U.S. solar energy is currently confronting isolationist backlash via trade protection against an influx of inexpensive Chinese-made photovoltaic (PV) panels that have spurred rapid industry growth. Two struggling domestic manufacturers, Suniva and SolarWorld (both owned by international parent companies), recently successfully petitioned the U.S. International Trade Commission (ITC) (1) to impose tariffs on internationally-produced modules.(2) The resulting recommendation by the ITC (to be approved by the U.S. president) will have stark impacts across the industry, including on leading player SunPower, a vertically-integrated firm that manufactures panels and develops and finances power projects.
Isolationism via the ITC ruling is a major concern for SunPower, directly on its global supply chain and indirectly via decreased supply, increased prices and dampened demand across the industry. In its latest 10-Q, the company labeled the uncertainty around the decision as a material risk, listing “market volatility, price fluctuations, supply shortages, and project delays” as potential impacts.(3) SunPower produces panels through wholly-owned and joint venture plants, primarily in the Philippines(i), Malaysia, Mexico and China, all of which could be affected by the decision. In testimony to the ITC, CEO Tom Werner stated that the tariff and ultimate pricing uncertainty already caused the company to lose a multi-hundred-million-dollar bid to a competitor whose specific technology will not be affected by the ruling.(4) Additionally, in February SunPower signed a joint venture with two of its Chinese supply chain partners to significantly expand existing manufacturing capacity; if this capacity can no longer be used for U.S. demand, it will have significant impacts on SunPower’s ability and cost to serve U.S. customers and on its overall asset utilization and financial results.(5) The ITC determination will have a chilling effect over the entire industry which will indirectly further threaten SunPower. Solar supports 260,000 jobs across dealers, installers, and other manufacturing sectors;(6) it’s estimated that the tariffs would double the price of foreign-made panels, which supplied 87% of 2016 installations,(7) resulting in a two-thirds decreased demand in new solar projects and ultimately costing up to 88,000 jobs.(8) SunPower has 850+ suppliers and 515 dealers in the U.S. who could exit the market if the sector contracts,(9) further risking its supply chain operations.
SunPower is addressing this concern through lobbying efforts and by building out its domestic and regional capacity. In the (very) short term, Warner has asked the ITC for its high-end proprietary technology to be excluded from the ruling. He argues the ruling should address only the low-cost, low-efficiency modules that the plaintiffs cannot competitively produce, and should exclude the high-margin, high-efficiency technology created by domestic R&D teams like SunPower’s.(10) SunPower has also invested in manufacturing capacity for its low-end P-Series panels in Mexico; depending how the ruling regards NAFTA, these panels may not be subject to tariffs, in which case SunPower could shift production there.(11) Longer-term, SunPower responded in August by announcing a “pilot production line” in Silicon Valley, which has begun operating on a small scale for its high-end X-Series panels, but could scale up and expand to the rest of its product portfolio if domestic manufacturing is required to comply.(12) Differentiated solar technologies are one way to both avoid the potential isolationism tariffs and win in the marketplace. SunPower should further invest in its U.S.-based R&D capacity, utilizing its site in Silicon Valley, to improve its innovation and product development processes and reduce its time-to-market for new technologies. It should also conduct a thorough supply-chain assessment across both domestic and international markets to identify consolidation opportunities where it may gain economies of scale, improving its own costing, and shore up supply chain partners who may be threatened by the ruling. For example, Warner cites sourcing of silicon from Michigan and Tennessee, power electronics from Colorado, and metal products from Arizona and Minnesota,(13) all of which may provide opportunities for better supply chain management. It may consider how to best segment production between its U.S. and Mexican facilities (assuming NAFTA excludes it from tariffs), and it may enter foreign markets with strong solar growth and use its foreign capacity to serve those markets. Finally, it should continue to engage the government by advocating for an extension of the Investment Tax Credit (ITC) and increased federal procurement of domestic solar power.(14)
The immediate question of the degree to which tariffs will impact SunPower will be answered soon by the president, but the larger potential re-negotiation of NAFTA is an important consideration for SunPower as it reacts to isolationism. To what degree will this situation be further complicated by the NAFTA renegotiations? Should SunPower conservatively forego further expansion of Mexican manufacturing capacity? For an emerging major solar player, the question of how isolationism could disrupt their growth will power their strategic focus in the years to come.
i To be closed as of a December 2016 announcement.
1 Solar Energy Industries Association. “Solar Section 201 Case – Frequently Asked Questions.” 2017. Solar Energy Industries Association. Web. 12 November 2017.
2 The Wall Street Journal. “Solar Power Death Wish.” The Wall Street Journal 16 September 2017: 1.
3 SunPower Corporation. “Form 10-Q (Q3 FY17).” 1 October 2017. www.sec.gov. Web. 12 November 2017.
4 Werner, Tom. “SunPower CEO Tom Werner’s Oct. 3 ITC Testimony.” 3 October 2017. Sunpower.com Blog. Web. 12 November 2017.
5 Osborne, Mark. “SunPower enters major China manufacturing JV for P-Series solar modules.” 24 February 2017. PV-Tech. Web. 12 November 2017.
6 Werner, Tom. “Why ITC Solar Trade Case Is Far from Over.” 22 September 2017. Sunpower.com Blog. Web. 12 November 2017.
7 KANN, MJ SHIAO AND SHAYLE. “6 Ways to Encourage American Solar Manufacturing Without Import Duties.” 25 September 2017. Greentech Media. Web. 12 November 2017.
8 Solar Energy Industries Association. “Solar Section 201 Case – Frequently Asked Questions.” 2017. Solar Energy Industries Association. Web. 12 November 2017.
9 Werner, Tom. “SunPower CEO Tom Werner’s Oct. 3 ITC Testimony.” 3 October 2017. Sunpower.com Blog. Web. 12 November 2017.
11 Houim, Travis. “SunPower Could See a Windfall If Tariffs Hit the Solar Industry.” 13 July 2017. The Motley Fool. Web. 12 November 2017.
12 SunPower Corporation. SunPower Unveils Silicon Valley Pilot Manufacturing Line for High Efficiency Solar Panels. San Jose, Calif.: PRNewswire, Aug. 14, 2017. Web.
13 Werner, Tom. “SunPower CEO Tom Werner’s U.S. International Trade Commission Testimony.” 15 August 2017. Sunpower.com Blog. Web. 12 November 2017.
14 KANN, MJ SHIAO AND SHAYLE. “6 Ways to Encourage American Solar Manufacturing Without Import Duties.” 25 September 2017. Greentech Media. Web. 12 November 2017.
Photo Source: https://inhabitat.com/worlds-cutest-solar-farm-in-china-is-shaped-like-a-panda/