A U.S. Commerce Department investigation into claims that China circumvented U.S. tariffs on solar components is already having a chilling effect, with developers and industry groups saying they are seeing component price hikes, delivery delays and shortages as manufacturers in the countries under investigation pull back on exports to the U.S.

In an investigation launched March 25, the department is looking into whether crystalline silicon photovoltaic cells imported from Cambodia, Malaysia, Thailand and Vietnam are really made there, or if they are actually made in China and shipped through those four countries to avoid anti-dumping and countervailing duties that would otherwise have to be paid by Chinese manufacturers.

Anti-dumping duties are levied when the department concludes that a foreign supplier or manufacturer is selling goods on the U.S. market at below-market prices. The department places countervailing duties on a product when it assesses that a foreign government subsidized the supplier or manufacturer to reduce the price in the U.S. market. Crystalline silicon photovoltaic cells are used in the manufacturing of solar panels.

Even though the Commerce Department has only just started the investigation and made no conclusion, manufacturers and suppliers in the four countries are limiting exports to the U.S. out of fear that further tariff increases will be levied retroactively if the department eventually rules that circumvention took place, industry groups and developers say. The Solar Energy Industries Association (SEIA) has said that more than 80% of solar modular imports come from the four countries, and the probe as a result will affect a wide swath of the solar sector.

“These actions are so detrimental to what we’re trying to do,” Mike Kruger, CEO of Colorado Solar and Storage Association, said about the department’s decision to launch the probe. “My folks doing large-scale projects are already looking at renegotiating [power purchase agreements], potentially pushing out due dates for their projects” by as much as six months, he said. Some developers just won’t bid on jobs, because they don’t know either how much the panels will cost or when they will be available.

Kruger added that solar developers are faced with trying to work out whether to price jobs at the existing solar panel price or at the price elevated by higher tariffs that will take effect if the Commerce Department concludes that circumvention is taking place.

“It’s created a lot of challenges here in the short term,” said Jefferson Gerwig, director of procurement for South Bend, Ind.-based Inovateus Solar, which develops solar and energy storage projects for commercial, industrial, municipal and utility customers.

Some manufacturers have raised prices by a “significant” amount, and some have changed the delivery terms on their products, no longer offering to bring them to the buyer’s door and instead requiring that the customer pick them up at the factory. That way the buyer would be responsible for any tariff increase levied in the future, he said.

“This is going to have an impact on our pricing,” he said. “And it’s going to require us to go back and rebid many of our active proposals. So, it is having immediate impacts. We are having to shift numbers and let our customers know that the validity of their quotes needs to be updated, based on these initial price increases that we’re seeing.”

Tim Powers, development and policy manager for Inovateus, said the uncertainty of getting products has created a “mad rush to get modules as quick as possible. And that just puts a supply-and-demand constraint on the entire industry, and that causes challenges for everybody.”

‘Existential Crisis’

The investigation, and the reaction of the solar industry, highlights the tension between efforts to create a domestic solar panel manufacturing industry in the U.S. and developers seeking the lowest priced equipment for their projects as the nation seeks to accelerate its solar generation capacity power to meet its zero-emission goals.

The turbulence in the panel supply sector comes as the industry already is facing equipment shortfalls, delays and price hikes because of supply chain problems, mainly caused by the country’s emergence from the COVID-19 pandemic.

With the probe underway, the Commerce Department said it will identify the key exporters or producers in each of the four countries and request “quantity and value” data about their shipments of photovoltaic cells and modules. The department will make a preliminary determination in the case in August, and SEIA said it expects the department to make a final determination in January. It could lead to even higher tariffs on solar panels, the organization said.

SEIA said on April 7 that it had surveyed 412 solar companies nationwide, of which 78% said that panel deliveries had been canceled or delayed since the Commerce Department announced the investigation. Fifty-six percent said the investigation put at least 70% of the projects in their pipelines at risk this year.

SEIA CEO Abigail Ross Hopper called the department’s investigation an “existential crisis” for the solar industry and criticized the fact that the case is based on the “industry killing claims” of only one company.

“The proponents of this case say that harsh tariffs are necessary to grow domestic manufacturing; that this case will have no adverse impact,” she said in a SEIA webinar earlier this month. “And if it does cause harm, that’s OK: The ends justify the means. They’re wrong.”

But the Coalition for a Prosperous America (CPA), a trade group that advocates for domestic producers, welcomed the investigation.

“Despite the fear mongering and lobbying by special interest groups that advocate for Chinese solar manufacturers, the Biden administration has chosen to side with American companies and workers,” CPA Chairman Zach Mottl said.

Coping With Shortages

In New Jersey, concern at disruption to the flow of solar panels is “freezing … slowing” development and causing “significant price impacts,” said Fred DeSanti, executive director of the New Jersey Solar Energy Coalition, which represents 26 state and national solar companies. Price hikes put developers in a bind because they can’t adjust their two main sources of revenue — state incentives and the price of energy — to offset the rise in project costs, he said.

In a Feb. 24 letter to Commerce Secretary Gina Raimondo, DeSanti urged the department not to start the investigation, saying that the inquiry could “could threaten existing and future solar projects that rely on imports, in addition to the well paid solar jobs that these projects create.”

New Jersey, like other states, is looking to rapidly expand its solar capacity to help reduce carbon emissions. Gov. Phil Murphy has set a goal of reaching 100% clean energy by 2050, with a goal of increasing solar capacity from about 3.84 GW at present to 17.2 GW by 2035. The state’s strategy for expanding the solar sector includes introducing a community solar program, increasing the number and capacity of grid-scale solar projects, and refocusing the state’s solar incentive programs while also reducing the cost to ratepayers. (See NJ Solar Pipeline Surges While Installations Drop.)

That kind of dramatic expansion, however, would suffer if, as the developers say, they couldn’t get the equipment needed to follow through with projects.

Scott Elias, director of Mid-Atlantic state affairs for SEIA, told the New Jersey Board of Public Utilities (BPU) on April 7 that the investigation “is already needlessly causing serious harm to the industry, including right now and right here in New Jersey.” He said that “no importer of record is going to bring solar cells or panels into the U.S. and risk the imposition of a retroactive 50 to 250% duty.”

“Solar customers do not have the capacity to absorb these massive costs,” he said. “And planned projects are unfortunately not going to be moving forward.”

In Colorado, Kruger said that in the longer term, developers that are forced to slow down business because of higher panel prices or delivery delays, as well as lay off workers, could find it difficult to take on new people in the future because of the tight labor market.

“So, this is just really frustrating,” Kruger said. “The uncertainty; the unknown: It’s immediately impacting the large-scale projects but will impact everybody in the not-too-distant future.” That will put in jeopardy the state’s efforts to cut emissions with solar energy, he said, predicting that instead of the state seeing the hoped-for double-digit growth in solar capacity over the previous 12 months, it will simply repeat the modest increase of 2021.

Yet the blowback from the investigation is not hurting all sectors of the industry.

Renova Energy, a Palm Desert, Calif., solar installation company, said that it has yet to be affected by the investigation and does not expect to see much impact in the future. One reason is that the company buys all its equipment from SunPower, which has a wide diversity of panel manufacturing sources that are outside the four Asian countries under scrutiny — among them Mexico — and, therefore, is unaffected by the Commerce Department’s action, Chief Sales Officer Nate Lewis said.

Renova officials also said the company’s focus on rooftop solar installations with higher quality panels, which have a higher energy conversion rate and longer life, means that it does not use the lower-end panels that are made by the manufacturers in the Commerce Department probe.

“We typically don’t look for the lowest cost equipment; we’re looking for the best value for our customers,” Lewis said. “And the cheap Chinese product doesn’t work well in our environment.”

A Fair Playing Field

The dispute over Chinese solar panel imports stretches back a decade, since the U.S. International Trade Commission concluded that Chinese producers of crystalline silicon photovoltaic cells had dumped and subsidized imports into the U.S., which placed anti-dumping and countervailing trade duties on those products.

Six months ago, the Commerce Department rejected a request by trade group American Solar Manufacturers Against Chinese Circumvention (A-SMACC) seeking an investigation into unlawful circumventing of antidumping and countervailing duties in the solar module market. Announcing the request in an Aug. 16 release, A-SMACC said it wanted to “ensure that the playing field for American solar manufacturing is level and ready for the scaled investments necessary to address climate change.”

“This targeted enforcement action ensures that the United States’ status as an innovation and manufacturing leader will not be endangered by exploitative trade practices that harm the American worker,” A-SMACC said.

But the Commerce Department rejected the request, saying that it could not conduct an investigation unless A-SMACC identified its members, which the department would need to know to ensure that the complainants were legitimately “interested parties.” The organization declined, claiming that that such information was “proprietary.”

The Commerce Department, however, launched the current investigation after Auxin Solar, a California-based manufacturer of solar panels, made similar claims.

The department is required to investigate several factors about the products, according to a memo explaining the decision to investigate. One is whether the solar panels are produced in the four countries using merchandise produced in China.

Other factors include how significant the work done in the four countries and whether the merchandise produced is “a significant portion” of the final value of the product that is shipped to the U.S., the memo says.

Shortfall of R&D, Investment

Auxin says that Chinese manufacturers and suppliers responded to the anti-dumping and countervailing duties by changing their tactics. Instead of “fairly pricing” their products, the producers shipped imports from “third-country export platforms,” the company told the department in its complaint.

“Their relentless predatory pricing has been fueled by China’s non-market subsidization of the upstream solar supply chain, intellectual property theft conducted by China’s People’s Liberation Army [the country’s military] and inhumane forced labor practices,” Auxin said.

Auxin provided evidence that producers in Cambodia, Malaysia, Thailand and Vietnam obtained products used in the production of solar panels — such as silicon wafers, silver paste, silane, solar glass, aluminum frames and junction boxes — from China, the department said in the memo. The company also showed that the four countries had experienced “recent surges” in the import of those products, it said.

In addition, China has as much as “99% of the worldwide solar wafer capacity, 95% of the worldwide solar ingot capacity and 64% of solar-grade polysilicon capacity,” the memo says. “According to Auxin, this demonstrates that the solar cell producers in Cambodia, Malaysia, Thailand and Vietnam would likely obtain solar-grade silicon wafers from China.”

Auxin also argued that the four countries had not made the kind of investment in polysilicon enrichment facilities to support the volume of production it was claiming, especially compared to the extensive Chinese investment in the same thing, according to the memo. And the countries also had made “minimal” investment in R&D related to completing and assembling solar cells into modules and so relied on Chinese knowledge rather than “developing their own technology,” the memo said. In addition, the comparatively small size of production facilities compared to Chinese facilities showed that the production facilities in the four countries are “limited,” the memo said.