Bye Bye Cheap Chinese Solar

A trade war with China has been brewing for some time. Earlier this year, China imposed incredibly high tariffs of up to 80% on many goods along with constricting import caps and quotas and adjusting the Yuan against the Dollar in order to further undermine the US currencies strength in trade. One of the more direct attacks has been the dumping of Chinese solar panels and technology on to the US market, where solar manufacturers within China were getting dumping margins and subsidies of up to 249.96%. The result of this has been the bankruptcies of both Solyndra and Abound solar, and the near collapse of the entire US solar industry. How how did this happen?

Long the whipping boy of the right, Solyndra filed for bankruptcy when its innovative new solar panel technology could not compete on price after the price of polycrystalline silicon, called polysilicon for short, plummeted. While the right-wing blamed the collapse on favoritism, and that the company was doomed from the start, checking on the history of the commodities market reveals another story. In 2006, when Solyndra applied for its loan, the cost of materials for the various types of solar panels was rather stable. What happened next, however, is what caused the whole system to collapse. At the time, the worldwide supply of polysilicon, one of the materials which can be used for solar panels (not for Solyndra panels) was incredibly restrained. This caused the price of the material to be quite high, peaking at over $400/kg in 2008, due to the laws of supply and demand. Solyndra’s innovative panels, which used copper indium gallium selenide for its semiconductor, cost less than the polysilicon panels on the market and were price competitive against the other materials used by its competition..

What happened? A few things. One, the manipulation of the price of polysilicon by the same forces as the oil and housing bubbles during this time period. However, unlike oil, where supply is limited by real estate and access, and home construction is limited by land to build on, polysilicon was limited by companies able to produce it from common silicon, such as sand. As polysilicon was rarely used except in a few specialized systems, there was little incentive to expand supply. But as its price increased over the 2006-2008 period, a multitude of companies popped up to supply this then valuable material (on par with gold), causing the supply to rise from 36,000 tons to 281,000 tons in under 4 years, with the largest single source of the new supply, 77,000 tons, coming from China. Today, China controls over 30% of the global polysilicon market, with the commodity price now pegged at $28/kg.

By their oversupply of the market, they force the price of the raw materials through the floor. By themselves, China can supply a full third of the worldwide demand for the material, and that is with the demand expanded due to companies shifting their manufacture to this material. This puts Chinese firms, already heavily invested in polysilicon panels, on a strong price advantage over foreign manufacturers, which tended to use other materials which are historically less expensive than polysilicon such as monocrystalline silicon, amorphous silicon, cadmium telluride, copper indium selenide/sulfide as well as heavy investment in newer materials such as upgraded metallurgical-grade silicon. Due to the high price of polysilicon, solar manufacturers avoided it, with its main consumer being the semiconductor industry. With the new glut, China, which focused its industrial effort on this at-the-time high-priced material, found itself able to undercut every other manufacturer worldwide virtually overnight.

But, even then, China is still pushing the market even lower. They have already filed complaints on polysilicon imports worldwide claiming that other nations are threatening its production by dumping polysilicon on to the market, while China can meet its domestic demand through domestic production as it is. They use the glut in the market itself as a weapon, buying the surpluses to keep the producers in foreign countries in their pocket. Then these companies lobby their governments against the kinds of moves which the US Commerce Department did today.

This move by the US Commerce department cannot undo the damage caused by this manipulation of the markets by the Asian superpower. But it can help give breathing room to prevent the complete collapse of the domestic solar industry, still in its infancy.