Could a trade war cripple solar?

China's top solar companies have warned that any punitive action against Chinese cells and modules in Europe would hurt the industry as a whole, suggesting such a move would intensify the current trade war and keep the industry from lowering costs.

Tension between Chinese and western solar groups reached a new peak after the United States imposed duties of 31 percent on solar panel imports last month, ruling in favour of local firms that accused Chinese firms of price dumping.

Industry players taking part in Intersolar in Munich, the world's largest solar trade show, were therefore abuzz with talk of the possibility of similar action in Europe.

"We are against any trade barriers. They are very silly and they don't help the industry," Shawn Qu, the chief executive of Canadian Solar, the world's No.7 solar cell maker, told Reuters.

Germany's SolarWorld, which spearheaded the legal campaign in the United States, is also planning to file an anti-dumping complaint with the European Commission "by the summer".

"If this happens it would be unfortunate," said Peng Fang, chief executive of JA Solar, the world's No.3 solar cell maker.

Depending on the size of potential duties in Europe, punitive action could deal a massive blow to Chinese makers of cells and modules.

Europe is still the most important market for solar products, accounting for 74 percent of global installations in 2011, according to industry association EPIA.

It is also the main market for Chinese producers of cells and modules who have been eating away market share vis-à-vis their European peers for years.

In 2011, 57 per cent of all solar cells were produced in China, with Taiwan a distant second at 11 per cent, data by industry publication Photon showed. At close to 7 per cent, Germany - the world's largest solar market by total installations - comes third.

Experts fear trade action in Europe could take the trade war to the next level, prompting China to return the favour by taking similar measures against western solar companies.

"Imagine a trade war. First you would have Europe implementing duties and then China would want to retaliate. Who benefits from such a development?," said Andrew Beebe, chief commercial officer at China's Suntech, the world's No.1 maker of solar cells.

Western solar companies have been at odds with their Chinese counterparts for years, alleging they receive lavish credit lines to offer modules at cheaper prices, while European players struggle to refinance.

Frank Asbeck, the chief executive of Germany's SolarWorld has long called for action against what he calls dumping by Asian cell and module makers.

Germany's solar industry has been the biggest casualty in the sectors' ongoing consolidation, and four of the country's largest solar players have filed for insolvency since December, prompting calls for less brutal cuts in government incentives on which the industry still depends.

Asked whether the company had taken any precautionary measures to prepare for any import duties in Europe, JA Solar's Fang said the group would deal with the situation when a decision had been made.

Suntech was able to successfully digest import duties in the United States by adjusting its global supply network, Beebe said, adding the group was prepared for any action in the EU.

Those against import duties also argue that any action in Europe would delay the point at which the solar industry can compete with conventional forms of energy, also called grid parity.

Until that happens, solar companies need to lower their costs further and remain profitable in light of the withdrawal of necessary state subsidies.

"The solar industry is like a marathon. It is nothing you do for the short-term," Canadian Solar's Qu said.

This article was originally published by Reuters. Reproduced with permission.