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Suniva's push to revive US solar manufacturing faces long odds


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Suniva's push to revive US solar manufacturing faces long odds

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A worker trims a solar panel at a factory in New Mexico.

Source: Associated Press

In 2010, Suntech Power Holdings Co. Ltd., then the world's biggest solar panel manufacturer, opened a factory near Phoenix to put it in closer proximity to U.S. customers. The Chinese company needed to diversify away from Europe, and the U.S. market was "on the cusp of greatness," an executive at a Suntech subsidiary had said the prior year.

Within three years, Suntech had shuttered the U.S. plant and declared bankruptcy. The price of solar panels plummeted after manufacturers increased production around the time that the global financial crisis was choking off demand. And in 2012, the U.S. Department of Commerce started imposing tariffs on some Chinese-made solar products, including the cells that Suntech workers assembled into panels in Arizona. Suntech's Chinese assets were sold to Shunfeng Photovoltaic International Ltd., a solar manufacturer and power plant developer now known as Shunfeng International Clean Energy Ltd.

The global solar industry once again is grappling with a market glut, and Shunfeng, in an ironic twist, is at the center of a trade case that could lead to steep tariffs on certain solar products made anywhere outside the U.S. Suniva Inc., a Georgia-based solar manufacturer that Shunfeng invested in in 2015, sought the sweeping import duties in an effort to loosen the grip of foreign companies on the U.S. market. But standing up a domestic solar manufacturing sector "is close to impossible at this juncture using tariffs," said Paula Mints, chief market research analyst at SPV Market Research.

Without enough domestic capacity to meet demand, solar project developers in the U.S. would be forced to pay more for imported solar cell and modules, a potentially serious near-term problem for developers who signed contracts before Suniva filed its petition.

"Everybody that's making bets, whether they're signing [power purchase agreements] or just taking land positions or interconnection positions, has made some sort of forward bets on panel prices and installation costs, and certainly none of those took into account a more than doubling of the largest single cost factor in the build," Jesse Grossman, CEO of solar project developer Soltage LLC, said in an interview with S&P Global Market Intelligence.

If costs jump, developers would find it expensive, "if not impossible," to renegotiate power purchase agreements, said Nathan Serota, a senior solar and energy economics analyst at Bloomberg New Energy Finance. Approximately 7,400 MW of new solar capacity was under construction or in advanced development in the U.S. in mid-May, according to S&P Global Market Intelligence.

The only certainty in the Suniva case is that "the lawyers and lobbyists enlisted as a result of the investigation stand to benefit," Serota wrote in an email.

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Material downturn

Suniva submitted its petition to the U.S. International Trade Commission in April, shortly after filing for bankruptcy. The company, along with its co-petitioner, SolarWorld Americas Inc., wants Washington to impose tariffs on imported solar cells for four years, arguing that manufacturers in China and Taiwan have circumvented existing duties by moving operations to other countries while continuing to leverage state subsidies to undercut competitors.

"If market conditions were favorable, and if pricing was based on cost rather than illegal trade practices, we think that there would be a growing and vibrant U.S. solar manufacturing industry," Tim Brightbill, SolarWorld's trade lawyer and a partner at Wiley Rein LLP, said in an interview.

"Fair market conditions in the United States will not affect U.S. employment downstream," Brightbill added. "But in order to have a U.S. solar industry, there has to be a solar manufacturing industry to develop the next generation of products, to do the research and development to improve the products to make them more affordable. We have to keep some of that manufacturing in the United States. We can't just be a nation of installers." Suniva filed its petition under Section 201 of the Trade Act of 1974, which does not require a finding of unfair trade practices.

Project developers reject the idea that higher equipment prices would not hurt solar demand, arguing that competition in a global market is the best way to ensure technology keeps improving and costs continue to fall.

"You'd see probably an upward shift in PPA prices, you'd see more pressure on balance-of-system and construction costs to try to keep the economics on the rails" if new tariffs are imposed, Grossman said. "But that's tough. Once you've set a price point with how PPAs are priced and that you're cheaper than natural gas, to the extent that all of a sudden reverses it would be a very poor signal to send to the marketplace."

Predicting a more than 50% market contraction if Suniva gets the relief it requested, Arthur Souritzidis, CEO of solar project developer Momentum Solar, said his company would have to "restructure in a way that's completely just preservation mode with literal austerity measures."

Utility-scale projects, in particular, would "grind to a halt; they just couldn't make it make sense and compete with other low-cost commodities, not to mention wind," Souritzidis said.

Unlike the last time tariffs were put on imported solar equipment, domestic buyers would have few options for avoiding the blanket duties Suniva proposed.

The company's petition does not cover thin-film technology, so some developers could in theory pivot in that direction. But putting tariffs on cells made from crystalline silicon would open the door for struggling thin-film manufacturers, such as First Solar Inc., to increase their prices. "It's hard to imagine that the current economics of thin film right now aren't also going to be adjusted should the Suniva request go through," Matthew McGovern, CEO of solar project developer Cypress Creek Renewables, said in an interview.

It is possible that tariffs could drive project developers from the U.S. "If policy decisions are made that really harm the end economic viability of the products and there's opportunity just on other sides of the border ... I guess none of us should be surprised if they end up shifting focus and resources to those markets if they become more compelling," McGovern said.

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SunPower Corp. solar panels stacked in a warehouse in New Mexico.

Source: Associated Press

An 'extraordinarily complicated' case

It is not hard to imagine U.S. trade regulators finding that a surge in imports has hurt companies like Suniva and SolarWorld. While solar has been a booming business for project developers, lawyers and financiers, domestic manufacturers have seen their share of the U.S. market cut nearly in half since 2012, topping out at 11% last year, according to a World Trade Organization filing that cited statistics from Suniva. As imports rose, prices of crystalline silicon solar cells and modules declined. Along the way, 1,200 manufacturing jobs were lost and wages fell by 27%.

Last year, about 15% of the country's approximately 260,000 solar industry jobs were in manufacturing, according to The Solar Foundation, a nonprofit industry advocate. More than half of the jobs were on the installation side of the business.

Suniva's bankruptcy came on the heels of a manufacturing expansion that coincided with the downturn in solar component prices last year. Suniva planned to add even more capacity this year, but shortly after it unveiled the initial phase in late 2016, Wells Fargo & Co., a creditor, demanded that the company raise at least $6.7 million of additional equity by late February. Unable to manage its "severe liquidity constraints, looming maturity dates and mounting indebtedness," Suniva defaulted.

The Suniva petition has pitted segments of the U.S. solar industry against one another: John Smirnow, a lawyer representing parties that oppose Suniva's petition, said May 17 at a solar industry conference in Arizona that the Solar Energy Industries Association, a top trade group, will examine whether other factors beyond foreign competition were responsible for Suniva's financial problems.

The trade commission said Suniva's case is "extraordinarily complicated" and gave itself until Sept. 22 to rule on the company's injury claim.

'Looking for a bailout'

Suniva filed the trade petition at the behest of its bankruptcy lender, SQN Capital Management, which is trying to improve market conditions so that it can sell off equipment valued at about $55 million that Suniva put up as collateral.

"What [Suniva] proposed is entirely irrational from a company that effectively ran for a number of years, raised a lot of money and then went bankrupt," Grossman said. McGovern said the case is about "two failed companies with hedge fund backing looking for a bailout."

SolarWorld Americas joined the case after its parent, the German solar manufacturer SolarWorld AG, said it was filing for insolvency. SolarWorld Americas has said it is "committed to defining a strategy to maintain operations, increase efficiency and keep as many U.S. jobs as possible while continuing to take a stand against unfair competition and trade."

But it would take a comprehensive, years-long government effort including favorable tax treatment and subsidies to revive solar cell manufacturing in the U.S., according to Mints of SVP Market Research, who said U.S. firms lost market share due to "highly competitive pricing and low government support," among other factors. The Commerce Department previously found that companies in China and Taiwan, aided by state subsidies, sold equipment in the U.S. at below fair-market costs.

"[Controlling] buying patterns is close to impossible and punishing sellers for low prices typically punishes the buyers and worse ... almost never brings back manufacturing jobs," Mints said.

Ironically, Suniva sold a majority of itself to Shunfeng "so that it could expand and remain competitive and Shunfeng acquired a majority stake in Suniva so that it could in part avoid tariffs," Mints added.