Solar energy tariffs pose a serious concern for green investments

4th October 2012

The threat of sanctions could undermine significant reductions in the cost of production over recent years. Despite a number of pessimistic predictions, the price of modules has come down by 75% while prices for polysilicon have also plummeted, dropping 94% since 2008.

Indeed one of the most disappointing features of the US move is the timing, coming just as solar energy has become competitive without the need for state subsidies.

One step forward, two steps back

For investors, green energy has frequently proven a test of patience. A number of firms have found it difficult to turn a profit and a reliance on government subsidies has seen the sector struggle in the aftermath of the financial crisis.

These woes saw Solyndra, the US solar-panel producer, fold last September even after the company had received loan guarantees from the federal government. At the time the Obama administration pointed the finger at China's heavy state investment in its renewable energy sector paving the way for import duties to be imposed in May.

Some may find it strange that an administration which promises to "invest $150 billion over ten years" in renewables would choose to attack another country for doing likewise. Yet the bigger problem is that tariffs might compel China to respond in kind, squandering the hard-won competiveness that solar has achieved.

"There's what's sensible and what's likely to happen. Unfortunately they're not always the same thing," says Edward Guinness, energy expert at Guinness Asset Management. "We should be aiming for the lowest cost solar energy and China is competing very hard to gain market share. Ultimately the only way for these products to become cheap is if they are commoditized, which is bound to favour countries with lower manufacturing costs."

The irony is that if the Commerce Department imposes import tariffs and China follows suit it could increase the costs of solar energy for governments and maintain the need for subsidies. Moreover far from safeguarding jobs it may actually cost installation firms and companies currently exporting to Asia.

The politics of protectionism

Although you might think that there is very little that President Barack Obama and his presidential rival Mitt Romney agree upon, it seems trade tariffs against China are one of the few common causes. Though unsurprising, their apparent hostility to a rising economic power that is likely to prove crucial to the future growth of America's economy should be a worry.

Despite the de facto trade sanctions in place and news that a Chinese-owned firm is in the process of suing the US government for blocking a wind farm deal, Romney has criticised Obama for not taking a tough enough line with Beijing. Romney has already pledged to label the country a "currency manipulator" if elected, a step that Treasury Secretary Tim Geithner backed out of in his 2010 report to Congress.

"Unfortunately the rhetoric of both presidential candidates is increasingly protectionist in tone. They appear to be competing over who can bash China the most and solar energy has just been caught up in it," says Guinness. "Once the tariffs have been passed there's not much likelihood of them being reversed in the near future. In fact I fully expect the tariffs to get worse."

All sides appear to be missing the point that cheap, sustainable energy would provide the foundations for renewed economic growth wherever the components are manufactured. If either presidential candidate is serious about energy self-sufficiency then blocking innovation and trade makes very little sense.

No matter who ends up in the White House after November's election perhaps it is time for the rhetoric to be replaced by reason. In terms of the green energy sector solar is a huge success story.


More on Mindful Money:

Could 'green' bonds help tackle climate change?

Power Play: Is it renewable energy’s time to shine?

The future of oil

To receive our free daily newsletter sign up here.The Financialist

Leave a Reply

Your email address will not be published. Required fields are marked *