Trade disputes point to an industry in over-reach
Recent trade and legal disputes between Chinese and American solar and wind power equipment makers have created headlines for various reasons, but a common thread linking them is the mismatch between overzealous investment in new production capacity by project developers and lagging government support for the consumption of expensive renewable energy.
In the solar sector, China and the US are on the verge of a trade war. The US Commerce Department last month opened anti-dumping and countervailing duty probes on mainland solar panel parts makers, after seven US firms filed a complaint on October 19 saying their business has been hurt by what they say are unfair subsidies given to their Chinese rivals by the mainland government. The US International Trade Commission this month said in a preliminary ruling there was 'reasonable indication' that solar panels imported from the mainland have 'materially injured' the US solar panel industry, through alleged below-fair-price selling and government subsidy. Investigations are continuing.
According to a report by Credit Lyonnais Securities Asia's head of sustainable research, Charles Yonts, duties could be slapped on mainland products as early as January 12. They could ultimately reach 100 per cent, although the initial tax is likely to be lower. He estimates mainland panel makers have a 30 per cent cost advantage compared with US competitors.
The recent collapse of California-based solar panel maker Solyndra, which got a federal government guarantee on a US$535 million loan to build a plant in 2009, added some political sensitivity to the dispute. 'It has also made a reasonable response to anti-dumping charges against Chinese solar panel makers all but impossible,' Yonts said.
Like other US solar firms, Solyndra - whose largest shareholder is backed by George Kaiser, a campaign donor to Barack Obama - blamed cheap imports for its troubles. Republicans have accused the Obama administration of ignoring signs of Solyndra's financial woes and being too hasty in granting it the guarantee.
The mainland solar industry reacted swiftly by asking the Ministry of Commerce, on October 24, to open an investigation into whether US government subsidies and policies support US makers of polysilicon, the main raw material used in producing solar panel parts. Mainland producers argue the support constituted 'unreasonable [market] barriers' and weakened the price competitiveness of Chinese exports to the US.
The probe, which started on November 25 and is expected to be done in six months, covers incentives given by five US state governments to makers of renewable energy products and equipment.
In the wind turbine industry, AMSC, also known as American Superconductor, has filed multiple lawsuits against China's largest wind turbine generator maker, Sinovel, in several courts on the mainland.
AMSC is seeking over US$1.2 billion in compensation for Sinovel's alleged non-performance of its duty to take delivery of parts from it, as well as damages for alleged trade secret theft and copyright infringement.
AMSC chief executive Dan McGahn told investors in November the firm had hundreds of e-mails and messages between senior Sinovel staff and Dejan Karabasevic, a former Serbian AMSC information technology staffer in Austria. The messages, McGahn alleged, reveal Sinovel staff requested certain AMSC intellectual property stolen by Karabasevic.
A September court hearing in Austria found Karabasevic to have damaged AMSC and enriched himself and Sinovel by manipulating AMSC's source-codes-protected software so that it could be used on Sinovel's products without the payment of licence fees. He was sentenced to three years in prison.
In an e-mail, Sinovel's spokesman denied AMSC's accusations and countered that AMSC should pay it 575 million yuan (HK$706 million) for losses it suffered due to the 'shoddy quality' of AMSC products.
In the latest development in the saga, Bloomberg reported that four US makers of steel towers for wind turbines on Thursday filed an unfair trade practice complaint with the Commerce Department against rivals in China and Vietnam. They have asked the US government to slap anti-dumping tariffs of up to 60 per cent on imports from these nations, claiming they have lost substantial market shares to their state-subsidised overseas rivals.
Although the solar and wind sector disputes differ in detail, both are driven by firms experiencing declining fortunes following earlier explosive growth. 'They are doing it out of desperation,' Yonts said.
At least one Canadian, one German and six American solar firms have filed for bankruptcy protection since August, as rapidly falling panel prices amid severe overcapacity have resulted in widespread losses.
Jiangsu province-based Suntech Power Holdings, the world's largest solar panel maker, posted a net loss of US$376 million for the six months to September 30. Meanwhile, Sinovel and its rival, Xinjiang Goldwind Science & Technology, posted year-on-year net profit drops of 49 per cent to 60 per cent in the first nine months..
Ray Lian Rui, a Shanghai-based industry analyst, predicts solar panel prices will fall to around US$1.1 per watt by early next year, compared with US$4 in 2008.
According to a May report by the European Photovoltaic Industry Association, global solar panel demand may rise to 34 giga-watts (GW) in 2015 from 17 GW last year, while output capacity may surge to 164 GW from 57 GW based on announced expansion plans. Even if much of the planned expansion is unlikely to materialise, overcapacity will remain severe.
Lian forecast Chinese companies' global market share will rise to 80 per cent in the second quarter of 2012 from 64 per cent in the second quarter of 2010.
Dong Luying, associate professor of the National Development and Reform Commission's Energy Research Institute, said the oversupply problem in China's solar industry stems from over-expansion of capacity using outdated technology, and over-reliance on the export market.
The compensation, in US dollars, which US wind turbine maker AMSC is seeking from its Chinese rival Sinovel