Intersolar NA 2013: China trade case and a future that can’t come quickly enough

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Jerry Brown threw the first punch at Intersolar North America, but the event in San Francisco this week ended in a defensive mode.

California's governor warned domestic opponents of solar: “Get out of the way, the sun is shining brightly in the state of California!”

But Gordon Brinser, president of SolarWorld America, accused the Chinese government of bullying the rest of the world when it came to domination of the solar industry.

“The retaliatory efforts by the Chinese government to start slapping tariffs on wine, pasta, cars, piping, polysilicon, it puts an explanation mark on their behaviours,” he said. “It's a political reaction that they're trying to bully us, bully the world into what they want to do and that is control the solar market. Those behaviours alone tell you that without clear enforceable agreements or trade laws, China left unchecked will continue to manipulate the world market.”

Eicke Weber, director at the Fraunhofer Institute for Solar Energy Systems, however, warned of the Gordian knot of trying to settle the solar trade wars with tariffs in US and Europe.

“Telling Germans they should only build cars for export and just for German and European markets, would be a very strange suggestion,” he said. “Every company wants to dominate the world with its product.”

Weber's world-view of where the solar industry is heading is essentially a rosy one, even if it does require a continuing bloodbath to get there.

Some 35GW are expected to be installed globally in 2013, by 2020 that figure could be 100GW and 300GW by 2025, he said.

“This means ahead of us we have still extremely interesting growth opportunities for companies that are able to stand it through the current times characterised by gigantic oversupply,” he said.

“It's [a case of] save your souls, run to the trees to be able to withstand the coming 12-18 more months before we really enter the new phase of expansion where we will need new production equipment, new technologies worldwide.

Pierre-Pascal Urbon, chief executive officer at SMA Solar Technology, said he did not share such a rosy view.

“We see another year of volume growth in 2013. But what has changed is that there is no growth when it comes to value. We see in the best case a down turn of at least 20% that is a challenge for the entire industry.”

In 2013, Europe's market had slowed due to the feed in tariff reductions and the upcoming tariffs for Chinese modules, which had shifted market demand to North America and Asia.

“We [now] see a larger number of smaller markets compared to previous years when we had a few markets that were big. That is a challenge because you need to have a global footprint to benefit. Furthermore, we see a fundamental change in demand right now – a shift to larger scale projects. If you don't have the right set up for that kind of market environment you're probably in difficulties. It's better to have a complete product portfolio.

“I'm not so optimistic, for the next coming years because we are just at the beginning of the doldrums. I don't see a lot of capacity really moved out of the market. Yes, a few players discontinued their operations, but often they were acquired so the capacity is still available.”

When it came to the trade dispute, it really seemed that Brinser was out on a limb, indeed the SolarWorld president looked despondent, his tall, athletic frame slumped in the armchair.

“Although one can follow the argument why this was started,” said Weber, “this whole process has a horrendous effect on the PV industry because investors in the US and Europe can no longer tell their banks how much their project is going to cost.”

But Brinser remained unapologetic about SolarWorld bringing the tariff cases in the US and Europe.

“There's a lot of concern around quality of the product. As an industry the quality of our product has to remain exceptionally high. Extreme pressure to cut costs has some individuals cutting costs too fast.

“Quality standards do have to become more stringent. We should require all manufacturers worldwide to adhere to them. That would help weed out the black sheep, but there will always be individuals trying to make short cuts.

“Yes, the [trade case] provides uncertainty for the banks and some of the investors out there. But the uncertainty that illegal trade practices brings on to the market will be greater if it's not corrected.”

In some ways, yesterday's CEO panel was redolent of the grumblers about the schoolyard bully who turn on the schoolkid who finally throws a punch in frustration.

“My argument has been that SolarWorld did not start this trade fight,” said Brinser. “SolarWorld was the first to stand up and say something has to be done. Here in the US we saw many of our manufacturers go out of business and Europe due to the illegal trade practices started by the Chinese industry.”

But at least one potential alternative solution appeared agreeable to all panellists.

Johannes Kneip, managing director at Centrosolar, said that he didn't have any problem with government hand-outs for capital investments such as fabrication plants.

“The problem is that if you get additional money for financing your variable costs,” he said. “If you have a credit limit of $1bn you can use it up and at the end you don't need to pay it back, it's been converted to stock and you get a new tranche then of course it's a big incentive to buy market share. That has to stop. Fixed costs reduced by investment is OK that's not the gamechanger but variable cost lowering is not acceptable.”

Much like the tariffs announced last year in the US, the European industry has been divided over the EU tariff case. Although preliminary tariffs have been set at 11.8%, the European Commission could increase duties to an average of 47% from next month.

But the consequences could be dire for the already struggling European economy, said Kneip.

“It doesn't help by doing a global trade war which could also go into other industries, in the European case it will very quickly go into cars and machines and that could trigger an economic crisis. I agree there needed to be something done, the duties are a good red light signal from America and Europe against the Chinese. But it can't be a solution these financing practices have to stop and Chinese should operate like European business – if you are making losses you go bankrupt.”

Brinser even suggested that the US may increase its duties after reviewing Europe's decision in November.

“The Europeans … found dumping margins over 80% in the European market, in the US it was 30% in most cases. The US will do another review in November and we expect those dumping margins to go up substantially based on the European findings.”

Weber drew the panel to a close with some exhilarating statistics.

By 2050, 10,000GW would account for 10% of global electricity supply at 2c-3c per kwh in today's prices, he said. At current rates it would take 300 years to get there, so the industry needs to grow rapidly and in any case, why stop at 10,000GW when sunshine “is by far the lowest cost way to produce electricity”?

He compared the PV industry to the memory market, suggesting that there will be a boom in demand that mirrors that in the semiconductor industry.

“The question is who will be the Intel of PV or GM of PV and dominate it – that is a decision that might just be falling in the next 5 years,” he said.

For many in the industry, however, Weber's vision of the future cannot come quickly enough.

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