The European Commission said Thursday it will investigate whether Chinese makers of solar equipment are illegally pushing their products into Europe, a move that could escalate growing trade tensions between the European Union and China.
The European Commission said Thursday it will investigate whether
Chinese makers of solar equipment are illegally pushing their products into
Europe
, a
move that could escalate growing trade tensions between the European Union and
China
.
European solar manufacturers, which have seen product prices collapse and many
peers go out of business since the Chinese arrived, have accused their Asian
rivals of undercutting prices unfairly. Chinese companies deny the accusations.
If the Commission finds evidence against
China
, it
could impose tariffs on solar equipment the country exports to
Europe
. A
spokesman for
China
's
Ministry of Commerce, Shen Danyang, said the Commission's decision would hurt
both Chinese and European industry and, "damage the healthy global
development of solar and renewable energy."
The Commission's move is widely seen as coming too late to protect a European
industry that has already contracted sharply and given ground to Asian rivals. There
could be scant reward for further damaging trade relations between
Europe
and
China
that
are already strained by other battles, such as the inclusion of all airlines in
its program targeting carbon emissions.
"I think the chances of survival of western solar manufacturers are slim
to none," said Helmut Vorndran, whose private-equity firm, Vorndran
Mannheims Capital, invested tens of millions of euros in an east-German maker
of photovoltaic solar panels, called Sovello, in April 2010.
At the time, Sovello was operating in a booming market and employed a
sophisticated production technique that gave it a cost advantage over
competitors, said Mr. Vorndran.
Just a couple of years later, he expects his Sovello investment to result in a
big loss after the selling price of the company's products was undercut by
Chinese competitors. Sovello filed for insolvency in May and ceased production
in August, he said.
Sovello's story isn't unique. The European solar manufacturing industry wasn't
long ago a darling of investors, attracting billions of euros in state support
from European governments keen for their companies to lead a global green
revolution.
Now it has been decimated. Scores of companies went out of business this year
alone, including Q-Cell SE, which was the world's largest manufacturer of
photovoltaic solar cells in 2007, and German peers Centrotherm Photovoltaics
AG, Solon SE and Solarhybrid AG.
Germany
once
led the world's solar industry. Generous subsidies made it the world's largest
solar market and it now has over one million solar facilities with a combined
generation capacity of nearly 30 gigawatt-peak, equivalent to around 30 nuclear
reactors.
The country is still trying to increase the amount of energy coming from
renewable sources to make up for its gradual exit from nuclear power. However,
the German government is also proposing to stop subsidies for solar, which it
says have become too costly. This has piled further pressure on European solar
makers, just as they suffer severe erosion of selling prices for their
products.
The average selling price of a solar panel fell by around 40% in the year to
June 2012, said Wolfgang Hummel, director at the Berlin-based Center for Solar
Research. Many European companies say this has only happened because Chinese
rivals are trying to grow market share by selling their wares below the cost of
production.
China
exported $35.8 billion worth of solar panels in 2011, with the EU accounting
for more than 60% of this, Chinese solar companies have said.
"We are fighting for fair competition. Chinese manufacturers are breaking
the rules," said the chief executive of
Germany
's
SolarWorld AG, Frank Asbeck, in a letter to shareholders in July. "Something
must be done to fight their illegal dumping."
However, Reinhold Buttgereit, secretary-general of the European Photovoltaic
Industry Association, said
Europe
's
current difficulties should not come as a surprise. Companies didn't invest
enough in research and development over the past few years, and so have lost
their technological edge over Asian competitors, he said.
Chinese companies themselves are struggling with current prices. Since the
anti-dumping complaint was first filed with the European Commission in July,
shares in
China
's
four largest solar panel makers have fallen between 20% and 47%. "These
guys are doing so poorly anyway," said Aaron Chew, an analyst at Maxim
Group. "It's a real body blow when they already are on their knees."
The
Alliance
for
Affordable Solar Energy, a group of 80 European firms, warned that tariffs
could hurt the growth of renewable energy at a time when subsidies are being
cut. "Trade barriers would push up costs and damage, possibly beyond
repair, the competitiveness of solar power," said Thorsten Preugschas,
chief executive of the German project development company Soventix, which is a
member of the group.
Few industry experts say the EU investigation offers much of a lifeline.
Top-level political backing for tariffs is lacking. German Chancellor Angela
Merkel said on a state visit to
China
last
week that her preference is to resolve the trade dispute through bilateral
negotiations, rather than tariffs.
Experts said Ms. Merkel may be fearful that imposing sanctions on
China
over
the solar trade could bring about retaliation on bigger German industries such
as the automotive sector, which has seen Chinese sales drive growth during
Europe
's
economic downturn.
The Commission could also take up to nine months to make a provisional ruling
and a further six months for a final decision, a long time in the current
market. Only companies that have large reserves of cash to last through the
hard times are likely to survive, said Mr. Hummel.
But healthy balance sheets are scarce in the solar industry and generating cash
is a major challenge. SolarWorld's cash cushion "might be
sufficient," to make it through the market shakeout, said Hamburg-based
Warburg Research analyst Stephan Wulf, but the company must start generating
cash again by 2014.
SolarWorld reported a net loss of €159.3 million ($200.7 million) in the first
half of 2012.
Rescue could lie in sourcing components from Asian rivals.
Germany
's
Conergy AG has abandoned its production of solar cells and now buys them from
Asian suppliers before assembling them into complete solar panels in its own
plants. In August, it reported a quarterly profit before interest, taxes,
depreciation and amortization for the first time in nearly two years.
SolarWorld and fellow German manufacturer, Bosch Solar, a unit of the world's
largest car-parts maker Robert Bosch GmbH, are still active along the entire
value chain. These companies have to ask themselves if they can continue in
this manner, said Mr. Hummel. The industry requires more specialized suppliers
and fewer integrated solar companies that cover the entire value chain, echoing
how the automotive sector works, he said.
Mr. Asbeck thinks the European authorities should act to ensure the survival of
an independent solar industry. "Neither
Europe
nor
the
U.S.
can
afford to simply hand over such a key technology," he said. "Surrendering
the market to
China
would
only slow technological development."
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