How China Will Use K Street, Climate Change, to Get its Solar Market Back

China has a strategy to return to the U.S. solar market. To do so, it has to convince powerful influencers in the Biden administration that joining forces is the only way to combat the urgency of climate change.  To make it work, it’s going to put a chokehold on polysilicon, a key starting ingredient in making the ingots that go into making the solar cells that get plugged into solar modules. With the supply chain constrained, China’s favorite U.S. importers and their advocates in Washington will blame price spikes on tariffs and anti-dumping duties. These advocates will argue that price inflation will scare away customers. Biden’s newly set solar target will not be met. The goal is simple: get Washington to let Section 201 solar tariffs expire next spring. And shelve any ideas of going after Vietnam, Thailand, and Malaysia-based solar companies for possible dumping of solar products into the U.S.

Watch how this is unfolding before your eyes.

On September 3, China’s Foreign Minister Wang Yi told Biden’s climate champion, John Kerry, that the belligerence from Washington against Beijing had to end if they wanted China’s help to save the planet from all of China’s coal fired power plants. (Okay, they didn’t mention the coal increases.)

“China-U.S. climate change cooperation cannot be separated from the general environment of relations,” Wang told Kerry on a trip to China. “The United States should meet China halfway and take positive actions to push relations back on track,” Wang said, essentially calling on the U.S. to end the Withhold Release Orders on Hoshine Silicon and stop human rights sanctions. Wang did not name those things, but CPA is sure that Beijing would accept them as “positive actions”.

What is not so sure is whether Kerry believes this collaboration means the U.S. must remove protective barriers against Asian solar imports to install more solar faster and cheaper and show we are doing something to fight climate change. He might believe this is necessary, actually. The climate lobby does. And Biden’s own language on this is one of urgency, saying again this month that “we don’t have much more than ten years” to right the ship on this issue.

What we know is that Kerry and his Chinese counterpart Xie Zhenhua both described global warming as a threat that demands joint efforts. For more than a decade, Beijing has taken its cue from Brussels and Washington on the climate issue and set itself up to be the go-to manufacturer for all things solar, wind, and all along the EV battery materials supply chain.

On September 8, President Biden said that he wanted the U.S. energy grid to be around 40% solar in 30 years.

The official target was set.

Three days later, China cut production of a key ingredient in making that happen: polysilicon, where China has a roughly 75% global market share.

On September 11, China’s Development and Reform Commission announced that the average monthly output of all industrial polysilicon companies should not exceed 10% of the August output from now to the end of the year.

The reduction in China’s polysilicon output is very important because the U.S. has bans on polysilicon from Xinjiang since June, due to the mass incarceration of Muslims there. Customs and Border Protection said that anything imported from the Xinjiang producer Hoshine Silicon Industry would be held up at the port unless the importer and supplier could successfully dispute claims of forced labor. Xinjiang was China’s No. 1 polysilicon factory. Now it’s off-limits to the U.S. supply chain. And now the rest of China is pulling back. This is a chokehold designed to raise prices and produce supply chain scarcity precisely at the time when Biden is calling for more solar and Kerry is being told to cooperate with the Chinese on climate change.

Solar panels are made from sand that’s heated and purified to ingots of ultra-conductive polysilicon – most of it from China — that are sliced into razor-thin wafers, wired up into solar cells, and then assembled into solar panels that are mounted on rooftops or as commercial utilities.

The new narrative is that China is needed to fight climate change. China makes solar panels. China solar panels are blocked from the U.S. China will tie up in knots a key part of the supply chain to increase prices. China’s importers in the U.S. will bemoan price increases, saying it will stop consumers from going solar. They will tell decision-makers that Biden’s “no time to waste” climate policies will fail if we miss his solar target. And we can’t hit that solar target if prices of solar are going to rise. We must reduce tariffs and don’t dare consider dumping charges against southeast Asia’s new little solar tiger cubs.

“No matter how you slice it, you need solar deployments to double or quadruple in the near term,” Michelle Davis, an analyst at Wood Mackenzie told The New York Times about Biden’s solar urgency.  Then this little ditty: “Supply chain constraints are certainly on everyone’s mind.”

CPA believes we need smart policy decisions that focus on building up the local supply chain if we are going to increase solar use in our energy grid. We are way too dependent on Asia, most of it from Chinese multinationals spread throughout the region.

There needs to be a massive campaign to build solar manufacturing capacity in this country, rather than climate policy moves that end up being an Asian jobs program.

Companies are investing here.

On September 23, New York Governor Kathy Hochul and Ubiquity Solar, a Canadian solar company, announced a $61 million investment in Broome County, upstate New York, near the Pennsylvania border. These are precisely the kind of jobs that the Biden administration is talking about creating to replace fossil fuel jobs, and build out a lower carbon economy.

But companies like Ubiquity will stop investing here if the flood gates are opened to heavily subsidized Asian solar produced from coal-fired power plants with weak environmental regulations and wage levels that are impossible to compete with here.

It is worth noting that just three days after China put polysilicon in a sleeper hold, the big solar import groups began warning of pending, inflationary doom for the domestic solar industry.

Price increases, supply chain disruptions, and a series of trade risks are threatening Biden’s plan to decarbonize the electric grid, a Wood Mackenzie report done on behalf of the multinational solar importers. The report also blamed rising prices on Xinjiang WROs, and the threat of new anti-dumping and countervailing duties. Taken together, these actions could “significantly increase solar prices,” the report said.

This is the “hot take” that is bombarding Washington.

On September 23, the same day New York was praising a new solar manufacturing investment, new warnings of a “death blow” to solar if anti-dumping and countervailing duties were ever imposed on Malaysia, Thailand and Vietnam, three countries that have, miraculously and almost overnight, become huge solar manufacturers.

George Hershman, president and general manager of solar importer Swinerton Renewable Energy said that 90-95% of the solar panels he uses could be impacted, PV Magazine reported.

There are two ways of looking at this. One is, ‘oh no we must not examine companies for possibly dumping products here or solar installers like Swinerton will struggle.’ Two is, ‘wait a minute now, why is Swinerton sourcing almost exclusively from Asia? This is what green energy dependence looks like.’

No one should take this lightly.

The solar import lobby is going after the Department of Commerce to put an end to any new anti-dumping duties and Section 201 tariff renewals next year. They say it will devastate solar demand due to price inflation; a headwind to any true climate change policies related to the power grid.

Yet, despite years of this being the crux of all arguments against the importers, who still dominate the domestic market share for solar cells and solar panels, and by a lot, higher tariff rates did not stop domestic demand for solar.

And while China’s exports fell by nearly a factor of two, Malaysia, Thailand, and Vietnam exports have replaced a lot of that.

This is the energy battle to watch. It will heat up starting next year as tariffs are set to expire.

On September 23, Senator Jon Ossoff (D-GA) said the U.S. solar industry must free itself of the China solar supply chain. We agree with Ossoff’s take that the solution is to boost American manufacturing. But Ossoff cannot take his eye off the ball here. Southeast Asia is fast becoming a China solar industry outpost, ready to capture the U.S. market once again.

Oddly enough, a World Economic Forum opinion piece published in May 2019 says tariffs is the way to fight climate change.

Shang-Jin Wei, the chief economist at the Asian Development Bank, wrote “As strange as it may sound, President Donald Trump’s aggressive trade policies could point to a way forward.”

What did he mean by that?

He was not arguing in favor of solar tariffs. Instead, he was arguing in favor of a penalty on imports from heavy polluters, like China or Vietnam.

“Trump’s readiness to impose large import tariffs could provide the basis for a new collective approach,” Wei wrote. “Trump’s tariff wars have worked. A future U.S. government could use tariffs, or the threat of them, to push other countries to reduce their emissions more aggressively – especially those countries that are, or will be, sizable contributors to global warming.”

This idea has been bantered about on and off for years and is now making a comeback as climate policy comes to the fore in the Western world. The easiest approach would be to support and build up local solar, wind, and other fossil fuel alternatives. If not, the risk is to fall into China’s hands and allow them to be the global manufacturer of the green economy, only to worry why they can’t expand and build when the supply chain is so one-sided. The Biden team says it wants to manufacture the energy of the future here at home. That should not only mean installing solar on rooftops, or building solar power stations chock full of Asian solar equipment.

We know that China – and a  few multinationals in Southeast Asia – are ready to build solar for us. How about if we build more of it ourselves? Let’s make that the urgency.

See CPA’s chief economist Jeff Ferry’s report titled Reclaiming the Solar Supply Chain from China.



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