Solar trade war heats up

A good trade and the environment story hits the news. Solar is big and has attracted subsidies for many governments around the world looking to generate "green jobs". Each country wants to be the "first mover" and to reap the future rewards.

We then have the classic over investment situation of oversupply forcing prices down, ensuring the weakest players leave the market with a few winners left at the end. The problem, as always, is governments attempting to rig the result by subsidising national champions to ensure that their companies are among the winners.

Oversupply was inevitable and anyone buying shares in "the next big thing" were always going to lose out in the short run.

Is it inevitable that China will win this battle? I suspect it is and no amount of complaining by the US or Germany will change the result. Let us watch how it plays out.

Sell US and German solar companies - the Chinese have very deep pockets.

Not so sunny: trade war looms in solar space [PlanetArk]

HONG KONG/FRANKFURT - Fair competition or Save the Planet?

That could ultimately be at play as China and the West, long at odds over trade in steel, textiles and auto parts, risk being sucked into a row over protectionism in renewable energy equipment such as solar panels.

German solar firms Conergy and Solarworld have voiced strong concern about the pricing practices of Chinese panel makers -- who undercut their German peers' products by around 20 percent. Chinese modules sell in Europe at about 1.70 euros per watt, according to a UBS report.

Industry experts say U.S. firms share those German concerns.

Germany's BSW solar industry association is looking into allegations of dumping by Chinese rivals as Conergy rallies support to call on the European Union to examine Chinese pricing tactics.

"It cannot be the aim of our environmental and economic policy to lose to the Far East our pioneering role with regard to the last great future technology, which was raised here with great efforts," said Dieter Ammer, CEO at Conergy, Germany's second-biggest solar firm by revenue.

The once red-hot solar sector faces a massive oversupply of cells and modules that has driven down average selling prices for solar systems by more than a fifth in Germany and the United States -- two major solar markets -- and Chinese companies are grabbing market share by slashing costs.

A solar system below 10 kilowatt costs about 3,400 euros in Germany, while a large home solar set-up would sell at more than $70,000 in the United States.

Making solar energy affordable through subsidies was always a challenge for Western governments promoting clean energy use, but resisting low-cost imports from China may prove a bigger hurdle.

"Solar is a very special product. I don't think it's a good idea to target this (for dumping) as the product is important for the world (to achieve) a low carbon economy," said Fu Donghui, trade lawyer for Allbright Law Firm in Beijing.

"The world benefits if the cost goes lower."

Protectionist measures may actually be too little, too late for German companies already suffering from the global financial crisis and falling domestic demand.

Solarworld shares have dropped 63 percent in 12 months, while Q-cells, the world's largest maker of solar cells, has slumped 85 percent and Conergy 77 percent.

Credit Suisse rates Solarworld an "underperform," saying margins could come under pressure as Asian rivals become increasingly competitive on pricing.

"Accusations of dumping in the solar space raise concerns that an important sector like solar could be weakened by protectionism," said Felix Lam, analyst with CCB International.

"In the end, everyone loses if there are trade barriers."

The big potential losers if the trade barriers go up include Chinese panel maker Suntech Power Holdings and U.S. industry bellwether First Solar, whose German sales made up over 70 percent of total in 2008.

First Solar announced in July it would start to offer rebates to defend its position in Germany, expected to be the largest market for solar panels this year.

"China is dependent on foreign trade, but so are the United States and Germany," said HSBC analyst Christine Wang. "Chinese companies will definitely be hurt, but in the long run German firms will also suffer as China is potentially a huge market."

CHINA SUBSIDIES

Other renewable energy sectors such as biofuels and wind are also vulnerable if global trade hostilities escalate.

China is a frequent target for complaints that it blocks access to its markets or unfairly helps its exporters with huge subsidies.

Beijing enhanced cash perks for the solar sector, announcing in July a 50 percent subsidy for investments in solar power projects, that could help further cut production costs, already among the world's lowest.

In March, the government said it would pay 20 yuan ($2.90) per watt of roof-top solar systems with a capacity of more than 50 kilowatt peak (kwp).

"It's unfortunate that the spirit of efficient allocation of resources based on marginal cost advantages has gone, and claims of dumping, often groundless, are increasingly used as a tool to protect inefficient production," said Charles Bai, CFO at Chinese solar wafer maker ReneSola Ltd.

But many Chinese solar firms see trade barriers as a minor irritation against the potential major payoffs from early investment in the sector.

Yingli Energy Holdings, which had a 6 percent share of the global market for modules last year, plans to further expand in Europe by setting up a new subsidiary in France this year to market its solar panels.

"We also plan to extend our business in the U.S., where we have a presence in San Francisco and New York," said company spokeswoman Qing Miao.

ReneSola expects its strategy of slashing prices will pay off through greater market share in the United States and Europe.

"Processing costs have become a key factor in determining cost competitiveness, and this is where the Chinese do better," said Bai.

"Using dumping as an excuse to protect inefficient production can only buy time, it can't change the competitive landscape in the long run."

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