The ITC agreed in a 6-0 vote that Chinese solar producers have benefited from illegal subsidies from the Chinese government and sold products at below fair market value. The ITC’s findings corroborate with the decision by the U.S. Commerce Department in October. The two agencies have to agree on the allegations before the tariffs set by the commerce department last month officially take effect.

Whether slapping tariffs on imported Chinese solar cells will achieve the ultimate goal of the trade dispute – to even the playing field and foster healthy competition – remains to be seen. So far, the dire predictions about the impact of tariffs from both sides of the disputes haven’t taken hold even though the U.S. government began collecting tariffs –as a result of a preliminary decision by the commerce department – earlier this year. The government collected the tariffs retroactively.  Those tariffs will be returned, though, because the ITC didn’t agree with that decision by the commerce department.

Though the tariffs are in place going forward, Chinese companies already have found ways to minimize their impact. They can sidestep the tariffs by using solar cells made in countries other than China and assemble those cells into panels in their factories in China. This approach raises the production cost but not as much as what paying the tariffs would entail. Major Chinese solar manufacturers include Suntech Power, Trina Solar, Yingli Green Energy and JA Solar.

The ITC decision drew to a close a contentious fight brought by a group of U.S. solar cell and panel makers led by SolarWorld, who filed the complaint in October 2011 as the global solar industry saw a rapid decline of solar panel prices because supply far exceeded demand. That glut, which began in early 2011, has contributed to the bankruptcies of dozens of solar cell and panel makers worldwide and stirred up strong resentment against Chinese solar manufacturers, who rose to dominate the world market in the past six years. Silicon solar panels are made up of rows of solar cells, and Chinese companies that make solar panels typically also produce their own solar cells.

Both Solyndra and Abound Solar cited the Chinese companies’ ability to lower prices quickly as a reason for their demise. Solyndra, which is still going through the bankruptcy proceedings, filed an anti-trust lawsuit against Chinese solar manufacturers last month and is seeking $1.5 billion in compensation.

The glut of solar panels has remained, the prices of solar panels are still falling, and the number of manufacturers that are leaving the business is still increasing. GTM Research has predicted that 180 solar panel makers worldwide will disappear by 2015.

The intense competition has triggered similar trade complaints against Chinese manufactures in Europe. The Chinese government, in turn, recently filed a complaint with the World Trade Organization over government subsidies received by European solar panel makers.

On the other hand, the falling prices for solar panels have been a boon for companies that buy and install solar panels. A group that formed to oppose the U.S. trade complaint includes not only Chinese solar manufactures but also project developers and residential solar service providers. Most of the solar power projects that are bidding for power sales agreement contracts with utilities propose to use solar panels instead of other types of solar technologies.

The intense competition, bankruptcy filings and the difficulties of making profits also have generated concerns about the quality of solar panels being made these days. At a conference last week, a Wells Fargo executive said he had been noticing a fair number of substandard solar panels because manufacturers were “cutting corners.”

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The commerce department’s decision capped a year-long investigation to look at whether Chinese silicon solar cell makers have received financial and other help from the Chinese government that gave them an unfair advantage over rivals, and whether they have been selling products at prices that are less than their production costs or less than what they sell in their home market. The complaint, filed last October, came from a group of solar cell and panel makers led by SolarWorld. The tariffs are meant to counter the effects of the unfair government subsidies and pricing practices.

Solar cells from Suntech Power, the world’s largest solar cell and panel maker, will be hit with a 31.73 percent anti-dumping duty, which is a slight increase from the preliminary tariff of 31.14 percent that the commerce department issued in May. Trina Solar’s cells will face 18.32 percent opposed to 31.22 percent. Other solar cell makers that asked the commerce to hand out specific tariffs will get 25.96 percent instead of 31.18 percent. The rest of the Chinese manufacturers will face 249.96 percent, the same as the preliminary tariff. But the amount that these companies or their importers will fork over will be lowered by 10.54 percentage points in order to avoid double-counting an export subsidy, the commerce department said.

The commerce department significantly upped the anti-subsidy tariffs, however. Its preliminary tariffs, handed down in March this year, were less than 5 percent for all Chinese solar cell makers. But its final decision has increased that from 2.9 percent to 14.78 percent for Suntech, 4.73 percent to 15.97 percent for Trina, and 3.59 percent to 15.24 percent for all the rest.

Overall, the final decision gave Suntech a slightly higher combined rate, and the same for companies that didn’t ask for specific tariffs. Trina and those who asked for individual tariffs, such as Yingli Green Energy, now face lower combined rates.

Suntech, which already is reeling from a financial fraud in Italy, saw its founder stepped down as CEO in August. Earlier this week, Suntech announced plans to reduce production and other steps to reduce its costs.

Both the anti-dumping and anti-subsidy tariffs apply only to silicon solar cells made in China. Silicon solar cells are the dominant form of solar cell and panel production and and Chinese manufacturers have squeezed out rivals in Europe, Japan and the United States in recent years. The tariffs would be paid by whoever are the “importers of record,” and that could be the manufacturers themselves or their customers.

SolarWorld was hoping that the commerce department would impose tariffs on Chinese solar panels as well, but the commerce department didn’t budge. Adding solar panels would’ve inflicted a greater pain on the Chinese companies, many of which sidestepped the preliminary tariffs by using solar cells from countries such as Taiwan and assembling the cells into panels in China.

SolarWorld, which is based in Germany and runs a factory in Oregon, said previously that tariffs are necessary to help American manufactures stay competitive and in business. The other side, which includes not only Chinese manufacturers but also project developers and equipment retailers that have benefited from cheaper solar panels, warned of rising installation costs and severe job losses. As we pointed out last week, neither prediction has come true so far since the preliminary tariffs went into effect.

In fact, solar panel prices have continued to fall because of other global economic market forces at work. The biggest factor: supply and demand remains out of whack for the global solar market. The glut began to show its impact and push down solar panel prices in early 2011, and its presence still lingers. Chinese manufacturers have continued to suffer big financial losses, along with their rivals in Europe, Japan and the U.S. After building up a big solar manufacturing base and export business, the Chinese government now is reportedly working on rescuing some of the biggest solar manufacturers and forcing a consolidation.

But lower panel prices have benefited project developers and installers. The U.S. market for solar panel installations is forecast to grow 71 percent in 2012 from the previous year.

The commerce’s decision isn’t the end of the trade case though. The U.S. International Trade Commission is investigating the same complaint, and it’s set to decide whether Chinese manufacturers’ actions have hurt American manufacturers. The final decision on the tariffs by the commerce department will be in effect only if the trade commission finds that American manufacturers have suffered harm. The commission, which did find harm in a preliminary decision last December, is set to issue its final decision on Nov. 7.

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Playing on this theme, Germany based Solon Energy and Chinese leader Trina Solar have a new panel that they claim can cut installation times by up to two thirds, lowering costs to the end customer by about 10 cents per kilowatt-hour. Rather than attaching the panels to a metal framework that would have been mounted on the roof, the new tech uses the frame around the solar panel itself as the mounting mechanism. With all the recent power outages, it’s not the worst time to be marketing cheaper off the grid solutions.

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The Department of Commerce’s decision determined that Chinese companies have indeed been selling products at below fair market prices, and the ruling addressed part of a broader trade complaint filed by SolarWorld and other manufacturers last October. To offset the impact of the below-market pricing, the commerce department reached a preliminary ruling to impose an import tariff of about 31 percent on solar cells from 61 Chinese manufacturers and nearly 250 percent for the rest.

It’s worth noting that the tariffs will affect only silicon solar cells made in China but not solar panels made in China with silicon solar cells from another country. Plus, the commerce department could modify the tariffs when it issues a final decision in October.

Paper tiger

The 250 percent tariff sounds scary, but the fact is the biggest Chinese solar companies such as Suntech Power, Trina Solar, Yingli Green Energy and Canadian Solar will face the 31 percent tariff. While that 31 percent tariff will likely raise the wholesale prices, there are ways to manage it.

For months Chinese manufactures have been brainstorming around ways to lessen the impact of any tariffs. They have been talking to solar cell makers in Taiwan about buying and shipping their cells to China or elsewhere to be assembled into panels. A company like Canadian Solar, for example, could buy Taiwanese solar cells and assemble them in its Canadian factory (most of the company’s manufacturing is in China, hence it’s considered a Chinese company) or hire a manufacturer in Korea. Chinese companies also could set up solar cell production outside of China.

Shyam Mehta, a senior analyst at GTM Research, estimated that hiring Taiwanese companies to make cells will increase production costs for Chinese companies by 6 percent to 12 percent, which “is meaningful but manageable.”

Solar installers

While manufacturers figure out their strategies, solar service providers – from companies that provide consumer financing to roofers who install solar panels – need to come up with plans to cope with higher solar panel prices. People in the solar retail sector, understandably, have strongly opposed the trade complaint. They contend that the solar market growth could slow if they have to pay more for solar panels.

Certainly, profits will shrink if costs increase. But that doesn’t mean retail service providers will raise their prices or raise by a whole lot. They will likely absorb the added costs and still make good money, especially by increasing the sales volumes (the solar market is hardly saturated). We are not talking about razor-thin margins that will be rendered non-existent by the tariffs.

For a while now, investors and solar retail service providers have talked about how they could deliver or receive very good (double digit) and long-term returns. We’ve seen banks and other types of investors such as Google putting up funds in hundreds of millions to finance leases and power purchase agreements, which are long-term contracts in which consumers pay a monthly fee for solar electricity instead of the high upfront cost of installing and owning solar panels. Consumers opt for these financing plans because they take away the hassles of doing research and picking equipment manufacturers, and because they are often promised lower utility bills. That promise of lower utility bills is a key selling point, and any solar retailer who took that away will lose a serious competitive edge.

Competition in the retail sector has intensified in recent years, and that, too, will make it difficult to raise prices and still compete effectively. Venture-backed startups such as Sungevity, SolarCity and Sunrun started in 2006 or 2007 and have expanded well beyond their home turf of California. Many more have shown up and some of them that first made their fortunes in a different business, such power company NRG Energy, home security company Vivint and roof installer PetersenDean. Consumers only benefit when they have more companies to choose from.

Lastly, solar panels don’t make up the bulk of the price of a solar electric system. In fact, they take up around 20 percent, and the rest comes from the costs of other components, sales and marketing, permits and labor. A bigger worry for installers has been these non-solar panel costs, particularly in permitting and marketing and sales. The average price for a residential system by the end of last year was just over $6 per watt (and less $5 per watt if a homeowner bought a system outright rather than doing a lease), GTM said, while the wholesale price for solar panels was near $1 per watt (it was $1 per watt when I caught up with Chinese solar panel makers at PV America West in March). UPDATE: Solar panel prices fell around 50 percent in 2011 while the average price for a residential system dropped 3.6 percent during that time.

The solar industry wants to show critics that solar electricity can be affordable and compete with power from fossil fuels and it deserves government subsidies to help reduce costs. To raise prices in a big way will only give ammunition to critics that solar is far from prime time. That’s one outcome everyone in the solar industry, regardless of which side they are on in the trade dispute, would hate to see.

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The new funding, which included the $5 million we reportedlast month, brings the company’s total venture capital funding to just over $50 million. Bessemer Venture Partners led the round. The new fund will be crucial for managing the company’s new ties with the solar panel makers who agreed recently to build Tigo’s power electronics into their products. The Silicon Valley company, founded in 2007, will still market its products to distributors and installers, but selling to solar panel makers will broaden Tigo’s reach in the market more quickly.

Solar panel makers who have agreed to assemble Tigo’s electronics into their products include Trina Solar, Hanwha SolarOne, Upsolar and Eclipsall.

“We believe, in the long term, the big play is being integrated. It’s like everything else in life, like GPS becoming part of the car,” Arditi said.

Tigo develops what it’s called power optimizers: electronic devices that go on the back of each solar panel to track and tune its power output to more efficiently harvest the electricity generated by the solar cells. They also help to identify faulty solar panels more quickly. Power optimizers are fairly new to the market, and Tigo is one of many companies that are trying to popularize their use. In a solar array without the power optimizers, an inverter tracks and adjusts the power output while converting direct current to alternating current for feeding the grid. The central inverter isn’t able to track and fine-tune the current and voltage of each solar panel as closely. As a result, the worse performing panels can drag down the power production of other panels. Using power optimizers works around this issue.

The company says its power optimizers could squeeze up to 20 percent more power from an array. But the more typical increase is more likely to be half of that or less.

Delivering more power is an attractive proposition, certainly, but that also has to come with reasonable prices. New technology tends to be more expensive, but the idea is that if it finds enough buyers and rolls off factories in large volumes, then its price will come down. From an installer’s point of view, the issue is whether the tradeoff – adding costs to get more power – is worth the money when designing each system.

The rise of power optimizers has tracked closely with the growing use of microinverters. Microinverters perform the functions of both power optimizers and inverters, and each of them is paired with one solar panel. Naturally, an ongoing debate is over whether distributing the power conversion function to each solar panel is a good idea. Microinverter proponents say their devices eliminate the bottleneck that a central inverter can create if it breaks down. Arditi argued that there is no need to essentially “replicate conversion X times” and that adds more cost to a project than pairing power optimizers with central inverters.

One thing all these power optimizer and microinverters agree on is that they have been attracting a lot of venture capital lately. SolarEdge, which develops optimizers and also sells its own inverters, raised $37 million earlier this year. SolarBridge Technologies, an inverter maker, announced a $19 million round in June. SolarBridge’s rival, Enphase Energy, is waiting for the ripe moment to do an initial public offering. It needs capital in the mean time and noted in a recent regulatory filing that it had raised $21.86 million from a fundraising goal of $81.86 million.

Some solar panel makers, such as Upsolar and Hanwha SolarOne, aren’t being choosy and have decided to offer products with either integrated power optimizers or microinverters.

Tigo has been shipping power optimizers not just within the United States but also to Canada, Europe, Australia and Japan.

Photo courtesy of Tigo Energy

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Solar panel makers Suntech Power and Trina Solar both noted a surge in sales for the current quarter during conference calls with analysts to discuss earnings last week. The incentive is a cash grant that covers 30 percent of a project’s cost and is set to end at the year’s end. Congress created the incentive in 2009 as an alternative to a 30 percent investment tax credit and had planned to kill it last December before last-minute politicking extended it by another year.

Project developers can claim the cash grant much sooner than the tax credit which, by the way, won’t expire until the end of 2016. The money comes in handy when lining up loans isn’t easy. The prospect of extending it is unclear, but the solar industry’s main trade group, Solar Energy Industries Association, remains hopeful that a last-minute extension will happen.

Meanwhile, many solar equipment makers are expecting to increase shipment to customers who want to get in line for the grant before it disappears. The program rule requires projects to start construction before the year ends (and be completed by 2016) in order to claim the grant.

“We see a strong pulling demand due to the potential cash grant change, and we expect at least 50 percent sequential growth in shipment in Americas in the fourth quarter,” said Andrew Beebe, Suntech’s chief commercial officer, during a conference call.

Beebe also noted that while Suntech executives are optimistic about the grant program’s survival, “We think we will thrive either way. Everyone is prepared to go back to an (investment tax credit) world.”

While a stronger demand is always nice, it’s unlikely to prevent manufacturers from posting losses again for the fourth quarter. Many companies have been boosting their shipments at various times this year but still couldn’t squeeze profits from them. That’s because the prices of solar panels have plummeted so much and so quickly – by 30-40 percent during this year — while the production costs haven’t fallen as quickly. A pile up of unused solar panels, a result of delays in setting new levels (and lower) incentives by European countries such as Italy and France and the teetering European financial market, are to blame.

While many companies are reducing production significantly or closing factories all together, Trina Solar isn’t cutting its production as much this quarter even though it had amassed quite a bit of unsold products before the fourth quarter began.

“We want to meet the demands of the market, especially when the U.S. market and customers want to capitalize on the cash grant,” said Terry Wang, Trina’s chief financial officer, during the conference call.

The rush-to-install mentality isn’t unique in the U.S. It’s part of the cycle in countries like Germany, where government incentives are structured to fall over time. But being in a hurry to meet a deadline can lead to poor judgment, as SunPower executive Julie Blunden pointed out last December about the then fear that the grant program would not survive: “SunPower and other companies are racing to meet the end-of-year deadline, and we are making decisions that aren’t consistent with the lowest-cost considerations.”

Photo courtesy of the U.S. Army

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