If you’re like most investors in the western hemisphere, the notion that China could be “dumping” solar panels (selling them for below cost) on the European market was more than feather-ruffling. Indeed, you probably support the fact that the European Union has announced a probe into the matter.
If China’s major solar panel manufacturers are found to be knowingly and willfully selling panels at prices that are not only unprofitable but also damaging to the solar panel industry, the dumping decision could mean the EU strikes back with punitive tariffs on imports of those Chinese solar panels in the future.
Investors of any and all solar panel makers are on pins and needles watching the story unfold, as how the EU rules on this matter could set the tone for the entire solar power industry for years to come. Makes sense.
The trouble is, the intense focus on this one nuance is obscuring a much more important detail …
Missing the Point
While the posturing between the EU and China is an intriguing prewar ritual, what’s more fascinating is that nobody seems to be interested in the fact that companies like Suntech Power (NYSE:STP), Yingli Green Energy (NYSE:YGE) and Trina Solar (NYSE:TSL) are not only willing to take big — and sustained — losses on solar power panels, but also have been able to do so as long as they have.
Remember, the U.S. Department of Commerce put the kibosh on 60 Chinese solar panel makers earlier this year by raising the import tariff to 31% after determining these companies had “dumped” panels into the U.S. market as well. A few hundred smaller Chinese suppliers saw their U.S. import tariff jump as much as 250%. Yet, they’re not only still importing to the United States, but are now dumping into the EU as well.
It raises one key question: Doesn’t the fact that Chinese manufactures are practically giving solar panels away — yet still have plenty to spare — tell you something?
The dumping issue is just a microcosm of the bigger, underlying issue, and clamping down on China’s exports isn’t going to fix the problem.
How’d We Get Here?
The past eight years have been nothing less than revolutionary for the solar power industry.
In 2004, solar power panels were not much more than a novelty: fun to think about, but hardly ready for mainstream use. That’s why China had no solar panel manufacturing capacity to speak of then, and why the rest of the world had little. But, the idea had support — and subsidies. So, by last year the world’s solar power production capacity reached a whopping 70 gigawatts, up from 2010’s 40 gigawatts, which was better than 2009’s 23 gigawatts.
Dollar-wise, as of last year, spending on solar power infrastructure was around $40 billion, which was only a tad better than 2008’s total. Bear in mind, however, that solar panel prices fell by an average of more than 60% in 2011.
Two key ideas become top-of-mind themes when processing all those numbers:
- $40 billion is a lot of money.
- Four years isn’t a lot of time.
Think of it as the California Gold Rush of 1849. In the beginning of that year, few people even knew where California was (there were only 29 states then, and California wasn’t one of them — it still was part of the Mexican Cession), and even fewer people knew there was gold there. By the end of the year, that part of North America was swimming with prospectors, making it nearly impossible to actually make any money by looking for gold there.
Oh, there was gold … just not enough to merit the number of people looking for it.