Testing US-China solar bonds

Last week saw the US Department of Commerce impose preliminary countervailing duties on Chinese cells and modules. The decision was widely anticipated but the lower-than-expected duties caused the share price of China's JA Solar Holdings, the world's largest solar cell maker, to surge 4.4 per cent on March 20 – the day of the announcement.

The department set duties ranging from 2.9 per cent to 4.7 per cent on Chinese-manufactured crystalline silicon cells and modules retroactively from late December. The market impact of this move is likely to be fairly limited given that the spot price of Chinese modules was $US0.93 per Watt on March 12 – 12 per cent cheaper than non-Chinese modules – according to Bloomberg New Energy Finance analysts. The 3.59 per cent duty on most of the Chinese modules would increase current prices to no more than $US0.94 per Watt.

Chinese manufacturers could face a bigger obstacle on May 16, however, when the department decides whether to impose anti-dumping duties. These are typically higher than countervailing duties.

The impact of these measures on the wider trade equation of the world's two largest economies remains to be seen. China has threatened to investigate the US government's support of its renewable energy companies and it could retaliate by imposing duties against US-made polysilicon.

Chinese companies like Trina Solar, meanwhile, have already started talking about locating manufacturing facilities in the US to escape these additional costs. "We're evaluating possibilities to build a production plant in the US," Gao Jifan, chief executive officer of the company said in an interview in Shanghai last week.

The US action is the result of a complaint by Solarworld Industries America and six other US manufacturers, including Helios Solar and MX Solar.

Solar manufacturing companies in the US and Europe have been hit by the oversupply in the market – and the consequent drop in prices. Germany's Solarworld for instance reported a loss of €299 million for 2011, and said that it could not forecast 2012 sales due to uncertain solar market conditions. Other manufacturers in the country, like Q-Cells and Conergy, are also struggling.

Germany's solar manufacturing industry will disappear within five years because of competition from Chinese companies, said Klaus-Dieter Maubach, a member of E.ON's management board. Norway's Renewable Energy Corporation announced that it would permanently close its 300MW mono-crystalline wafer plant in Norway after failing to cut costs enough to make it profitable.

Solar companies in China also have their share of troubles. LDK Solar reported fourth-quarter sales at the bottom end of its forecast and less than half the $US921 million reported the year earlier. It is slated to announce its audited earnings next month and may post a negative gross margin.

Countries from the UK to Germany are constantly reviewing and reducing subsidy support for the solar industry, putting it under further pressure. The next round of cuts is scheduled for April.

Amid the gloom, there were also contrarian signals emerging. The solar unit of car parts supplier Robert Bosch opened a module manufacturing plant in France with an annual capacity of 150MW. It may be betting on a niche market for ‘Made in Europe' panels which could be price-competitive too, if built with cells imported from Asia.