3p is proud to partner with the Presidio Graduate School’s Macroeconomics course on a blogging series about “the economics of sustainability.” This post is part of that series. To follow along, please click here.
by Jared Bhatti
November 17th was a cloudy day in Fremont, California. As the bankrupt solar panel manufacturer Solyndra scrambled to find bidders for the company's assets, energy secretary Steven Chu spoke before the House Energy and Commerce Committee on Solyndra’s failure. While that hearing became bogged down in political finger-pointing, a separate investigation by the US Department of Commerce may uncover the true cause of Solyndra’s demise.
According to Steven Chu, the root cause of Solyndra's failure was the falling cost of competitor’s photovoltaic cells, primarily from Chinese manufacturers. China has lent more than $34 billion to their domestic solar panel manufacturers, flooding the market and leading to a drop in the price per watt for solar panels - $1.20 a watt of capacity today, from $1.80 in January and $3.30 in 2008. Solyndra was unable to compete in the market due to this intense competition.
The US Department of Commerce’s investigation focuses on whether these subsidies violated international trade laws and led to a glut of solar panels on the US market. If China's subsidies are found to be in violation, Solyndra will be declared a casualty of a trade war in renewable energy instead of a political albatross for the Obama administration. Without US subsidies on par with China’s, China can effectively flood the market and erode US manufacturing by gutting the US customer base. In the long run, it could lead to a Chinese monopoly on solar panel manufacturing, and Chinese control of the larger solar energy industry.
Based on preliminary evidence, the Commerce Department is considering tariffs of 50 to 250 percent on Chinese solar panels. Chinese manufacturers are not optimistic about winning the case, and are considering their options. Some Chinese manufacturers plan to spread their production to South Korea, Taiwan and the United States to soften the blow of potential tariffs and gain favor in Washington. Other manufacturers are considering retaliation by filing trade cases of their own with China’s Commerce Ministry.
Targets for a tit-for-tat retaliation include filing a trade case against the polysilicon industry in the United States. Polysilicon is a key component for solar panels, and it requires vast amounts of electricity to produce. The United States is one of the largest exporters of polysilicon, making it a prime target for a retaliatory investigation.
The drop in solar panel prices has affected more then just Solyndra. In August, two other solar panel manufacturing firms declared bankruptcy, Evergreen Solar in Massachusetts and SpectraWatt in New York. Together, these three companies represent one-sixth of American manufacturing of solar panels. Solyndra may not be the first victim of this trade war in renewable energy, and policy makers and American solar panel manufacturers fear it may not be the last.
Jared Bhatti is a graduate student in sustainable business at the Presidio Graduate School and a technical writer at Google focused on hardware development and renewable energy. He can be reached at email@example.com