Speaker 1: This is Dana Perkins and you're listening to Switched on
Speaker 1: the B and EF podcast. So, solar module prices are
Speaker 1: at record lows and oversupply is one of many factors
Speaker 1: driving this. So what does this mean for the industry overall?
Speaker 1: In a time of tariffs and protectionism. These record breaking
Speaker 1: prices are found in Asia, but for manufacturers outside of
Speaker 1: Asia it is a different story. The US government previously
Speaker 1: placed tariffs on China and recently extended these to parts
Speaker 1: of Southeast Asia where Chinese manufacturers had been setting up.
Speaker 1: This might have the potential to foster a US based
Speaker 1: solar manufacturing industry, but it also has the potential to
Speaker 1: slow down solar adoption in the US, where prices really
Speaker 1: are very different. To explain what's happening on today's show,
Speaker 1: we are joined by Poul Askano from bn EF's Solar Team.
Speaker 1: I am also joined today by a co host, Tom
Speaker 1: Rowlands Reese. Now, if you like this show, make sure
Speaker 1: to subscribe or consider giving us a review. Right now,
Speaker 1: Tom and I though get to speak with Pole. So
Speaker 1: today we've got a guest and a co host, and
Speaker 1: I'm going to start off with my co host, So
Speaker 1: Tom rollins three say.
Speaker 2: Hello, Hi.
Speaker 1: That Dana, I promise not to call you by your
Speaker 1: full name the entire time. You're Tom from here on out.
Speaker 2: That that makes me a lot more comfortable.
Speaker 1: And Paul, welcome to the show today.
Speaker 3: Thank you, Dana.
Speaker 1: So Tom and Paul we have you both joining us
Speaker 1: from the US, and that's really apt given this conversation
Speaker 1: is about solar, which is a truly global market in
Speaker 1: many respects kind of you know, the workhorse of the
Speaker 1: renewable energy part of the energy transition with such wide
Speaker 1: scale adoption. But today we're talking about really kind of
Speaker 1: a big change on free market economics here and how
Speaker 1: the US has intervened in this space with tariffs. Now
Speaker 1: we know that China has led to incredibly low prices
Speaker 1: for solar modules all over the world, and the US
Speaker 1: has set up a different scenario for themselves. So can
Speaker 1: you just give everyone an understanding of what the current
Speaker 1: situation is with US prices versus Chinese prices? And then additionally,
Speaker 1: you know what that tariff structure, how as it currently stands,
Speaker 1: looks like sure?
Speaker 4: Yeah, In general, I guess the easy way to understand
Speaker 4: this is to understand the situation between what US developers
Speaker 4: pay for modules versus what everyone else pays elsewhere in
Speaker 4: the world. Is that there's plenty of factories in China
Speaker 4: that are supplying pretty much most.
Speaker 3: Of the world except the US in India.
Speaker 4: And typically supply of panels is exceeded demand, despite the
Speaker 4: fact that most of these countries have been growing their
Speaker 4: sole installations quite rapidly. But the US doesn't really have
Speaker 4: access to all of those factories in China because since
Speaker 4: twenty twelve they started imposing a different set of tariffs
Speaker 4: that essentially has forced module buyers in the US to
Speaker 4: pick from a more limited amount of factories outside of China,
Speaker 4: mostly in Southeast Asian countries. So what happened is, as
Speaker 4: developers said, less less factories and less less amount of
Speaker 4: modules to pick from, manufacturers logically had a little bit
Speaker 4: more room to play in terms of charging higher margins
Speaker 4: and production costs were slightly higher than than in China
Speaker 4: across some of those countries. So it ultimately happens as
Speaker 4: of today, developers would pay about three times more the
Speaker 4: modules in the US and what a developer in Europe
Speaker 4: would pay for for instance.
Speaker 2: So that's a pretty hefty impact I presume on the
Speaker 2: cost of developing sola in the US. I suppose a
Speaker 2: couple of just things to clarify there is for thinking
Speaker 2: about utility scale solar how much is the module actually
Speaker 2: part of the cost of the project. I'm assuming that
Speaker 2: as modules get cheaper and cheaper, a multiple on the
Speaker 2: cost of modules starts to matter less and less. So
Speaker 2: is it really like a game change of that amount
Speaker 2: of money? And then what is the US government doing
Speaker 2: to sort of offset that?
Speaker 4: So, to use round numbers, it costs for utility scale
Speaker 4: it costs about a dollar or what to build a
Speaker 4: utility skill solar farm in the US slightly over, but
Speaker 4: just to use PRG numbers, let's just say one dollar
Speaker 4: what and modules, as I said, costs about thirty cents
Speaker 4: a what for those projects, so very easily, about thirty
Speaker 4: percent of the upfront cost of building a utility skill
Speaker 4: solar farm goes into into buying those modules. And the
Speaker 4: reason why the really high module prices haven't had a
Speaker 4: dramatic impact on solar deployments because the US for a
Speaker 4: long time has been paying back in the form of
Speaker 4: tax credits about thirty percent of those upfront costs to
Speaker 4: the project owners, which essentially upsets some of those higher
Speaker 4: prices that developers.
Speaker 3: Have to pay for modules.
Speaker 4: So if you think about it from a more first
Speaker 4: principles basis, it's US tax credits subsidizing in a way
Speaker 4: these higher module prices that developers in the US have
Speaker 4: to have to pay for.
Speaker 2: So this is costing the US money.
Speaker 4: Technically, I mean, tax credits is not it's not a
Speaker 4: direct subsidy, it's not a grant. So their tax credits
Speaker 4: are only subsidies that get materialize if the think gets built,
Speaker 4: if the project gets built. So you could also argue
Speaker 4: in the absence of those tax credits, those projects would
Speaker 4: not get built in the first place. So what you're
Speaker 4: essentially doing is you're reducing some of that expected tax
Speaker 4: collection from this activity that you're incentivizing.
Speaker 1: So the regulation here largely tariffs are really focused on
Speaker 1: these foreign entities of concern. Can you help define what
Speaker 1: that is and what's really included there.
Speaker 4: Yeah, so foreign entities of concern is a slightly different
Speaker 4: term than what we would be using in this case
Speaker 4: because the foreign Entities of concern list has a different
Speaker 4: trade implications for the US. What these tariffs are doing
Speaker 4: is broadly targeting solar factories mostly owned by Chinese companies
Speaker 4: in Southeast Asia and historically also in China with the
Speaker 4: first set of tariffs.
Speaker 2: So these tariffs, logically one would expect that both the
Speaker 2: intention and impact would be to benefit US solar manufacturers.
Speaker 2: So is this what we're seeing?
Speaker 4: Partly and there's quite new once that I will try
Speaker 4: to keep as simple as possible. But making solar panels
Speaker 4: in the US and solar sales is very expensive, and
Speaker 4: even with some of those tariffs, it's still cheaper to
Speaker 4: buy modules from abroad than using modules made in the US. However,
Speaker 4: if the terrors end up exceeding that fifty percent up
Speaker 4: arranged at US in the industry more or lesser expecting,
Speaker 4: then manufacturing sales and modules in the US can be
Speaker 4: quite profitable. And by quite profitable, I mean there's the
Speaker 4: potential to earn more than forty percent in gross margins
Speaker 4: for every single module you sell in the US with
Speaker 4: a US made sell, not only because the market price
Speaker 4: is higher for imported product because of the tariffs, but
Speaker 4: also because the Inflation Reduction Act pays you a lot
Speaker 4: of money to produce in the US. If you're making
Speaker 4: sales and modules, it's going to pay you about eleven
Speaker 4: cents a while, which is already more than what it
Speaker 4: costs to buy a whole module from China, to put
Speaker 4: it into perspective. And then on top of that, if
Speaker 4: you are making sales in the US, there is a
Speaker 4: potential that you're also going to be able to charge
Speaker 4: a premium to the developer or whoever is the end buyer,
Speaker 4: because the project might be able to claim a very
Speaker 4: lucrative domestic content subsidy of a ten percent extra on
Speaker 4: top of the subsidy that you're already getting from the IRA.
Speaker 4: And what you're doing with that price premium is essentially
Speaker 4: share that benefit between the project.
Speaker 3: And the developer and U as the manufacturer.
Speaker 4: So the combination of production subsidies that lower your overall
Speaker 4: production costs and essentially give you the window to earn
Speaker 4: really high margins, the extra premium that you can charge
Speaker 4: and the fact that prices are structurally high because of
Speaker 4: the tariffs can make US manufacturing very lucrative. However, a
Speaker 4: lot of the plan factories are still struggling to raise
Speaker 4: financing because of production cost declines in Southeast Asia are continuing,
Speaker 4: and they're probably going to continue, and even if tariffs
Speaker 4: are in the fifteen to fifty percent range of the
Speaker 4: industry respects. This is now going to be a a
Speaker 4: deal breaker for product from Southeast Asia to come into
Speaker 4: the US. And at the same time, it's really really
Speaker 4: complicated to build stuff in the US, to build factories
Speaker 4: in the US. And when it comes to building that factory,
Speaker 4: even if the on paper are on an Excel spreadsheet,
Speaker 4: the economics might look good and you can expect to
Speaker 4: make quite high margins, it takes many years to build
Speaker 4: a cell factory in the US and it's very complicated.
Speaker 4: The permiting tanks a long time, and getting the factory
Speaker 4: connected to the grid can be a serious bottleneck. So
Speaker 4: despite the fact that on paper, as I said, the
Speaker 4: economics might look good, it's still going to take some
Speaker 4: time to build those factories. And who knows what happens
Speaker 4: during the years that you're trying to build your cell
Speaker 4: factory abroad. Who knows where prices are going to go.
Speaker 4: So the risk is quite high. The market risk is
Speaker 4: quite high, so which is why a lot of investors
Speaker 4: have not really been willing to back those factories and
Speaker 4: provide financing. And the only companies that have really been
Speaker 4: able to materialize those investments are companies that have quite
Speaker 4: big balance sheets and have the money to invest themselves.
Speaker 1: So how deep into the supply chain is go? I mean,
Speaker 1: is it the manufacturing facilities that create the finished modules?
Speaker 1: Are we going all the way down to the silicon?
Speaker 4: So technically we most of the tears are applied at
Speaker 4: the cell level, But there's a set of rules in
Speaker 4: some of the terraffs that essentially indirectly targeted Chinese wafers,
Speaker 4: which is this key component to make the silicon cells.
Speaker 4: And it doesn't specifically set a TeV on the waiver.
Speaker 4: What does is essentially telling these factories in Southeast Asia
Speaker 4: or outside of China that if they don't want to
Speaker 4: be subject to some of those tariffs, they will need
Speaker 4: to buy wafers silicon wafers from outside of China.
Speaker 2: Can I just pick up on something you said previously?
Speaker 2: You just mentioned that a lot of these companies in
Speaker 2: Southeast Asia are Chinese owned. So should that mean that
Speaker 2: if the intention is to compete with China and ultimately
Speaker 2: Chinese companies are getting higher margins subsidized by US taxpayers.
Speaker 2: There's a very cynical take, is that what's happened here
Speaker 2: or is there you know, is it working on some
Speaker 2: level in achieving its subjective.
Speaker 4: Honestly, I don't really know what the end goal is here. Well, technically,
Speaker 4: it's let's bring back US solar manufacturing, and let's incentivize
Speaker 4: a ton of jobs in the US putting panels together
Speaker 4: and making sales and quote unquote making this very sophisticated
Speaker 4: technology that we're going to need to power the energy transition.
Speaker 4: This is the official language. The ultimate goal. I really
Speaker 4: don't understand, because ultimately what's happening is that we're pay
Speaker 4: more for components that are ridiculously cheap everywhere else in
Speaker 4: the world. And then the side effect, which I don't
Speaker 4: know to what extent the US has been aware, is that,
Speaker 4: as you said, Chinese manufacturers have been able to earn
Speaker 4: a lot of margins because they were the ones who
Speaker 4: had the capital to set up all these factors outside
Speaker 4: of China and then become the main supplier to the
Speaker 4: US from just a different part of the world.
Speaker 3: And because the usolar.
Speaker 4: Demand has been growing quite quickly, the Chinese solo manufacturers
Speaker 4: have been able to benefit from that growth, and they've
Speaker 4: also had a much higher market power selling to the US,
Speaker 4: and they have selling everywhere else in the world while
Speaker 4: they are essentially competing with every other factory across the
Speaker 4: street from weather based in China.
Speaker 1: Chinese manufacturers have been very nimble and willing to work
Speaker 1: in other parts of the world. So I'm thinking of
Speaker 1: Mexico and actually for this conversation, really Southeast Asia. So
Speaker 1: can you talk a little bit about the effectiveness of
Speaker 1: these tariffs? And I'm actually thinking, I mean that is
Speaker 1: a follow on to what Tom essentially asked, in that
Speaker 1: we know that it's driving prices up, but is it
Speaker 1: essentially also stopping imports of Chinese goods or has that
Speaker 1: been a difficult thing to actually do and is it
Speaker 1: more or less a you know, an unwinnable game of
Speaker 1: whack a mole. And I think, to some extent also
Speaker 1: a parallel here is when I think about sanctions and
Speaker 1: about how difficult it has been to provide sanctions to
Speaker 1: various countries. You know, the implementation of changing the way
Speaker 1: global trade and supply chain's work is actually very difficult
Speaker 1: for a government to achieve.
Speaker 4: Yeah, and it's a very complicated puzzle, but ultimately what
Speaker 4: the terrors, if accomplished, is for these Chinese companies to
Speaker 4: just re route the supply chains through Southeast Asia, so
Speaker 4: instead of just selling from their factories in some of
Speaker 4: the Chinese provinces, they're just selling from Vietnam, Malaysia, Thailand
Speaker 4: or Cambodia. So same ownership, same structure, just factory in
Speaker 4: a different location. And so far, every time there's been
Speaker 4: a new set of terriffs, these companies have been able
Speaker 4: to quite quickly adjust and build the necessary facilities outside
Speaker 4: of China to be able to comply with the new
Speaker 4: tear rules. So initially what they built was where a
Speaker 4: lot of sell and module factories in the countries that
Speaker 4: I listed, and then with a new set of terrors
Speaker 4: that are expected to come now into effect in June
Speaker 4: twenty twenty four, manufacturers were actually quite impressive in building
Speaker 4: wafer facilities in Southeast Asia as well in order to
Speaker 4: comply with with this new tariffs. So you could argue
Speaker 4: that the US has sup forced some of these Chinese
Speaker 4: companies to make really capix intensive investments outside of China
Speaker 4: and by that also spurring the local economies in Southeast Asia.
Speaker 4: But at the end of the day, we're still talking
Speaker 4: about the same suppliers, and surely because prices are slightly higher,
Speaker 4: this has left some room for non Chinese manufacturers to
Speaker 4: also sell into the US market. But those non Chinese
Speaker 4: manufacturers from South Korea, or from some of the Southeast
Speaker 4: Asian countries, or even from the US have historically struggled
Speaker 4: despite the fact that module prices work quite high, just
Speaker 4: because of how quickly the factories in Southeast Asia were
Speaker 4: able to improve and lower costs.
Speaker 2: See what I'm hearing here is that the tariffs are
Speaker 2: not necessarily working exactly as intended. Maybe they are still
Speaker 2: accomplishing some of their objectives, but it leads me to
Speaker 2: this really fundamental question, which is what actually is the
Speaker 2: point of all of this. If we're using the language
Speaker 2: of war and this is a trade war, it's like
Speaker 2: there's this battle being fought over a piece of scrubland
Speaker 2: that is of no use to anyone, And you could
Speaker 2: argue it's kind of useful for the for the US
Speaker 2: to let China just own sol it. Like you know,
Speaker 2: if it's about electric vehicles, you know, there's the automotive industry.
Speaker 2: It's such a huge industry globally. I get it why
Speaker 2: you would want to fight over that and you know,
Speaker 2: retain those healthy margins. But for all the time I've
Speaker 2: been at BNAF, our colleague Jenny Chase has always been
Speaker 2: talking about how nobody makes money manufacturing solar and all
Speaker 2: these Chinese companies, you know, lose money, and you know,
Speaker 2: but they still scale up. So surely this is like
Speaker 2: the worst industry to be fighting over. And in a way,
Speaker 2: letting Chinese modules into the country is just letting the
Speaker 2: Chinese government subsidize the US energy transition as opposed to
Speaker 2: what we have here now, which is the US government
Speaker 2: is subsidizing Chinese companies. So that's just my a take
Speaker 2: that I have, and I kind of put it to you,
Speaker 2: like fight me, like tell me what the point of
Speaker 2: this is, because this seems like the most pointless battle
Speaker 2: I can imagine.
Speaker 4: Well as a long term analyst working under Jenny Chase,
Speaker 4: obviously her influence has dictated a lot of my takes too,
Speaker 4: so I'm not going to disagree with her. I'm just
Speaker 4: gonna lay out some of the arguments in favor.
Speaker 3: Of those tariffs that I've heard and read.
Speaker 4: The first one is, it's quite an uncomfortable truth when
Speaker 4: you think about it, to say to the general public
Speaker 4: that let's say solar turns to be turns to generate
Speaker 4: about thirty percent of all electricity in the US by
Speaker 4: twenty thirty. It's quite an uncomfortable truth to think that
Speaker 4: most of that thirty percent of annual generation in the
Speaker 4: US comes from a component made in China. If you
Speaker 4: think about gas plants, nuclear there are usually some like
Speaker 4: a strong attachment to a US company owning that plant,
Speaker 4: operating and plant creating the components. So it's quite uncomfortable
Speaker 4: for policymakers and guests think about the fact that in
Speaker 4: a few years from now a lot of our electricity
Speaker 4: will come from things stuff made in China.
Speaker 3: So that's one.
Speaker 4: And then the other argument that I've heard is industrial capacity.
Speaker 4: So the US, the whole reindustrialization push right now that's
Speaker 4: taking place in the US not only is trying to
Speaker 4: compete against China and create jobs in the US, but
Speaker 4: also it's trying to revitalize the industrial capacity in the
Speaker 4: US in case there was a war, meaning we can
Speaker 4: now again build a bunch of airplanes and a bunch
Speaker 4: of ammunition. The tricky part with this argument is module
Speaker 4: assembly factories are just a big warehouse where you put
Speaker 4: a bunch of assembly lines and you put them madge together.
Speaker 4: So really, I don't know exactly how you would repurpose
Speaker 4: those factories for some military needs, but it's quite a
Speaker 4: simple process, so I don't know what the actual values
Speaker 4: of having all of those assembly lines in the US.
Speaker 4: The second part is a lot of the investments, a
Speaker 4: lot of the sole investments and manufacturers have made in
Speaker 4: the US have come from the same Chinese companies, and
Speaker 4: some of those Chinese companies are heavily involved with some
Speaker 4: of the biggest US developers, So some of the biggest
Speaker 4: US developers rely critically on supply from these manufacturers. So yes,
Speaker 4: there's exceptions like First Solars, probably the most ambitious US
Speaker 4: based manufacturer that has very big ambissions in the US
Speaker 4: and has actually pursued those investments in this scaling up production.
Speaker 4: But a lot of the big announcements come from companies
Speaker 4: that are directly or indirectly owned by Chinese firms.
Speaker 2: I just wanted to follow on while we're on this topic,
Speaker 2: and I'm going to tell you a very short anecdote,
Speaker 2: and I'm going to try and keep it brief because
Speaker 2: what you're saying makes me think of something that happened recently.
Speaker 2: I went to Charleston, South Carolina, me and my wife.
Speaker 2: We're from the UK. We're exploring the US men to Charleston,
Speaker 2: South Carolina. And near Charleston, South Carolina is the North
Speaker 2: America's only tea farm. And we went on a tour
Speaker 2: of the tea farm. And the story of that tea
Speaker 2: farm is it was set up in the sixties by
Speaker 2: Lipton because they looked there. It was the Cold War
Speaker 2: and they were looking at global supply chains and they
Speaker 2: were like, if things go bad, you know, we're not
Speaker 2: going to have any tea in America, so we need
Speaker 2: to set up a tea guard and they invested heavily
Speaker 2: in it. Cold War ended, Lipton was like, Okay, that
Speaker 2: doesn't matter anymore. They weren't interested, so they sold it
Speaker 2: to someone who is more of a te enthusiast. So
Speaker 2: now America has this one little tea garden, this one
Speaker 2: little tea farm. But the point is is that if
Speaker 2: supply chain, you know, if there is a global meltdown,
Speaker 2: America still has a way of getting tea that has
Speaker 2: something to scale from. So is the end goal here
Speaker 2: not that we have this super scale US solar industry.
Speaker 2: But we have something a little bit like the Charleston
Speaker 2: tea garden, something that is like a seed from which
Speaker 2: there is a starting point if things go really bad.
Speaker 2: Is that how you see this? Very I would say
Speaker 2: aggressive and expensive strategy ultimately is to make the Charleston
Speaker 2: tea gardens of solar.
Speaker 3: That's an interesting analogy.
Speaker 4: And I guess my first question would always be like
Speaker 4: how much more expensive or how was that t was
Speaker 4: that tea of better?
Speaker 3: Was that tea more expensive?
Speaker 5: It was really nice, award winning I mean, Tom, your
Speaker 5: country and my country have a long history when it
Speaker 5: comes to tea in international disputes, and I would say
Speaker 5: you might be overestimating how much Americans care about tea
Speaker 5: these days.
Speaker 2: Well, well, Lypton definitely cared about tea, you know, I
Speaker 2: certainly did well.
Speaker 1: But actually, then thinking about so the companies that are
Speaker 1: actually involved here, I want to think about actually the
Speaker 1: US solar manufacturers who are playing by the rules and
Speaker 1: essentially are not circumventing the different trade rules that have
Speaker 1: been set up. They have started a new petition for
Speaker 1: some additional tariffs. Can you get into that. I think
Speaker 1: it's going to be tied very much. Paul by the way,
Speaker 1: with the title of your recent research note, which is
Speaker 1: US solar manufacturer's call for more expensive modules.
Speaker 4: So this is just yet another the solar coaster, as
Speaker 4: they call it here in the US, just becoming more
Speaker 4: and more complicated. So I hope I can explain this
Speaker 4: in simple terms, because it's even confusing for those of
Speaker 4: us who do this for a living and look at those.
Speaker 3: Terrafts full time.
Speaker 4: So what happened is there's a new set of tariffs
Speaker 4: that were already approved that are like the circumvention tariffs
Speaker 4: that you mentioned, that will come into effect in June
Speaker 4: of twenty twenty four. What happened because of this deadline
Speaker 4: that was set by the Department of Commerce and then
Speaker 4: extended by two years by the Biden administration. What happened
Speaker 4: is a lot of the factories in Southeast Asia many more, honestly,
Speaker 4: a lot of factories just came out of nowhere, A
Speaker 4: lot of supply pretty much came out of nowhere and
Speaker 4: just started shipping modules to the US that we're going
Speaker 4: to be subject to this new tariffs that we know
Speaker 4: are coming next month. So what happened is there was
Speaker 4: a supply clood in the US as these manufacturers were
Speaker 4: trying to get rid of their product that was going
Speaker 4: to be essentially obsolete once the tariffs kicked in. So
Speaker 4: obviously the dynamics despite of quite a fast growing market
Speaker 4: in the US and the US solar market has been
Speaker 4: growing quite quite rapidly, but supply has supplied the past
Speaker 4: twelve eighteen months has far exceeded installations. So this imbalance
Speaker 4: essentially sent prices plummeting to as low as ten twelve
Speaker 4: fifteen cents awad for very for small budget batches of
Speaker 4: old product that these manufacturers trying to get rid of
Speaker 4: and that was going to be soon obsolete because of
Speaker 4: the tariffs. So that really posts serious difficulties to some
Speaker 4: of the existing manufacturers in the US that already have
Speaker 4: production and I already trying to sell into the US market,
Speaker 4: because now suddenly that we're competing against modules that cost
Speaker 4: ten to fifteen twenty twenty five cents down from about
Speaker 4: forty or more than forty cents.
Speaker 3: Just over a year ago.
Speaker 4: So that essentially put a lot of pressure on the
Speaker 4: financials of these like the few manufacturers in the US
Speaker 4: that are actually producing and selling modules. So now these manufacturers,
Speaker 4: which include Handwok q sales and for Solar have asked
Speaker 4: the Commerce Department to impose yet another set of terrors.
Speaker 4: These ones dedicated to some to the four Southeast Asian
Speaker 4: countries that sent about seventy five to eighty percent of
Speaker 4: the modules that the US uses to impose new anti
Speaker 4: dumping and kindavailing duties on these countries because they're arguing
Speaker 4: that they're selling modules at a loss essentially in the
Speaker 4: US and that's really making them struggle financially.
Speaker 1: Now I foreshadowed this at the beginning India. We essentially
Speaker 1: are talking about three different solar markets. So you've got
Speaker 1: the US, You've got India, and then you've got everywhere else,
Speaker 1: which essentially is well the Chinese market. Can you talk
Speaker 1: about India and how it may be is the same
Speaker 1: or different from what's happening in the US.
Speaker 4: Yeah, India has been quite an interesting benefactor of the
Speaker 4: different set of US tariffs. So India is probably the
Speaker 4: only country outside of the US that also has a
Speaker 4: let's call it mildly prohibitive amount of tariffs on Chinese
Speaker 4: solar components. So what happened is because of the high
Speaker 4: prices in the US, a lot of those Indian manufacturers.
Speaker 4: A lot of the Indian module assembly factories that have
Speaker 4: a higher production structure than in China were able to
Speaker 4: sell to the US AD quite a good profit, and
Speaker 4: not only because of the tariffs, but also because the
Speaker 4: US has essentially banned polasilicon. The key silicon input to
Speaker 4: make solar silicon panels from the Chinese region are Sunxiang.
Speaker 4: A lot of the border agents in the US started
Speaker 4: very carefully reviewing and detaining modules from Southeast Asia that
Speaker 4: had essentially a stamp on them saying those modules were
Speaker 4: made by a big Chinese manufacturer. So what happened during
Speaker 4: that time where porter agents were detaining a lot of
Speaker 4: these modules from Chinese companies is the Indian manufacturers were
Speaker 4: able to appeal to module buyers in the US because
Speaker 4: the risk just because of the nature of the origin,
Speaker 4: because it's like quote unquote an Indian module, but essentially
Speaker 4: just meant it's an Indian assembled module. A lot of
Speaker 4: the US module buyers were really interested in buying from
Speaker 4: these Indian manufacturers because the risk of getting detained at
Speaker 4: the border was much much smaller just for the nature
Speaker 4: of those modules coming from India. So Indian manufacturers were
Speaker 4: able to sell modules at really high prices in the
Speaker 4: US because the US module buyers were willing to pay
Speaker 4: that price in order to make sure that the modules
Speaker 4: get delivered on time. However, with the new set of
Speaker 4: tariffs that have been petitioned now, Indian module assembly factories
Speaker 4: that buy most of their cells from Southeast Asia would
Speaker 4: also be affected by the new duties because essentially those
Speaker 4: duties are at the cell level, the cell that is
Speaker 4: being made in Southeast Asia. But there's a few Indian
Speaker 4: manufacturers that are quite ambitious, like Ware or Adani, and
Speaker 4: they're also trying to make cells and modules in India
Speaker 4: and they have quite aggressive capacity expansion plans. And those
Speaker 4: manufacturers would really benefit if these new tariffs get approved
Speaker 4: because they would be able to sell to the US
Speaker 4: terror free at quite a high price and make quite
Speaker 4: decent margins.
Speaker 2: And just to add a little bit more context to that,
Speaker 2: because obviously there's this US opportunity for Indian solar companies.
Speaker 2: How big is the Indian solar market itself? So for
Speaker 2: these Indian companies that now have an opportunity to scale
Speaker 2: and they can see an opportunity in the US, how
Speaker 2: big is that opportunity compared to the domestic opportunity that
Speaker 2: obviously has been sort of ring fenced for them by
Speaker 2: the tariffs in India.
Speaker 4: Yeah, I don't have the India solar deployment numbers of
Speaker 4: the top of my head, but there is a concise
Speaker 4: plan by the government and some of these manufacturers to
Speaker 4: supply most of their domestic demand, and some of the
Speaker 4: tariffs that they have on Chinese solar modules and sales
Speaker 4: are quite high and trying to prevent that. But what
Speaker 4: we've seen, what I can say is what we've seen
Speaker 4: over the past couple of years is that the US
Speaker 4: opportunity was more lucrative than the domestic opportunity. So as
Speaker 4: much as they could, some of these Indian manufacturers would
Speaker 4: try to sell to the US because they could sell
Speaker 4: at much higher prices and make more money than just
Speaker 4: selling to local customers.
Speaker 1: The story of solar has been very much defined by
Speaker 1: falling prices, and they've never been lower than they are
Speaker 1: now for other parts of the world. So when it
Speaker 1: comes to these three x more expensive modules in the US,
Speaker 1: what does the future hold for them in terms of prices?
Speaker 1: Is it going to get worse before it gets better
Speaker 1: or are those prices going to start to come down
Speaker 1: over time as well?
Speaker 4: Yeah, Well, our analysis show that if the new set
Speaker 4: of tariffs now are approved, module prices in the US
Speaker 4: will be sustainably high, so around the thirty cent of
Speaker 4: what mark versus prices and free markets just plummeting to
Speaker 4: closer to ten cents a lot, so we'd still see
Speaker 4: that big, big, big gap between what you pay in
Speaker 4: the US versus what you pay in the rest of
Speaker 4: the world. There is some encouraging signs from production in
Speaker 4: Southeast Asia getting cheaper and inputs becoming cheaper, namely polosilicon,
Speaker 4: and that could have set some of that tariff impact
Speaker 4: on prices. But if these new set of tariffs pass,
Speaker 4: we think this is going to essentially make modules consistently
Speaker 4: high in the US compared with the rest of the world,
Speaker 4: where we expect modules to fall eventually to about seven
Speaker 4: cents awat by the end of the decade. I don't
Speaker 4: know if I would call it a missed opportunity, but
Speaker 4: before these new duties were petitioned, we were expecting module
Speaker 4: prices in the US to finally fall quite precipitously as
Speaker 4: production costs in Southeast Asia were falling quite rapidly, and
Speaker 4: those benefits were starting to materialize in the economics of
Speaker 4: solar projects and power purchase agreement prices. And now this
Speaker 4: just came at a blow, so essentially like the US.
Speaker 4: Like the US, some of the US developers started to
Speaker 4: feel what it is to see that the prices of
Speaker 4: modules falling, but just for a few seconds before the
Speaker 4: new set of duties word petitioned. So, I guess if
Speaker 4: you learned something, it's it's just hard to be optimistic
Speaker 4: about paying little for mordules despite what you what you
Speaker 4: see somewhere in their horizon is like, is there a
Speaker 4: new duty that will come online? So I guess US
Speaker 4: developers cannot date dream about low prices.
Speaker 2: So you are the lead author of our Clean US
Speaker 2: Clean Energy Market Outlook, where we have our sort of
Speaker 2: medium term forecast of wind and solar, and we published
Speaker 2: an update that to that this month. With all of
Speaker 2: these developments, did we see it? And with everything you've
Speaker 2: just said, did we see a reduction in our forecast
Speaker 2: for US solar build out in the next few years.
Speaker 4: We haven't fully incorporated the effect of the new duties
Speaker 4: just because they have not been approved and technically, as
Speaker 4: a rule, we don't assume anything forecast that isn't official yet.
Speaker 4: Right now, what we assumed is still that the price
Speaker 4: decline that we were expecting before the new duties were petitioned,
Speaker 4: and I guess we would revise our numbers and do
Speaker 4: our analysis if the new tears get petitioned, and critically,
Speaker 4: when we know how high those tears will be, which
Speaker 4: right now we don't know. We think it's going to
Speaker 4: be somewhere in the range of fifteen to fifty percent
Speaker 4: one five to five zero, but it's like no one knows,
Speaker 4: and whoever tries to guess it is probably going to.
Speaker 3: Be wrong, so we're not even going to try.
Speaker 4: The truth is that the US market has grown quite
Speaker 4: rapidly because of the dynamics that we the dynamics between
Speaker 4: high prices and subsidies that we talked at the beginning.
Speaker 4: If module prices remain in the thirty cent per wad range,
Speaker 4: that's not a deal breaker for the US solar market,
Speaker 4: and developers are still going to continue to build projects.
Speaker 4: And the issues really to grow those solar deployment numbers
Speaker 4: are not really input costs. There the bottlenecks to connect
Speaker 4: those projects to the correct. So there's plenty of people
Speaker 4: out there trying to build solar projects irrespective of what
Speaker 4: those module prices are. Surely those marginle prices now skyrocket
Speaker 4: to forty five cents award or the fifty cents award
Speaker 4: because their tariffs are of two hundred and fifty percent,
Speaker 4: and no one's going to buy modules. No one's going
Speaker 4: to sell modules to the US, and certainly deployments are
Speaker 4: going to be affected. But if mogules remain in that
Speaker 4: thirty cents of ward range, which is more or less
Speaker 4: what could happen in that fifteen to fifty percent range
Speaker 4: that I was referring to, then developers will continue with
Speaker 4: their plans and we're going to pretend nothing happened.
Speaker 3: Got it.
Speaker 2: So what I'm hearing from you is that these tariffs
Speaker 2: affect supply chains more than they do the market itself
Speaker 2: because there are other challenges in the market that are predominant.
Speaker 3: Correct.
Speaker 2: So Paul Dana mentioned the way she framed it was
Speaker 2: quite nice, is that the global solar market is the US,
Speaker 2: India and then everyone else, and China very much is
Speaker 2: the almost exclusive supplier to everyone else. So how big
Speaker 2: a deal is it? For the Chinese solar industry that
Speaker 2: there are these defensive moves keeping them out or at
Speaker 2: least creating hurdles to getting to the US market. Does
Speaker 2: it hurt at all?
Speaker 4: The amount of coverage that the US Trade Drama and
Speaker 4: tear of Drama gets is slightly out of proportion to
Speaker 4: the size of the US solar market compared with the
Speaker 4: rest of the world. The size of the US solar
Speaker 4: market is probably about right now fifteen percent of global
Speaker 4: annual solar demand. China alone builds over half of the
Speaker 4: solar projects every year at this point, so in terms
Speaker 4: of size, the US is not really that big of
Speaker 4: a market. Some of these big Chinese manufacturers typically sell
Speaker 4: between five to ten gigawatts of modules to the US
Speaker 4: every year. Now they're ramping up and they have some
Speaker 4: of them have more ambitious targets, which is a slight
Speaker 4: proportion of like the tens or even hundreds of gig
Speaker 4: what's worth of sales and modules that they produce every year.
Speaker 3: However, it's so overblown.
Speaker 4: It's such a big deal because, as Geny Chase likes
Speaker 4: to say, no one makes money in making solar panels
Speaker 4: and solar components. However, the US has been the long
Speaker 4: lasting exception to that where manufacturers are able to make
Speaker 4: margins that are above twenty percent thirty percent in some cases.
Speaker 4: So it's really the only lucrative market for most of
Speaker 4: these manufacturers or all of these manufacturers to sell into,
Speaker 4: which is why they are so heavily involved and invested
Speaker 4: in the US market and have been able and have
Speaker 4: essentially agreed to pursue all of these topics intensive investments
Speaker 4: outside of China in order to be able to earn
Speaker 4: those high margins.
Speaker 2: It's really funny. It reminds me of like one of
Speaker 2: those Sci Fi opponents. So if the Chinese solar manufacturers
Speaker 2: are like who the US is trying to battle, it's
Speaker 2: like whatever you throw at them, they kind of make
Speaker 2: them even stronger. So you try and put these tariffs
Speaker 2: in place, and these companies that weren't making money anywhere
Speaker 2: suddenly have an opportunity to profit. Another thing that is
Speaker 2: a big deal thing of this is you know we
Speaker 2: can analyze, oh this helps or this doesn't help, or
Speaker 2: you know this is effective or it isn't effective, and
Speaker 2: you know, we can be wrong or we can be right.
Speaker 2: But one thing is for sure is that all of
Speaker 2: this creates uncertainty, and one of the big uncertainties potentially
Speaker 2: is this idea that there might be retroactive tariffs. So
Speaker 2: how does that affect the market, and how does it
Speaker 2: affect adjacent industries like you know, our producer can was
Speaker 2: mentioning Dak that might want to benefit from from solar installations.
Speaker 2: Is that the real challenge here. It sounds like everyone involved,
Speaker 2: both in the US and in China can adapt to
Speaker 2: whatever happens, but they can't adapt to not knowing what
Speaker 2: is going to happen.
Speaker 4: I would just slightly clarify and say, rather than retroactive tariffs,
Speaker 4: which makes it sound like there's another set of tariffs
Speaker 4: from the ones that we're talking about, I would rather
Speaker 4: say these tariffs have potential to be retroactive too. And
Speaker 4: that certainly is the biggest uncertainty when it comes to
Speaker 4: understanding how to price in the potential of tariffs into
Speaker 4: negotiations when you try to buy or sell modules. And
Speaker 4: the risk was quite acute at the beginning of the
Speaker 4: tariff petition that was implemented in twenty twenty two, and
Speaker 4: it's going to come into effect now in June twenty
Speaker 4: twenty four.
Speaker 3: But Biden.
Speaker 4: Essentially, the White House and the Biden's administration gave the
Speaker 4: guarantee to developers that they could buy modules tear free
Speaker 4: until June twenty twenty four and install those panels by
Speaker 4: December twenty twenty four. However, now we know there's potential
Speaker 4: for some of those for the new duties have approved
Speaker 4: to be retroactive. We just don't know for sure how
Speaker 4: far back those tariffs are going to go. So that
Speaker 4: certainly creates a lot of uncertainty because now you not
Speaker 4: only do you have to make guesses or estimate how
Speaker 4: how those tarffs could be, you also have to estimate
Speaker 4: when those tariffs actually will apply and if those tears
Speaker 4: will apply to modules that have already bought or mean as.
Speaker 3: A supplier that I've already shipped to the US.
Speaker 4: So that's creating a lot of uncertainty and how negotiations
Speaker 4: for twenty twenty five module deliveries are happening. Generally, what
Speaker 4: happens quite simply is that suppliers have to raise prices
Speaker 4: and whatever that premium is that they agree on with
Speaker 4: the buyer as to like, how do we price in
Speaker 4: this tear risk? Is that a five cents for what
Speaker 4: premium is that a ten cents a WAT premium? Is
Speaker 4: that what two cents of WAT premium? I guess relies
Speaker 4: on how those individual negotiations go. But as you know,
Speaker 4: I'm sure you can imagine if you're at the table
Speaker 4: trying to figure these things out when actually signing a
Speaker 4: document and for something that you're going to pay a
Speaker 4: lot of money for, then it makes it highly stressful
Speaker 4: and complicated.
Speaker 3: And this shouldn't be that complicated.
Speaker 4: You just buy a component, install on the ground or
Speaker 4: a roof, and now you're creating all of this uncertainty
Speaker 4: around that transaction that makes the whole process much more
Speaker 4: complicated and more expensive because you're going to start to
Speaker 4: suddenly involve lawyers or advisors or accountants to buy a
Speaker 4: component that should be quite straightforward. Imagine now you had
Speaker 4: to always hire a CPA or an accountant to buy
Speaker 4: a new fridge because you don't know if maybe like
Speaker 4: that Siemens or GE is going to charge you like
Speaker 4: twenty percent more or twenty five percent more, and it's
Speaker 4: worth for you to pay like a five thousand dollars
Speaker 4: or like one thousand dollars to an accountant around the
Speaker 4: block to tell you, actually you should tell them to
Speaker 4: charge you only five percent more because the terror risk
Speaker 4: is not as high as they as they're trying to
Speaker 4: convince you.
Speaker 2: So it's it's the complexity it brings that is maybe
Speaker 2: the challenge.
Speaker 1: Correct Solar is certainly an important element of the energy
Speaker 1: transition and creating this renewable energy and an electrified part
Speaker 1: of the energy economy. So I certainly hope that the
Speaker 1: US will be able to figure out a way to
Speaker 1: make this economic and we will see what the future holds. Paul,
Speaker 1: thank you very much for joining today and sharing your views.
Speaker 1: And Tom, it's been great having a co host, so
Speaker 1: I look forward to hopefully you joining me back here
Speaker 1: again sometime soon. Today's episode of Switched On was produced
Speaker 1: by Cam Gray with production assistance from Kamala Shelling. Bloomberg
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