The upshot of the US International Trade Commission ruling back in November 2012 that imposed import duties on c-Si modules coming into the US (that used China-made c-Si cells) was simply to increase a trend that had already been in place within the PV industry for some years: the use of outsourcing key component supply (sometimes wafers, often cells).
No new strategy was required by the leading c-Si module suppliers from China to ship to the US. They just needed to balance the supply of outsourcing to ensure that Taiwan cells that were made into modules went to the US.
In the past, there was no great driver for where these modules shipped; nor was there a geographic driver behind whether Taiwan cell makers or tier two Chinese cell makers were used for supply, as OEM partners, or as tolling sources.
At the time, a duty on cells and modules would have certainly required faster action by the leading players in China. By no means a showstopper to growing market share in the US, it would have needed the leading tier one c-Si Chinese makers to do something that was slightly different then – more outsourced or OEM supplied modules.
The global PV industry has changed in the past two years
Fast forward to the start of 2014, and c-Si manufacturing is very different to October 2011 when the first case was filed. The classic model of in-house made wafers/cells/modules is largely confined to the history books. Now, flexibility and strategic use of outsourced partners is the name of the game.
This extends from companies simply wishing to ship more modules than their effective in-house capacity permits, to those that are trying to get out of manufacturing and rely on rebranding and having strong and profitable downstream business operations. Chinese and non-Chinese c-Si manufacturers have adopted this as an essential survival method in the past 12 months.
Therefore, even if the US ITC decided to impose duties on both cell and module production from China, the workaround is actually already in place. A striking example of this is ReneSola, a leading Chinese tier one module supplier that has just been ranked by NPD Solarbuzz as the sixth largest for module supplier globally in 2013.
ReneSola has the capability of shipping over 2GW of c-Si modules annually today, but almost half of the module capacity is ‘virtual’, in that it is operated by strategic OEM supply with overseas manufacturers in Poland, South Africa, South Korea, Malaysia, Turkey and India.
Similar – but perhaps not so drastic – module supply arrangements are in place with most of the leading Chinese c-Si module suppliers to the US market. Those lacking the level of volume necessary to maintain and grow market-share in the US will find no shortage of willing partners outside China, very happy to get low-risk, repeat business at the 100MW level, albeit at low margins. In fact, given that the raw material pricing is affected by the dominant (Chinese) module supplier, the OEM partner simply needs to churn out modules on tap each month.
Throw in the legal due diligence process that will accompany the new ITC case and any final ruling could be months away if challenged, and there is more than enough time for any of the Chinese to put the necessary measures in place.
OEM module outsourcing has become standard protocol
With the leading Chinese suppliers to the US market having shifted economy of scale to the multi-gigawatt level now (from a raw material standpoint, not necessarily in-house manufacturing), the economics simply of evaluating a 100MW pure-play module operations overseas are not that critical.
Within the context of striving for global market share dominance in the long term, a few pennies extra on costs for the US portion of module shipments is easy to accommodate. Of course, the US end market is a higher price market than many others, so the net effect on global margins likely evens out.
Furthermore, name a country or state that would still not welcome inward investment or overseas-backed domestic manufacturing, by way of rent-free land, subsidies, etc. Having a couple of hundred module assembly jobs is a massive deal to emerging regions, desperate to show the outside world that their renewables roadmaps are real and credible and are tied to domestic manufacturing.
What are the other options to consider?
Now, what would put the cat among the pigeons in China would be if the ITC decided that the investigation should not be confined to mainland China, but include Chinese Taipei, aka Taiwan. But this would hurt almost everyone from the non-thin-film sector selling into the US market, and the US PV market would be the biggest loser here for sure.
The other option – that would be equally destructive – would be to take things back further to wafer manufacturing. If so, then the obvious question would be: where do 5GW of non-Chinese wafers come from in 2014, with the Japanese end market likely still being prioritised over the US until 2015/2016?
Ultimately, if the ITC deems that using Taiwan cells was a non-compliant approach by the Chinese module suppliers and that AD/CVD charges should have applied, then – aside from the Chinese using foreign cell and module manufacturing – the only real hit may be a one-time retroactive charge. Whether any retroactive ruling goes back to the date of the initial filing (October 2011) or the new filing will be a very interesting question, and one that no shortage of legal representatives will be called upon to debate.
Therefore, while alarm bells have been sounding in random quarters regarding the impact of any new ITC ruling, it could be that a good dose of global reality is needed to dampen the excitement.