibility that module pricing could still stay within the current band that we've seen over the past quarter, or so, but there's still a lot of uncertainty over how this can play out. As the market begins to process the impacts of the tariffs, there's still some lingering questions over how tier 1 suppliers are going to actually price their modules into the US, and in the end, while we have seen some increase in module pricing over the past half year in anticipation of the introduction of tariffs, the reality is, is that it's not a one-for-one, where it's 100 percent accounted for at this point.
Stephen Lacey: Where does this decision fit on your best case, worst case scale?
Cory Honeyman: This is not by any means a worse case scenario, the caveat to that, is when you look at the job impact analyses that were put forth by SEIA, it's all relative, that if you're looking at the effects of say a 10 percent to 15 percent reduction to demand, what SEIA has been putting out suggests that you're looking at over 20,000 jobs that could be lost. Even with a tariff decision that is on the lower end of what was potentially going to be approved, lower than say what was initially outlined in Suniva's petition back in April, it is definitely still a decision that could've been more severe based off of what was initially proposed, but still something that has a substantial impact on the solar industry from a jobs perspective
Then from a demand perspective, an 11 percent reduction to expected deployment, while that's on the lower end of different percentage impacts that we have projected across higher tariffs in areas of $0.20, and $0.30, and $0.40 a watt, still equates to 7.6 GW. That is about the amount of solar that was installed back in 2015, so you only have to look back a couple of years ago to find a year in which this loss demand equates to an entire year of potential that was lost.
Stephen Lacey: Cory Honeyman is Associate Director of the US Solar practice at GTM Research. He joined us from the Boston office. Cory, thanks much, I know you'll be crunching a lot of numbers coming up, so we'll check back in with you as this continues to develop, and shake out throughout the industry.
Cory Honeyman: Great, thanks Stephen.
Stephen Lacey: Okay, let's get some additional commentary now on these tariffs. We pulled together the cohosts of Greentech Media's two podcasts, The Energy Gang and The Interchange, to answer, or attempt to answer many of the questions about the penalties on imported solar cells, and modules. Katherine Hamilton joins us from Davos, Switzerland, where she's attending the World Economic Forum.
Jigar Shah's out there in California on business, and Shayle Kann, who's usually in the Bay Area, is in Chicago, also on business. I just had to put out the call, and these three graciously moved their schedules around, so we could talk about this, and hopefully provide some more context for all of you out there, so thank you to you folks for carving out some time. We also put out the call on Twitter for questions, and we're going to try to answer as many of them as possible in the limited time we have, so let's get to it.
Shayle, what are your thoughts on where this stacks up on the damage scale?
Shayle Kann: On the damage scale? Well, I think it all depends on your frame of reference. If you had said, a year ago, "We're going to impose a 30 percent tariff on all imported solar cells, and modules," I think I would have said, "This is a huge deal, and is the most damaging thing that we've seen to the solar market in recent history." Then we've spent the last nine months baking in the expectation that something was probably going to happen, especially over the past couple of months knowing that the President was probably going to impose something, and 30 percent was the lower bound, because that was what the ITC had recommended.
Relative to recent expectations, I think this is viewed as a somewhat muted impact, and overall as, I know you talked to Cory already, overall, I think the impact is negative in terms of solar deployments on the US, but it's not going to stop the long pace of progress of the market.
Stephen Lacey: Jigar, your initial thoughts? What's the downside here, and is it as big as expected?
Jigar Shah: Yeah, the ITC recommended 35 percent, and the administration came in at 30 percent. I do think that there's a huge shout out to several of our friends who have strong relationships in the Trump administration, who had a lot of private backroom meetings to get them to do this. I think this is where the solar industry basically recommended the tariffs be set, and I think the fact that the Trump ministration took that recommendation, is a huge sign that the solar industry actually can play with the sharks.
Stephen Lacey: Katherine, you're over there in Davos at the World Economic Forum. You've been talking to CEOs about the impact, their thoughts on these penalties, what's the scuttlebutt there?
Katherine Hamilton: Yeah, I've talked to several, and I apologize to everybody for the noise in the background, there really is no quiet place here to go. These multinational CEOs are basically saying, "Look, there may be at a small blip, but basically the market will settle out." They didn't seem to have huge concerns about it, now, these are multinational's, so that's not speaking about the people on the ground, the smaller solar installers that are out there, who may see more of an impact on the ground. Certainly, the folks here that are the global solar developers, are not as concerned.
Stephen Lacey: Okay, so what's going to happen in the market? Obviously, in the residential sector, where modules make up a lower percentage of the overall system cost, the impact will be more muted, and in the utility scale sector, where margins are very thin, and module prices make up a much larger percentage of the overall development cost, we could see some greater impacts.
Shayle Kann: Yeah, so it's definitely still true that the impact is weighted further towards utility scale than towards distributed, and residential, in particular, for the reasons that you mentioned. I think in the short term, it's going to look like the reverse of that, because utility scale developers had much more capacity to do early procurement. There had been this run-up in purchasing in advance of potential tariffs, and utility scale developers can buy in big volumes, so they had the ability to do that.
There's at least a couple gigawatts of modules that are going to get installed in 2018 that won't be subject to the tariff, because they were imported before the tariffs took place. Ultimately, in 2018, it's not going to look like that big a deal for the utility scale market, and the bigger impact will be felt in 2019, and 2020, once that early procurement shaves off. In the residential sector, like you said, it's a smaller impact on the economics of projects, which means that market should be more resilient.
I think the big impact there, is in the states that were just on the margin of economic competitiveness for residential solar, I'm particularly partial for example to Wisconsin, because I'm from Wisconsin. Wisconsin has a residential solar market that did not exist basically at all a couple of years ago, and really just started to pick up. You saw Sunrun enter Wisconsin, for example, in the last 18 months, that's the state where you could see the market turn back off for a period of time until the economics return.
Stephen Lacey: Jigar, how does this align with previous tariffs issued through the Commerce Department? These are additive tariffs, meaning they could be stacked together, and that opens up potential negotiations through the USTR with China, to develop some compromise here. What's the state of play as it aligns with previous tariffs implemented by the government?
Jigar Shah: Yeah, I think it's a good question. It's important to note that we had two rounds of tariffs that were added to solar panels under the Obama administration, and this tariff is on top of those tariffs, and those previous tariffs, which were led by SolarWorld raised about $1.5 billion, which is sitting at the Department of Commerce. What's really interesting, is that if the Trump Administration actually had the capacity to follow through on any of its promises to its voters, they could actually negotiate a deal for that money with China, where you vacate the silicon tariffs in China, the module, all cell tariffs here over time, and then you use that money to help build gigafactories to build solar manufacturing in the United States, which I think is what we all would love to see happen.
It's all on the backs of solar installers. Just to put this in perspective, global module prices, without any tariffs, are probably in the $0.28 a watt range, and so the fact that these tariffs will probably cause modules to clear the United States at $0.45 a watt, means that we're paying something in the order of $0.17 a watt in tariffs.
Stephen Lacey: I agree with what Jigar just said, and would just add onto it. The reason I think it's interesting that the USTR specifically noted that they're interested in a negotiation where they might settle the existing tariffs, is two reasons, one, as Jigar mentioned, China retaliated once we imposed those tariffs, by imposing their own tariffs on imports of polysilicon, which was basically the one solar product that the US still exported. It really hurt the companies that were doing that, and it was the one source of solar manufacturing in the US that saw a lot of exports.
You could get rid of those polysilicon import tariffs, and the US producers can export again. The second reason I think it's interesting, is that one of the things we've missed out on in the US over the past couple of years, as we've had these tariffs on China, is some of the more innovative, newfangled solar technology that's coming out of the big solar manufacturers in China, because they would set up manufacturing facilities in other Asian countries, especially in Southeast Asia, to serve the US in order to avoid the tariff, but those wouldn't necessarily be the newest generation of their highest efficiency product.
There's some solar technologies that we're just not seeing in the US, that we could see again in that case.
Katherine Hamilton: Yeah, I agree that I think that the biggest impact, and the reason the multinational companies are not as concerned, is that they have other markets that they can go to. One word of warning that I would say about any negotiation that we try with other countries, is I'm getting a lot of buzz about this, is you really have to trust all the parties in the negotiation, and because of the capriciousness of our administration right now, that is greatly diminished. I think it will be very difficult to see something where there's a big negotiation, and everybody comes to the table.
It would be nice to think that could happen, but I believe it's diminished.
Stephen Lacey: Let's get into some specific questions from Twitter users, but Catherine, one last question for you, since you're there and Davos, what is the buzz about the Trump administration's policies on energy, and more specifically solar, and renewable energy? These tariffs were expected largely, but just general thoughts on what people are talking about related to the Trump administration?
Katherine Hamilton: Yeah, there's a lot of talk about how we're not upholding, that we don't want to uphold our climate agreement. I got pinged by people from Saudi Arabia about that today, about us not upholding our commitments, while they are. Also, there is some attitude that coal is coming back in the US, and I just say, "What?" That's just not going to be a thing, but that narrative has really carried forward, so there is just this thought that there's going to be increased emissions from the US, there will be fewer renewables, and more coal, just based on what the administration is saying.
Stephen Lacey: Okay, I'm scrolling through many of the suggested topics here from Energy Twitter, thanks to all of you for sending in your questions, really good ones, and ones that we have ourselves. I guess the first one that I've seen from a couple of people, would be, "What is this 2.5 GW cell quota all about?" In theory, two and a half gigawatts of cells will not be subject to the tariff, and I think a lot of people are wondering how that shakes out, whether there are any exemptions there, whether those cells need to be integrated into US modules, who wants to take that one first?
Shayle Kann: I could take a stab at it, so basically what that means, is that in any given year, the US will be able to import two and a half gigawatts of cells without paying any tariffs. That goes to benefit a US-based module assembly manufacturer, so if you just do the last step in the value chain, then you're not necessarily going to have to pay the tariff, if you can get in under that two and a half gigawatts. What that really means, is there are close to two and a half gigawatts of module assembly facilities in the US already, SolarWorld being among the bigger of them.
SolarWorld does import cells, though they manufacture cells as well in smaller quantities. Also, like the Tesla Panasonic facility in upstate New York is importing cells still, and there's a few others. Probably what it means, is that those domestic manufacturers will be able to operate at more full utilization. It probably does not mean that you could set up a new, or a bunch of new manufacturing facilities in the US, to assemble modules, and not have to pay the tariff for it.
Jigar Shah: What if someone brought cells into Mexico, and then shipped them to the US under NAFTA, would that be exempted?
Shayle Kann: No, because specifically in the ruling, USTR decided not to exempt Mexico, and Canada, so anything getting imported from Mexico, and Canada, as I understand it, is treated like something getting imported from anywhere else.
Stephen Lacey: Yeah, that's a pretty big deal, and a couple of listeners asked us specifically about that, whether there are any exemptions, what we know about exemptions, which were suggested by some commissioners at the International Trade Commission, but were not ultimately abided by, by the Trump administration.
Shayle Kann: This is a good time for a caveat, which is, we don't yet have the official ruling in the Federal Register, what we do have, is a fact sheet that was issued by USTR. In that fact sheet, it has a section on country exclusions, and it specifically states that Mexico, and Canada are not excluded. What it doesn't say anything about, is Singapore, which is the other country that actually has any meaningful solar manufacturing that was recommended to be excluded in the ITC recommendation.
It is possible, though I think pretty unlikely that Singapore would be exempted in the final decision, but as I understand it, the country exclusion section of what the USTR said, basically just listed off a bunch of countries that are not excluded, so it seems pretty likely that all imports are going to be treated equally.
Stephen Lacey: A couple of questions about jobs impacts. The Solar Energy Industries Association, who of course put out an analysis a while back, and an updated analysis after this decision, showing that there would be about 23,000 job losses. They looked at estimated solar demand under five different scenarios, and they used this economic development impact model developed by NREL, and so their number is 23,000 jobs. Does that seem high to any of you, or is that in line with the reduction in demand that we'll see?
Jigar Shah: Well, it's certainly in line with what GTM, and others are predicting, right? There's a lot of folks who've said there might be 8 percent to 9 percent reduction in volume in the US, because of these tariffs, mainly because of utility scale projects, where others get scaled back, or Wisconsin falling out as a market, etc. If the solar industry has 260,000 employees, well, then 23,000 is 8 percent. To me, I think that ultimately, I don't think there will be a lot of job losses, as much as less job growth.
The solar industry continues to innovate, and I do think that there is an opportunity for states to play a big role in figuring out how to counterpunch this tariff, by putting in more mandates for renewable energy. I think you also see a tremendous amount of pushing from corporate buyers of renewables, that are saying to Dominion, and Virginia, or others, like, "Hey, I don't care that these tariffs are there, you just have to figure out a way to install it anyway, and it maybe costs .8 cents a kilowatt hour more than you expected."
Katherine Hamilton: Yeah, Jigar, I completely agree that analysis assumed a static growth, where I think there are going to be some new markets opening up in the Midwest, and in the southeast, and so I think while it might slow down, states will come in with new policies, and I think we'll see maybe not as strong a growth as we've been seeing, but I don't think we're going to see a decline.
Shayle Kann: I don't think they're claiming that there will be 23,000 job losses in the form of layoffs from existing jobs, I think they're saying 23,000 jobs that otherwise would have been created, will not be created. That does incorporate growth in new states, and growth in the market overall, it's just saying, had there not been these tariffs, there would've been more growth.
Stephen Lacey: This question came specifically from Sam Boykin, who asked, "Then what can municipalities, and states do to protect those solar jobs, and grow the industry?" Any other thoughts on current policy movement, or potential policy movement that could prevent some of this slow down in jobs growth, or potential job losses even?
Jigar Shah: When you just take that we are still in cities, as well as campuses, and in other jurisdictions, they have not even come close to maximizing the amount of rooftop solar, and ground mounted solar that they could accomplish within their territory that they control.
Katherine Hamilton: One thing that we hope will come out of the State of the Union, is that the president will be announcing an infrastructure package, and as you look at infrastructure, and what that means, and the need to do public/private partnerships, we're going to need to have state, and local governments coming together with the federal government, and investors cost-sharing, and I think that will hopefully increase the ability for us to look at policies, and projects for renewable energy to make up for some of this loss.
Stephen Lacey: Okay, this brings us into another big question, which is, "Are manufacturers going to open up new facilities as a result of the ruling?" We've heard from a number of companies, as reported on by our senior editor, Julia Pyper, who's done some phenomenal writing on this, so kudos to her, that a bunch of companies, BYD, Trina, and Longi, are all exploring opening up new facilities. The question is, are the tariffs steep enough? Is the two to four year window really enough to encourage a company to open up robust manufacturing facilities? Thoughts on the potential impact now that we have hard numbers.
Katherine Hamilton: I think, from a policy perspective, that it's great when companies want to build manufacturing, but then you need state, and local governments to be welcoming, to come up with incentives to compete for those factories, to make sure that they have land, or infrastructure to really build manufacturing, and that takes a while to do. I think it would be great if there were a pipeline of potential plants opening up, but I think state, and local governments are going to really need to step up, and open their arms to it.
Shayle Kann: We've been somewhat skeptical, and I remain somewhat skeptical about a renaissance in domestic manufacturing as a result of these tariffs for a couple of reasons. One, is the timeline, which you mentioned Stephen, which just to run through it, you have now four-year tariffs that are getting imposed. In many of these cases historically, when we've imposed section 201 safeguard measures like this, the tariffs are ultimately taken away early, because of a WTO complaint, so that may, or may not happen here, but you've got some risk that the tariffs don't actually last the full four years, let alone any longer.
The tariffs step down 5 percent each year, and so if you're setting up a manufacturing facility that you're going to have to spend hundreds of millions of dollars on, and it's going to take you 12 to 18 months to even get up and running, the length of time during which you get a benefit from the fact that you're not paying import tariffs, is pretty short for a facility that's supposed to have a long lifetime. You really have to believe that your facility is going to be competitive, even after the tariffs go away, otherwise there's no reason to do it.
The second reason just briefly, is that this cell exemption is only two and a half gigawatts, and like I said before, that'll get met, or at least close to filled up by existing manufacturers. If you're setting up a facility in the US, and you really want to avoid tariffs, you probably need to do cell manufacturing in the US in addition to module assembly. Cell manufacturing is more expensive, and harder to do, so for both of those reasons, I believe that these companies are seriously considering it, but I think they're not seriously considering it, just because of these tariffs, I think, like Catherine said, they need state, local incentives, they need a lot of support in order for it to make sense, not just import tariffs on everybody else.
Stephen Lacey: Somehow I don't think we're going to get a lot of guidance from the White House on local solar policy.
Jigar Shah: Well, I think that this goes back to America lacking the ability to do big things, and I think like under Ronald Reagan, we actually had SEMATECH, which was a government supported organization that was separate from the government, but they organized the semiconductor industry to make sure that those jobs didn't leave the country, and go to Taiwan, and other places, and in fact we could do that here, right? With the $1.5 billion we have at the Department of Commerce, plus the additional money coming in from this tariff, there is an ability to subsidize a $1 billion Gigafactory off the back of one of these polysilicon manufacturing facilities that we already have in the US, but it requires a level of organization that the Obama administration never had, and I can't imagine the Trump administration has added.
Stephen Lacey: Yeah, there are a lot of moving pieces to make that a reality, but I suppose that's the best case scenario, right? We set pricing back by a year and a half roughly, we have some negotiated settlement, and you use money set aside to support domestic manufacturing. The price impact on developers isn't horrible, or as bad as expected, some of those penalties have already been priced in, and you potentially get some buildout of domestic manufacturing. I don't know how likely that scenario is, but that certainly is one upside scenario to all of this. What's the downside scenario? What's the worst case here?
Shayle Kann: Trade war, I think?
Stephen Lacey: Right.
Shayle Kann: Truly, right? The worst case scenario probably isn't specific to solar, it's that this, combined with ... Trump initiated tariffs on two section 201 proceedings yesterday, it was both the solar case, and industrial washers, and so we've already seen some anger from Korea, and China, probably some other countries too, but those are the two that I've seen. I don't know, worst-case scenario to me would be that this is the opening salvo in what becomes a true trade war.
Jigar Shah: Well, what would be fascinating, I'd love your perspective from Davos Catherine, but what would be fascinating is if all the countries ganged up together, and decided to put tariffs on US exports of LNG.
Katherine Hamilton: Yeah, one of things I've been involved in is S&P Global has teamed up with Carnegie Mellon on all of these maps of flows for crude, and LNG, and it's pretty interesting, because one policy change can completely adjust the entire flow of the map, and who gets what, and who gets to benefit.
Stephen Lacey: I think the final outstanding query that we all have, is what comes next at the WTO? Certainly there will be challenges to this on the global scale, and I guess we'll await the final language when this is submitted to the federal registry in about a week, and then all eyes turn to the WTO, where previous rulings on steel, through section 201, were struck down basically by the WTO. They were called illegal under international trade laws. What should we be looking for as this moves onto the global stage?
Jigar Shah: Well, the way the WTO works, is that the countries that are affected by these tariffs would appeal to the WTO. The WTO would rule on their appeal, and in the case of steel, they would then say, "You have the right to issue retaliatory tariffs," so it's not that they would get rid of this tariff, they don't have the power to do that, but they would allow the countries to put retaliatory tariffs on. In the steel case, they realized that President Bush was sensitive to reelection concerns in 2004, and so the European Union put in tariffs on Florida oranges, and things that would greatly impact his reelection chances, and then it was amazing how five days later, the Bush administration repealed the steel tariffs.
I don't know that the Trump administration is smart enough to figure all this stuff out, so I don't know that the WTO is going to actually have as big of an impact here. I think he would just say, "I don't care about those other industries that you thought I cared about anyway."
Shayle Kann: Yeah, I think that's right, and that's the concern about that how this turns into a trade war, which is the WTO historically has always ruled against section 201 tariffs when they've been imposed, and then challenged. We've never won one of those challenges, the USTR before we announce these tariffs, tried to set the stage for a WTO challenge, and justify the tariffs, but assuming that there is a complaint for the WTO, and that the US does lose again, Jigar's right, all it does, is allow for retaliation, and historically that's been sufficient, but that's exactly the thing that you could imagine would be different in the Trump administration.
That's an unprecedented scenario for the US, where the WTO rules against us, there's retaliation, and we don't do anything about it.
Stephen Lacey: I would be remiss if I didn't bring this back to the petitioners, to Suniva, and to SolarWorld, is this going to make those companies whole? Is this going to bring the operations of those troubled companies back in the US?
Shayle Kann: I would say yes, on SolarWorld, and no, on Suniva probably. SolarWorld is an operating company, it does manufacture a lot, it has facilities that it can now scale back up to full operation, as I said before, this cell exemption actually helps SolarWorld. I think they'll probably be operating at full capacity. In the long term, does it save them? Probably not, and there's lots of evidence that in the long term these section 201 safeguard measures don't do a whole lot to support domestic industries, because once the tariffs go away, you revert back to square one.
I think that'll be the case, but for the next few years, I think it does help SolarWorld. Suniva's a little bit further gone, so I have a hard time imagining they come back all of a sudden.
Jigar Shah: Yeah, this is a case study in capitalism. This is why you have destruction of weaker players, and making room for stronger players, and keeping a weak player like SolarWorld around is not in anyone's best interest.
Shayle Kann: Also, SolarWorld is for sale, and has been publicly up on the ... This is SolarWorld US by the way, is for sale, and the sale process as I understand, it was held up by waiting to see what would happen with these tariffs. I think in all likelihood it just means SolarWorld's going to fetch a larger price in the market, and probably get sold pretty soon.
Jigar Shah: Why would you buy SolarWorld? Wouldn't it be more cost-effective to just build a new module assembly facility that was fully automated in some other state that gave you incentives?
Shayle Kann: That's an interesting question. You've got a reasonably well depreciated asset base that you're not going to have to spend a bunch of capex on in order to set up. The question is, I guess is it more expensive to retrofit, assuming that you wanted to automate it, and put the newest technology in place, you're better off retrofitting, or building a new thing. I think the state incentives part of that is probably an important part of the equation, but my guess is that, while you could be right Jigar, that it might make more sense, somebody will probably come along to buy SolarWorld either way.
Stephen Lacey: I think y'all did a pretty good job answering these questions. I feel like we've wrapped our arms around this decision, given the limited information that we have. I'll ask you what you are all trying to learn answers for in the coming weeks, Katherine, let's go to you first there in Davos. What kind of questions are you going to be asking people as it relates to international trade, and this specific solar decision, while you're talking to CEOs, and major industry thought leaders there in Switzerland?
Katherine Hamilton: Yeah, part of what I want to understand, and it always is helpful to me doing US policy, to understand what the global policy implications are, and what are people doing elsewhere. Where are they moving forward, and does this have any impact on them. It's just really good to get out of your own space, and into a place that you talk to people from completely different perspectives, to hear more about how they think about clean energy policy.
Stephen Lacey: Well, I hope we'll get a good report back when we catch up with you when you come back stateside, and it's interesting, because trade penalties seems to be ... They are very common in the solar industry right now globally. They dictate a lot of national solar policy, and so I'll be keen on hearing how people are responding to this latest trade penalty issued by the Trump administration. Jigar, what outstanding questions do you want to answer over the coming weeks?
Jigar Shah: Well, for me, I really do think there's a tremendous opportunity here on negotiating a deal around vacating the Obama era tariffs, and putting in place US manufacturing. I just don't understand why that would be difficult, and I do think that there will be a tremendous amount of pressure on the people that are paying these tariffs, right? There's only five, or six Chinese companies that are putting up most of the money here. I think there will be a tremendous amount of pressure on them to figure out a solution to this problem, and there's a lot in it for them, right? Because if we did build a manufacturing facility in the US, it would be those five, or six companies that would probably be in the best position to run it.
Stephen Lacey: The pressure would come from whom? From the solar energy industry? From China itself?
Jigar Shah: From the Chinese government.
Stephen Lacey: From the Chinese government, okay.
Jigar Shah: Right, because the $1.5 billion sitting at the Department of Commerce is Chinese money, and you can imagine the Trump administration spinning it to say, "I got the Chinese to spend money on building a one gigawatt manufacturing facility in the United States," and the Chinese, what they would get out of it, is one of their companies would actually run the facility.
Stephen Lacey: Well, that's actually a really good point. If someone can figure that out, and convince the President that it would be a win for him, if he can make it about himself, then it seems like something he'd be willing to support for sure. Shayle, what about you, what are some outstanding questions, things that you're exploring, that we don't have full answers to yet?
Shayle Kann: Well, what I need to get smart on, is more I guess immediate, and logistical than anything else, which is how will these tariffs be imposed? They're supposed to get imposed at customs according to, as I understand it, the customs value at the time of import, so what is that price, right? That dictates how big the tariff will ultimately be, and thus, the final price of solar panels in the US. Prices had been in the high 30s in the US. In the run up to this decision, they jumped up into the mid, or high 40s, will they pop back down into the 30s? Who reports that price? What does that actually mean in terms of basically how do you impose a 30 percent tariff? What is that calculated based on?
That presumable has been solved in other cases where there are import tariffs, but I don't know how it works logistically.
Stephen Lacey: Shayle Kann, Jigar Shah, Katherine Hamilton, thank you all so much for taking the time to explore this issue. Everyone of you is traveling this week, and you all made it happen, so our listeners benefit greatly, and we're going to continue exploring this issue over the coming weeks, as the projections get more refined, and we start seeing how the industry reacts, and the international negotiations unfold, if at all they do.
I'm Stephen Lacey, this has been a collaborative episode between The Interchange and The Energy Gang. Thank you all for tuning in, if you have other questions you want us to answer, contact us at [email protected]. Be sure to follow both The Interchange and The Energy Gang anywhere you get podcasts, and follow us on Twitter as well. Take care, we will catch you next week. This has been a production of greentechmedia.com.