Rational MiddleAre increased taxes on imports of Chinese solar panels beneficial for the European solar market?On June 4th 2013, the European Commission decided to impose provisional anti-dumping duties on the Chinese solar panels, cells and wafers imported in the European Union. What brought this on? China was accused by the Commission of “undercutting European rivals by selling panels below cost and threatening 25,000 jobs in the European solar industry” (www.guardian.co.uk, June 4th 2013). Starting with August 2013, the tax would be set at 47.6% (europe.eu, press release on June 4th 2013). Germany would suffer the most at the hand of these dumping prices, since many of the main European manufacturers of photovoltaics (PVs) come from this country along with 15,000 jobs in the industry (www.nytimes.com, Global Edition, Business, July 28th 2013). Nevertheless, the German government and China opposed the tax raise (id., July 28th 2013).

At this point we had to ask ourselves if this tax will truly help the European solar market. Answering this question was not that easy, which is why we approached two top energy experts to formulate a balanced answer for this edition’s Rational Middle section - Prof. Dr. Wim C. Sinke from ECN and Prof. Dr. Anton J.M. Schoot Uiterkamp from the University of Groningen. You can read what they thought about the situation in the next pages. But the story is not over here.

In the last weekend of July 2013, the tax dispute seemed to find a resolution when the EU and China agreed to set “a fairly high minimum price” (0.55 to 0.57 euros) for sales of Chinese solar panels in the EU (id., July 27th 2013). The next day, EU ProSun, the industry coalition that pushed for the sanctioning of dumping prices in the first place, threatened to sue the European Commission for settling the prices at such low levels (id., July 28th 2013). While our two Rational Middle experts help us grasp the complexities of the situation, the Chinese solar panel story is TO BE CONTINUED…

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We are living at least five years ahead of our time in terms of photovoltaic (PV) solar

module prices. As a result of production overcapacity, prices have dropped far below the historic trend line. This line, the so-called price-experience curve, describes the evolution of market prices as a function of the cumulative volume produced. For more than 30 years, it has given a rather accurate description of the combined effects of innovation and economies of scale, which yielded a robust 20% price decrease on average for every doubling of the cumulative volume. Prices falling far below this line either indicate a technological miracle or drastically shrinking margins. Unfortunately, we are looking at the latter right now.

It is a devilish dilemma. Current low module prices and, consequently, low system prices enable the development of the first major self-sustained PV markets. Something we have worked on and waited for so long. This unexpected acceleration of market deployment

has also promoted photovoltaics to the rank of options that can contribute substantially to the EU 2020 target of 20% renewable energy. In other words, low prices are a blessing for the downstream part of the PV sector. However, small, zero or even negative margins are a curse for the upstream part of the sector, in particular for solar cell and module manufacturers and their suppliers. Many companies have gone bankrupt and the remaining ones don’t have the financial means to innovate. Clearly, the European manufacturing industry has suffered tremendously, but, somewhat hidden

from our eyes, an even bigger number of companies in Asia have also disappeared. Industrial technology development has almost come to a standstill and this severely affects public sector research as well since a substantial part of it is demand-driven. Therefore, too low prices are a disaster for the development of PV technology as a whole. There is a serious risk that the PV sector will lose a significant part of the valuable diversity that has been built up over decades, in which Europe has played a crucial role.

In this complex situation the European Commission has recently introduced import taxes on solar modules from China and announced to increase that taxation

if no agreement can be reached. There is broad consensus that at certain points in time solar modules could be bought at prices below the manufacturing costs of even the biggest and most efficient companies.

Unsustainably low prices that were welcomed by one part of the PV community and its customers alarmed another part. I am convinced that it is not possible to build a sustainable sector on unsustainable grounds. The question is how to respond wisely to the current unsustainable situation.

How to find the balance between energy related interests, industry and economic interests and more?

Import taxes, when increased further, will almost certainly affect PV markets in Europe. That will be a blow for many downstream entrepreneurs and for the role of PV on the short term. Indirectly, taxes may have impact on the export business of high-tech upstream companies such as equipment suppliers. Taxes will not change the very bright future of PV, but may delay its arrival.

Clearly, restoring profit margins is not sufficient for the European manufacturing industry to successfully face the fierce global competition. Consistent and ambitious policies for research and innovation, suitable regulatory frameworks and availability of capital at favourable conditions are equally important for longer-term success. A globally adopted system for quality assurance at all levels as well as environmental labelling of products will help all serious companies worldwide to strengthen their position and to build the professional terawatt-scale sector that is needed for impact.

The PV sector and its customers are not expected to reach consensus about import taxes. Short-term interests (making business) are too divided and long-term interests (building a strong, sustainable PV sector) are too general for stakeholders to agree. Therefore, I have one hope or even request: do not allow this disagreement to drive the PV subsectors apart. The entire PV sector will be worse off if we allow this to happen.

Are increased taxes on imports of Chinese solar panels beneficial for the European solar market?

“Taxes will not change the very bright future of PV,

but may delay its arrival.”

36 | NRG Magazine Edition 11

My answer to the question is NO! The answer is based on two arguments: overcapacity in the

global solar panel industry and “tit for tat”.

First, let’s discuss overcapacity in the solar panel industry. In the last decade solar energy has really taken off in many countries around the world. The main drivers were technological breakthroughs, production expansion and specific policies aimed at abating and mitigating climate change, policies which resulted in rapidly falling prices of solar panels.

Germany offers a prime example. In 1999 the country introduced the so-called feed-in tariff for energy from renewable sources. It is basically a long-term contract whereby power companies agree to allow access of solar power to their grids and to buy the excess solar power from consumers. Especially after the 2000 and 2004 updates of the law further specifying the feed-in tariff, the production, installation and use of solar panels grew spectacularly. Many German production companies were founded and thousands of jobs were created in the installation and maintenance business.

Things began to change after 2010. In a report on solar energy issued in November 2012, the Swiss bank Sarasin & Co. Ltd stated that a market shakeout was inevitable given the global overcapacity in solar panel production. In 2011 the global production capacity for solar panels modules rose to 50 gigawatts

but only a potential of 21 gigawatts was realized. The drop in prices of solar panels was stimulated by the growth of solar companies in countries like China, with low labour costs and high production volumes. At the end of February 2012 the share prices of solar panel producers fell sharply when the German government announced plans to slash subsidies for electricity generated from solar energy. Remarkably, in that same week, on February 27th 2012, the German weekly news magazine Der Spiegel reported that the Chinese solar panel boom had been supported by German financial aid. Chinese companies profited from the German government’s budget for development aid in the context of the so-called “global climate justice” programme of the German Environment Ministry. It has to be added that the Chinese company, LDK Solar invested in the German solar cell producer Sunways located in Konstanz.

All of these developments and similar ones in the USA preceded the introduction of extra tariffs on imported solar panels from China by the USA and the EU.

The “tit for tat” argument follows. Imposing sanctions seems a politically attractive measure to address unfair trade practices by other countries.

After all it seems perfectly reasonable to protect your producers if another country is perceived to unfairly undercut the locally prevailing prices. But theory and practice differ. The recent case of the solar panels trade dispute, China versus the EU and the USA, shows once again that, in general, no country or industry wins in trade disputes since they tend to escalate into economic arms races.

In June 2013 the EU imposed tariffs of about 12% on Chinese solar panels. If China does not stop the practice of dumping, the EU will raise the tariffs to about 50%. China responded by investigating whether European wines had been sold below cost in China. Ironically, a swap of spirited solar based fluids for solar panels! In the fall of 2012 the United States preceded the EU by imposing tariffs ranging from 24 to 36% on imported solar panels from China. On July 18th, The New York Times reported that China plans to impose tariffs perhaps exceeding 50% on US and South Korean produced solar- grade polysilicon, an essential material for constructing the majority of current solar panels. Clearly, a new economic arms race among WTO member states has begun. And according to the WTO Rules and Procedures, conflicts between member states should be resolved using the multilateral system of settling disputes.

In conclusion, the European Solar industry should concentrate and cooperate, innovate, focus on quality over quantity and rely on its own strength instead of trying to benefit temporarily from ill-perceived protective measures.

Are increased taxes on imports of Chinese solar panels beneficial for the European solar market?

NRG Magazine Edition 11 | 37

Prof. Dr. Anton J.M. Schoot Uiterkamp is an Emeritus Professor of the University of Groningen. His expertise is in Environmental Sciences. Prof. Schoot Uiterkamp is active at the Centre for Energy and Environmental Sciences, IVEM, Energy and Sustainability Research Institute Groningen (ESRIG) at the University of Groningen.

ArguablyUnsustainably low prices: a disasterfor PV innovation

“No country or industry wins in trade disputes

since they tend to escalate into economic arms races.”

NO... twice

Prof. Dr. Wim Sinke is Manager Program Development Solar Energy at the Energy Research Centre of the Netherlands (ECN). Prof. Sinke was awarded the European Becquerel Prize in 2011 during the 26th European Photovoltaic Solar Energy Conference in Hamburg, Germany. This prize attests his outstanding contributions to the development of the field of photovoltaics.Photo: Wim Raaijen