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Federal probe finds big solar firms flouted trade rules

The Department of Commerce findings could force major changes in the solar industry, bringing more manufacturing back to the United States

Solar panels are installed on a residential rooftop in Hayward, Calif., on Feb. 8. (David Paul Morris/Bloomberg News)

The Biden administration found widespread flouting of trade laws by the world’s biggest solar manufacturers amid an investigation that has rattled the industry and is likely to push companies to invest more heavily in producing their components in the United States.

Four companies that account for as much as half of the solar cells imported into the United States are avoiding steep tariffs on solar products manufactured in China by using other nations as a pass-through in the production process, according to preliminary findings of a Department of Commerce investigation.

The findings come despite large solar industry groups and many lawmakers aggressively lobbying Commerce Secretary Gina Raimondo to drop the investigation. Dozens of solar companies in the United States blame the probe for price spikes and panel shortages in the spring and summer. They warn that this stepping up of enforcement will inhibit growth and undermine the president’s goal of further driving down the cost of solar energy.

But the administration is pressing ahead with robust enforcement of U.S. trade laws as it tries to steer clean energy manufacturing back to the United States. The investigation was launched in March at the behest of a small U.S. manufacturer in California called Auxin Solar. The company charged it was being driven toward financial ruin by competitors making panels with materials illegally sourced in China.

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“What we’re trying to do is just provide relief against unfair trade practices,” said a senior Commerce official who briefed reporters on the condition that their name not be used. The official said the administration is merely enforcing laws that have been in place for more than a decade. “There’s no reason for anyone to be confused about how this operates,” the official said.

Industry groups warned that the department’s actions will increase the price of panels and slow down the transition to more solar energy in the United States.

“The solar industry has a global supply chain and a business model that relies on stable policies and predictable pricing,” said a statement from Gregory Wetstone, chief executive of the American Council on Renewable Energy. “Today’s decision will limit our ability to fortify our supply chain and reflects the dramatic shift from ‘free trade’ policies to protectionism in both parties. American consumers, and the effort to protect our climate, are unfortunately caught in the middle.”

Federal investigators found ample evidence supporting allegations that Chinese firms are dumping heavily government-subsidized solar components into the American market. They are focused on the role of Malaysia, Thailand, Vietnam and Cambodia as conduits for such Chinese materials. Federal investigators are now headed to Southeast Asia to verify their findings, a step largely considered a formality.

U.S. solar developers that continue to buy products from companies found to be in violation of trade rules will be on the hook for paying new tariffs on any purchases made starting in June 2024.

The companies the Commerce Department believes to be violating trade law are BYD Co., Canadian Solar International Ltd., Trina Solar Science & Technology Ltd. and Vina Solar Technology Co. The size of the tariff on products from those companies varies based on how much of production is linked to China.

Commerce analyzed the extent to which initial investment, research and development and the manufacturing of parts is happening in China vs. in the nations where companies claim to be operating. In the case of Canadian Solar, which operates in Thailand, the tariffs could be below 16 percent of the sales price of its products, a rate at which buyers in the United States would not necessarily stop making purchases.

Other companies, though, were found by the investigation to be directly connected to the Chinese Communist Party and face tariffs of more than 250 percent. Those companies include Trina Solar, which is operating out of Thailand, and Vina Solar, which is shipping from Vietnam.

The investigators examined a total of eight companies shipping from Southeast Asia. It found that four of them were not violating trade laws.

Officials from the companies who were found to be flouting the laws did not immediately respond to request for comment. But executives from Chinese solar companies had earlier said the allegations are baseless, noting that hundreds of millions of dollars are being invested locally in their Southeast Asia subsidiaries on solar technology and operations.

They maintain that the factories are not merely pass-throughs to avoid tariffs. The United States began placing those tariffs on Chinese solar products in 2012, after finding highly subsidized panels were being “dumped” into the American market at prices below the cost of production.

Months before the department issued its latest findings, the investigation had already sent the American solar industry into turmoil, as firms worried they would be hit with steep retroactive penalties that could add up to 50 percent the cost of panels.

The White House stepped in to assuage those concerns and get the industry back on track in June with an order that exempts American companies buying the components in question from getting slapped with any tariffs or penalties until mid-2024. The intervention succeeded in revitalizing the market, but tensions and anxiety in the solar industry continued to simmer as the investigation lumbered on.

The Biden administration promises an infusion of subsidies from the Inflation Reduction Act will give the industry the resources it needs to shift more manufacturing to the United States and move supply chains away from China.

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“The Inflation Reduction Act provides a heck of a lot of subsidies for the expansion of solar manufacturing,” said Ethan Zindler, a solar industry analyst at BloombergNEF. “We will see how much can come online on U.S. soil over next few years to make whatever tariffs Commerce might impose on imports less relevant.”

But he said the United States still has a long way to go before it can become a major player in certain areas of the solar supply chain.

U.S. manufacturers of solar cells and panels, a relatively small force in the global industry eager to grow its market share, welcomed the Commerce findings.

“A fair and level playing field is critical as companies embark on significant expansion plans,” said a statement from Mike Carr, executive director of the Solar Energy Manufacturing for America Coalition.

China now controls more than 80 percent of solar panel production. It commands 95 percent of the production of certain elements that are essential to making a panel, including polysilicon and wafers.

China’s market dominance was seeded by its government with a $50 billion investment into the solar supply chain. As China drove prices down, companies elsewhere in the world, including America, stopped trying to compete in vital areas of solar manufacturing.

Cheap Chinese materials ultimately factored big in making solar some of the most affordable energy in the United States.

But moving production back to the United States has since become a major White House priority. Biden administration officials say China’s control over the solar supply chain poses an increasing threat to America’s energy independence and financial health as the nation’s reliance on solar power grows.

Not all solar companies making heavy use of the products targeted by federal investigators bristled at the Commerce findings. Yuri Horwitz, CEO of Sol Systems, a developer of large solar projects for companies looking to reduce their carbon footprint, expressed relief that the administration is finally giving companies concrete guidance on sourcing products.

“With this decision, hopefully the industry has clarity, even if it is challenging,” he said.