What is the net impact on U.S. manufacturers of the Commerce Department's final decision on Chinese solar import tariffs? During today's OnPoint, Kevin Lapidus, senior vice president for legal and government affairs at Sun Edison and a representative for the Coalition for Affordable Solar Energy, discusses the final outcome of the case and previews next month's anticipated decision by the U.S. International Trade Commission on whether Chinese practices are damaging U.S. industry. Lapidus also explains how Commerce's decision to not expand the scope of the case affects U.S. manufacturers.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Kevin Lapidus, senior vice president for legal and government affairs at Sun Edison, and a representative for the Coalition for Affordable Solar Energy. Kevin, thanks for coming back on the show.
Kevin Lapidus: It's great to be here, thank you.
Monica Trauzzi: Kevin, the Commerce Department has issued its final decision on the case against Chinese solar imports, and the final anti dumping rates. Some numbers here, they range from 18.32 percent to 31.73 for participating companies, and 249.96 for non-participants. And then on countervailing duties, the range is from 14.78 to 15.97.
Kevin Lapidus: Sure.
Monica Trauzzi: OK, so how do these numbers differ from what we saw proposed a few months ago? What's the disparity?
Kevin Lapidus: Great question. The numbers are actually down a little bit. You have to back out another 10.54 percent, so when you look at the dumping percentage, it's a little misleading in what was in kind of one aspect of the announcement versus another. The applied rate, which is what commerce will collect when modules come through the border is actually going to range between seven percent for Trina, to as high as 21 percent for Suntech. So the net margin in this case actually has come down. Trina came down 12 percent. The other category, which was a few dozen Chinese manufacturers, actually came down 4 percent, and Suntech experienced a 2 percent increase. The point here is, the final decision by Commerce is a slight decrease to the original or preliminary decision. At the end of the day, that's good news, relatively, for the U.S. solar industry, because the goal in the solar industry is to reduce the cost of solar.
Monica Trauzzi: The Solar Energy Industries Association, the lead trade group for solar in the U.S., released a statement following the decision saying, "While today's decision rightly shows that the U.S. will protect its rights in the global trading system, trade litigation alone is not enough to solve the complex challenges that exist between the U.S. and China. What is immediately clear is that for solar to thrive globally there's a need to build consensus on acceptable forms of government support for industry." So how do we ease the bilateral tension that currently exists between the U.S. and China on this?
Kevin Lapidus: It's a great area to explore. I don't have an easy answer for us on this point, but we agree, using trade law, using litigation tactics to try and improve a business in terms of its market position, is not in the best interest of the overall industry. What we've seen, and it started with SolarWorld and it's now escalated, is really trade remedies in lieu of business competition, and this has spiraled into a trade war. We now have China investigating U.S. polysilicon manufacturing being imported into China. The E.U. has begun a trade case. India is threatening to begin a trade case. We don't think this is helpful. At the end of the day, it's a global supply chain. The way to reduce the cost of solar is to allow the global supply chain to compete; to allow there to be global trade, which will improve the unit economics of the solar industry, and therefore improve our goals in solar.
Monica Trauzzi: But would Commerce have ruled this way if there wasn't an issue with how the Chinese were doing business?
Kevin Lapidus: Let's look at this. The U.S. solar industry is winning, it's growing. We have 100,000 employees in the U.S. solar industry, it's up 6.8 percent from last year, and forecast to grow again this year. The dollars invested in solar infrastructure will be approximately $13 billion this year up from $8.5 billion last year. So the key point is, U.S. solar industry is doing well. SolarWorld, in its attempt to focus just on the cells, the cell manufacturing, represents approximately 2,000 of the 100,000 employees in solar; we're here to represent the other 98 percent. So when Commerce looks at what's going on with the trade case, they're not allowed to look at the larger impact on the industry by statute, this is the way the law is drafted. So Commerce is forced to look in a very narrow box by design in the statute, and then when they make these decisions, it's crucial to point out, for example, dumping. The dumping calculation is actually not based on anything that happened in China. The calculation is based on Thailand, because they used a surrogate country. They look at the cost structure, including labor cost, including cost of capital, including other companies in Thailand, and they use that to create a financial model which is then applied against Chinese companies. So the number crunching and the results that come out of this, it's not quite as straightforward as people would believe.
Monica Trauzzi: SolarWorld and the Coalition for American Solar Manufacturing have argued that there's a loophole that allows Chinese manufacturers to avoid U.S. trade remedies. Does such a loophole exist?
Kevin Lapidus: So SolarWorld structured this case, SolarWorld brought the case, and they focused on cells, cell manufacturing. There are many components or many steps in the manufacturing of a solar module. Cells is one part of it. It's important to note that the costs have come down in all of the segments of making a module, and then for the cost of a module altogether has come down. This is good news for the solar industry. You put that together with the global supply chain that makes different components or different parts of the overall module around the world, including in the U.S., my company, we make polysilicon in the U.S., so we believe in U.S. manufacturing, that we can succeed and win. You put it all together in a global supply chain, this allows the industry to succeed, to structure its costs appropriately, and to move closer to good parity, which is the real competition for solar and the real goal. Solar is not competing, U.S. solar, with Chinese modules and manufacturing. Solar in the U.S. is competing with fossil fuel generated electricity. That's where the focus and that's where the competition is.
Monica Trauzzi: So then what do you believe the net effect of this decision is on the U.S. solar industry?
Kevin Lapidus: So far we're fortunate in that we've continued to see competition for price of modules and a decline in the price. We think that's driven by a few factors. Partially it's driven by the demand side of the equation. Incentives in the U.S. for solar are coming down by design, and that's a good thing, as we move off of an incentive-driven structure to grid parity and a commercial structure that doesn't involve government programs. We're moving there and making progress. And that's a good thing. So you have the demand side forcing down the incentives, which then results in a decrease in the revenue stream for a solar plant, and that forces down the cost of the components. You can't pay more for components if your revenue's coming down. That structure, I call it the plate tectonic forces, always grinding down, always forcing down the cost of solar components, like modules, is holding the price down, that's good news. You also have a global supply chain, on the supply side, that manufactures, as I said, in many areas, including the U.S. And the competition, which isn't just Chinese, it's not just about China, it's a misnomer, is allowing the supply side also to make progress to gather the supply and demand, has allowed us to keep the module prices low, which is good for U.S. solar.
Monica Trauzzi: So the next step here will be a move by the International Trade Commission. They're expected to make a decision on whether the Chinese practices are damaging U.S. industry and that decision should come down on November 7th. What's your expectation for how they'll rule?
Kevin Lapidus: The ITC decision is a relatively low barrier or bar to get over. In other words, the statute is drafted in such a way that really a de minimis level of harm to the U.S. industry is enough for the ITC to make a ruling. So we think we put together a great presentation and great argument here, we'll wait and see what the outcome is. I do note that when you look at the causal relationship, the demand side I described that drives down prices, that forces down the prices of components, is a key aspect of understanding what's going on in the U.S. solar industry, and that argues against a finding that there isn't a causal link between Chinese manufacture and the U.S. industry, so we're hopeful there. I think one of the key things to watch for in the ITC decision is also what's called critical circumstances. Whether the ITC will rule, there's a 90-day look back on the application of the tariffs from the preliminary date, one date for CVD, one date for dumping, and whether they look back 90 days. Many small U.S. companies were caught in this web of countervailing duties and are now subject to very large tariff payments. U.S. companies are going to pay many of those fines, and a lot of them are small companies that can't afford it. So it's had a disproportionate impact on U.S. small business.
Monica Trauzzi: OK, a lot to watch over the next couple of months. We'll end it there. Thank you for coming on the show.
Kevin Lapidus: Thank you.
Monica Trauzzi: And thanks for watching, we'll see you back here tomorrow.
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