Trade Fight Risks “Smothering” Solar Industry
May 9, 2022
Top climate officials in the Biden administration are warning that a federal investigation into alleged dodging of tariffs by Chinese suppliers has put the domestic solar industry in peril just as the United States is trying to ramp up clean-energy production.
White House officials and their allies in the solar industry have grown increasingly exasperated over a Department of Commerce investigation into panel makers from four Asian countries. The industry and its allies in Congress are demanding that Cabinet officials intervene to blunt the damage, but Commerce officials say their hands are tied by federal statute.
The impact of the probe puts the administration in a bind as it tries to balance Biden’s ambitious climate agenda with his pledge to restore the integrity of federal agencies and his promises to stand up for American manufacturing.
The tariffs at issue date to the Obama era. They are designed to prevent Chinese companies from dumping heavily government subsidized solar panels and cells into the American market. Investigators are examining whether manufacturers in Malaysia, Thailand, Vietnam and Cambodia have become conduits for such Chinese materials. While no determination has been made, the investigation carries the threat of retroactive tariffs — which has already driven up the cost of importing these parts and severely hampered the industry’s capacity.
The administration’s concerns about the investigation are so pronounced that Energy Secretary Jennifer Granholm approached Commerce Secretary Gina Raimondo about the issue during an unrelated media event they both attended on March 31. Granholm relayed the mounting concerns of the solar industry and asked for details about the investigation, according to a Commerce spokesperson.Raimondo told Granholm that she shared the concerns but that the investigation is a quasi-judicial process that the secretary cannot influence, the spokesperson said.
White House special presidential envoy for climate John F. Kerry also has relayed the industry’s concerns in internal administration conversations but has been clear that he defers to Commerce’s discretion over the investigation, a Kerry spokesperson said.
“At stake is the complete smothering of the investment and the jobs and the independence we would be seeking as a nation to get our fuel from our own generation sources,” Granholm told the Senate Energy and Natural Resources Committee on Thursday. “I am deeply concerned about being able to get to the goal of 100 percent clean electricity by 2035 if this is not resolved quickly.”
The White House also is urging the Commerce Department to act quickly in accordance with the law, according to a person who spoke on the condition of anonymity to discuss internal administration thinking.
Auxin Solar Inc., a tiny, struggling maker of solar panels, has thrown the entire American renewable-energy industry into chaos.
A petition Auxin filed with the Commerce Department accusing Chinese companies of circumventing tariffs spurred a U.S. probe in March that has effectively halted most solar-panel imports, according to utilities and industry groups, delaying solar projects all over the country.
Utility chief executives and politicians including California Gov. Gavin Newsom have protested, warning that the investigation could set back U.S. efforts to transition to cleaner energy sources to combat climate change. A U.S. solar trade group estimates the turmoil could cost the industry billions of dollars.
On Wednesday, Indiana-based utility NiSource Inc. said delays of up to 18 months in solar projects meant it would have to keep coal-fired power plants that are slated for retirement running longer than expected.
The disruption has fueled speculation in the industry about what is motivating Auxin, where it is getting its funding for its regulatory fight, and whether it even produces panels.
Auxin CEO Mamun Rashid said in an interview that the company is funding the petition itself, seeking to stop unfair trade practices that have hurt American manufacturers. A recent tour of his factory showed roughly 30 workers making panels.
As a result of the controversy, he said, his employees have been hassled, his computer servers have been hacked and strange cars have been circling his factory.
“Somebody called me a couple days ago and said our name is very toxic in the industry,” said Mr. Rashid, a former Silicon Valley microchip engineer who said in past years he has sold a treasured Porsche and drained his 401(k) to keep the solar company afloat.
“The last thing I would want to do is take an action that hurts” the renewables industry, he added, saying that meeting the climate challenge is important to him. “But are we going to look the other way on not abiding by U.S. law?”
The furor over the petition by Auxin, a privately held company based in San Jose, Calif., highlights how dependent the American solar industry is on foreign supplies, most of which are controlled by Chinese companies that can produce large volumes at low prices. Chinese manufacturers make around 63% of the polysilicon used in most solar panels globally, and more than two-thirds of the wafers that are the next step in the manufacturing process, according to energy consulting firm Wood Mackenzie.
For the past decade, the U.S. has tried to keep some solar manufacturing at home by levying tariffs on the solar cells and panels that are the final stages of production, including steep duties on Chinese makers. But production instead shifted to Southeast Asian countries such as Malaysia, Thailand, Vietnam and Cambodia, which last year manufactured nearly half of the cells and 80% of the panels that U.S. solar companies depended on for their projects, according to trade associations.
Last year, a group of U.S. solar manufacturers filed an anonymous petition to the Commerce Department, saying Chinese manufacturers were evading U.S. tariffs by routing their operations through those Southeast Asian countries.
After that petition was rejected because its proponents wouldn’t say who they were, Auxin, which had been a member of the group, decided to try again on its own and in the open, according to a person familiar with the matter.
Mr. Rashid said Auxin had less than $10 million in revenue last year and managed to make a slight profit. Auxin can produce 150 megawatts of panels a year, less than what a single, large-scale utility project would typically require. Mr. Rashid said it is running at around 30% of that capacity.
Biden officials have been careful to avoid even the appearance of interfering with the Commerce probe, which is being run by career staffers at the department. The rules guiding the Commerce investigation are designed to minimize political interference, enabling the civil staff at the agency to pursue its work independently.
Confronting mounting political pressure to intervene and clear a path for solar installations to get back on track, Raimondo told Bloomberg television Friday that the department is moving as fast as it can, “but I can’t take any shortcuts here because we have to pursue the investigation in compliance with the law.”
A bipartisan group of lawmakers also has pressured the administration to “pursue allegations of rampant trade violations” by Chinese solar energy companies, as many U.S. lawmakers seek to pressure Beijing economically.
But solar industry officials warn that if the investigation drags on for months, as the law allows, businesses will be wiped out and massive solar projects will be scrapped. Rooftop solar companies are also struggling with the tumult in the market, industry officials said. Hundreds of big solar projects in the United States have been frozen or substantially delayed as investors become unnerved by the prospect of having to pay steep penalties retroactively.
Eighty percent of U.S. solar firms say the investigation has jeopardized at least half the projects they planned to complete in 2022, according to an industry survey. The tariffs under consideration by Commerce could exceed 50 percent of the price of panels.
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