December 8, 2023

China Bends to U.S. Complaint on Solar Panels but Also Plans Retaliation

HONG KONG — Chinese solar panel manufacturers are preparing to shift steps in their production processes to South Korea, Taiwan and the United States in response to the filing of a trade case against them in Washington, and are working on a way to retaliate against U.S. exports to China, Chinese solar industry executives and officials said Monday.

Preparations to redesign supply chains and retaliate come after the U.S. Department of Commerce opened an anti-dumping and anti-subsidy case against Chinese solar panel manufacturers on Nov. 9, at the request of SolarWorld Industries America and six other U.S. solar companies. The Commerce Department said it was considering anti-dumping tariffs of 50 percent to 250 percent on Chinese solar panels, plus a request by SolarWorld for anti-subsidy tariffs of more than 100 percent.

After hastily hiring trade lawyers, Chinese solar panel manufacturers are increasingly gloomy about their chances of winning the case, said Ocean Yuan, the president of Grape Solar, a big importer of solar panels based in Eugene, Oregon. Many trade lawyers in Washington have reached the same conclusion because the Commerce Department handles anti-dumping complaints against China under special rules that heavily favor U.S. manufacturers. China accepted the rules as part of its joining the World Trade Organization in 2001.

Mr. Yuan said that Grape Solar was already in negotiations with several Chinese manufacturers, whom he declined to identify, to do final assembly of solar modules in Oregon as the last step in new supply chains that would start in China then run through South Korea and Taiwan to avoid the likely tariffs.

The Chinese solar panel industry is also seeking legal advice on filing its own anti-dumping and anti-subsidy trade case against the United States with China’s Commerce Ministry, Chinese solar industry executives in Beijing said Monday. The most likely target would be U.S. exports of polysilicon, the main material used to manufacture conventional solar panels, said Wang Shijiang, a manager at the China Photovoltaic Industry Alliance based in Beijing.

The manufacture of polysilicon requires enormous amounts of electricity — so much electricity that it typically takes the first year of operation of the panel to generate as much power as was required to make the polysilicon in it. The United States is one of the world’s largest producers of polysilicon, in states like Tennessee and Washington, because it has access to a lot of inexpensive hydroelectric power.

China’s own polysilicon industry is controversial because it relies heavily on electricity generated by coal-fired power plants, and because weak environmental controls at Chinese polysilicon factories have resulted in toxic spills that have fouled streams and rivers.

Polysilicon production guzzles electricity because it requires superheating large volumes of material in electric arc furnaces, including the melting of quartzite rock at 2,000 degrees Celsius (3,630 Fahrenheit) at the start of the process.

The United States exported $873 million worth of polysilicon to China last year while importing only $4 million worth of the material, according to GTM Research, a renewable energy consulting firm based in Boston.

At the simplest level, there are four main steps in making a solar panel, also known as a solar module. Making the polysilicon is the first step. The second step is carving or extruding the polysilicon to make very thin wafers before polishing the wafers until they are extremely smooth.

The third step involves chemically treating the wafer and adding electrical contacts to turn it into a solar cell. The last step involves connecting 60 or 72 solar cells together, covering them with glass, enclosing them in an aluminum frame and adding an electrical junction box.

Mr. Yuan said that Chinese manufacturers wanted to keep wafer production in China, but were making plans to ship wafers to Taiwan or South Korea for conversion into solar cells.

Turning wafers into cells is the costliest, most high-tech and most highly automated step in producing solar panels, representing about a third of the total cost.

An executive at a Chinese solar manufacturer said his company had already begun making elaborate preparations to move solar cell production out of China for panels destined for the U.S. market.

Chinese manufacturers have studied moving solar cell factories directly to the United States but have largely rejected it in favor of other countries because it takes so long to comply with the many American regulations for opening new factories that use a lot of chemicals, said the executive, who spoke on condition that neither he nor his employer be identified.

Frank Haugwitz, a solar industry consultant based in Beijing, said Taiwan had a very large solar cell manufacturing sector with capacity equal to more than five times the U.S. market, and a significant chunk of that capacity was not being used.

But Taiwan has very little capacity to turn solar cells into solar modules; the finished modules are heavy and expensive to ship because of the weight of the glass and aluminum frames.

China exports finished modules because its low wages offset the extra shipping costs. But wages in Taiwan are considerably higher than those in China.

Solar cells fabricated in Taiwan or South Korea from Chinese wafers will be shipped to the United States for final assembly, Mr. Yuan of Grape Solar said.

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