Global PV Competition Creates Increased International Trade Disputes
Global PV Competition Creates Increased International Trade Disputes
By Bettina Weiss, Executive Director, SEMI PV Group
Critical to the healthy growth of the global solar PV market is a global trade system without restrictive barriers between countries. Buyers of solar products, equipment and materials should be able to purchase from suppliers around the world without tariffs or other restrictions that favor local manufacturers and suppliers of solar products and services should be able to sell throughout the world without unreasonable tariffs, fees or other unique burdens. Any barrier that restricts the free trade of goods and services between countries raises overall costs, ultimately impacts all buyers and sellers, and decreases the amount fossil fuel displaced through solar power generation.
Free and open trade is not a common or even natural state between countries. Governments regularly protect economic sectors from international competition and favor various exporting industries through a variety of tax incentives, grants, and other actions. Even under what would be called optimum situations, there are often a number of formal and informal, intentional and unintentional, restrictions in trade in solar products today. This being the case, progress to a more bountiful use of solar for all nations means lowering barriers to trade, not erecting new ones.
While foreign trade is always a source of debate and friction between trading partners in a competitive world, increasing trade frictions are threatening the growth and prosperity of the global PV marketplace.
Consider these recent events
Following an incident on international waters, China began blocking all shipments of rare earth minerals to Japan since Sept. 21, and some shipments to the United States and Europe as well. The New York Times reports that the Japan restrictions are still in affect. China supplies between 93-95% of the world’s rare earth minerals, a group of 17 minerals used in many products including solar cells, semiconductors and LEDs. Indium, the I in CIGS, is among the restricted materials, as is yttrium used to make phosphers that enable HB-LEDs.
In September, Japan initiated a trade dispute with Canada over Ontario’s feed-in tariff policy which demands that up to 60 percent of all green energy project inputs be manufactured in the province. Opponents of the “made in Ontario” provisions argue that the heavy preference for local content raise energy prices, and ultimately slow the world’s conversion to green energy. Supporters point out that in the US about 30 states have regulations that favor local renewable energy production.
Last month the U.S. agreed to investigate China’s aid to its clean-energy producers, acting on a complaint from the United Steelworkers union that says the assistance violates global trade rules. The complaints include illegal export credits, preferences in bidding, the forced transfer of technology, and discrimination against foreign firms. Accepting the petition may lead the Obama administration to file a protest at the World Trade Organization over subsidies that the union says are contrary to trade rules. Meanwhile, the US Department of Energy has requested funding for $3-5 billion in loan guarantees for renewable energy and energy efficiency projects this year and will fund over $300 million in R&D and demonstration grants to US companies.
In India, under the Jawaharlal Nehru National Solar Mission (JNNSM), the government has established a goal for deploying 20GW of solar power by 2022. As part of the program, solar PV projects using crystalline silicon technology during FY2010-11 will be mandated to use modules manufactured in India. In the following year, both cells and modules manufactured in India will benefit from the program. Like the Ontario policy, many observers expect a complaint to be filed with World Trade Organization.
Further fueling global trade friction is a PV market overwhelmingly characterized by wide imbalances between supply and demand. With over 75% of the world’s demand for solar power, Europe contributes only 25-30% of the global supply. In Germany, over 50% of the cells and modules are now coming from China. The US may also find China dominating the supply of PV cells and modules as demand grows. In contrast, China demand remains well below other countries. In a market currently driven by government policy, in large part based on economic benefits of an emerging “green” economy, the political support for effective solar policy is threatened by the policy dialog influenced by these large imbalances of supply and demand. China, has for its part, has identified billions of dollars in European and US solar PV equipment sales to Chinese companies as a balancing figure in responding to criticism that it unfairly benefits from international solar subsidies while not pulling its own weight.
In the background of these emerging trade disputes specific to renewable energy is the simmering controversy over currency policy. Some economists complain that China is manipulating its currency, keeping domestic demand low while reducing the price of its exports. Last week leaders of the world's biggest economies muted their differences at the G-20 summit with an agreement to develop new guidelines to prevent so-called "currency wars,” but political forces are in motion in both the United States and Europe that may have uncertain and detrimental outcomes to PV suppliers throughout the world. Take for example, the US dollar and the implicit devaluation that accompanies quantitative easing by the central bank in the US. Clearly, currency policy is much beyond the solar PV industry alone. However, currency continues to have a very large impact on our industry and therefore, must be a concern.
All these issues threaten the global solar market that is currently dependent on government demand incentives and political support. The intimate coupling of solar power with the political process throughout the world, and its association with jobs and economic development, make normal trade frictions potentially spill over in ways that can be enormously detrimental to the solar industry supply chain.
As a global trade association, our view is that open and free trade is essential to the healthy development of the solar power industry and critical to the continued replacement of fossil fuels by clean, renewable energy. Trade restrictions in pursuit of limited economic or political objectives in one region reduce the overall benefits to a growing and profitable solar industry and especially reduce the overall reduction in greenhouse gases that in large part are the primary goal of pro-solar power policies. Restrictions on free trade rob manufacturers of global competitiveness by limiting access to best-of-breed suppliers and retard the adoption of production efficiencies and Best Practices.
In the solar marketplace today, the SEMI PV Group support of free and open trade can be characterized by the following principles:
1.) As a global industry trade organization, the ultimate objective of the SEMI PV Group is the long term growth and profitability of our members who are the premier global companies in the solar PV supply chain. In pursuit of this objective is the recognition that the solar industry must reduce the world’s dependence on fossil fuels. The SEMI PV Group has been advocating for meaningful and effective public policies that support the growth of the global solar industry since its inception. In Asia, the PV Group has been focused on advocating demand-side policies to encourage the development of local markets for solar products, primarily in China, Taiwan and India. In 2008, we produced a White Paper entitled, “China’s Solar Future,” a report containing specific recommendations for the accelerated adoption of PV generated electric power. The report stated, “It is important that China occupy a leading position in the demand for solar power, as well as contribute to global supply.” The PV Group made similar appeals in Taiwan and India, also supported by well-documented White Papers.
2.) The overwhelming responsibility for the PV manufacturing supply chain is to deliver the lowest cost per kWh to the user. Unlike many electricity generation technologies, the cost per kWh of solar electricity is not driven by the price of fuel -- sunlight is free. The key technical challenge to the solar economy of the future, therefore, is to reduce the costs associated with PV manufacturing and installation through improved process efficiency and automation, materials improvements, and cost reductions that result from economies of scale, while maintaining or enhancing lifetime energy yields from systems. Global industry standards that reduce costs and enable innovation are an essential component of this responsibility. A global set of environmental health and safety standards and Best Practices are also essential to prevent any supplier from realizing competitive advantages in this area due to the location of their manufacturing operations.
3.) The PV Group advocates solar policies that are transparent and streamlined. Policies should be clearly defined, simple to understand and focused on solar power adoption goals. Including economic development goals within solar power policies adds complexity and ultimately compromises fairness. Overly complex policies that try to shape outcomes in specific segments can increase project development timelines, decrease the pool of potential suppliers and capital providers, and ultimately increase product, financing and policy costs unnecessarily. Even if a policy is fairly straightforward to understand, the existence of unduly onerous applications, paperwork, approvals, or cultural preferences for local suppliers, can create a barrier to market growth and a deterrent to investment. Sound PV policy should be neither discriminatory nor protectionist. Policies that attempt to narrowly target outcomes such as domestic content or employment will undermine the primary objectives of fossil fuel replacement, solar power cost reduction, and solar power grid parity.
4.) As a trade organization with suppliers in every major manufacturing region of the world, SEMI PV Group support government policies that support manufacturing operations. Especially in Europe and United States, policymakers need to develop programs that seek a balance PV demand with PV supply--and that means policies that retain and grow the manufacturing base. Building solar cells and modules in one region and shipping them around the world for deployment in another region is not an optimal greenhouse gas mitigation strategy. Unlike computer chips, there is a meaningful cost advantage to manufacturing solar PV close to where it will be deployed. It makes good economic and environmental sense to leverage this cost advantage through sound public policies that support local manufacturing.
As the solar energy market continues to grow and develop, the SEMI PV Group will advocate policies that maintain free and open trade within the context of these principles. We strongly urge policy makers to engage in respectful and productive dialog on trade policies and avoid politicizing the solar market or utilizing the exciting promise of solar power to achieve short term ends through local content requirements or other trade restrictions. Like all forms of economic competition, international trade is inherently fraught with friction. Allowing natural friction to escalate into unproductive conflict will harm solar power consumers, manufacturers, suppliers and the overall health of the planet.
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SEMI PV Group, The Grid – November 2010