Does the US solar industry need Taiwan, more than Taiwan needs the US solar industry? This is perhaps one of the biggest questions to ask as the latest US ITC investigations gain traction. The article seeks to answer that question. Once the facts are presented, you can draw your own conclusion.
Solar panels installed in the US during 2013
For starters, let’s have a look at the US market in 2013 and run though the key numbers. This also brings in what’s happening with the global flow of c-Si cells and, in particular, Taiwan cells.
It should be pointed out, of course, that the scope of the ITC investigation extends simply beyond Taiwan cells. But Chinese module supply using Taiwan cells is what most people tend to think of in terms of the US ‘loophole’, and this was likely the underlying motive behind the new claims.
Perhaps - in anticipation of any negotiated settlement - there is logic in pitching high with multiple requests (Taiwan cells, Taiwan modules and wafers made in either China or Taiwan) in the hope that any compromised solution will leave your one real objective (Taiwan cells) unscathed.
In an attempt to visualise just what Taiwan cell production meant to the US solar industry in 2013 - largely as a result of the original 2012 US/China ruling - see the attached figure.
Start with the left-hand-side of the figure. This shows the breakdown of solar modules used to meet 2013 end-market demand in the US PV market, recently sized by NPD Solarbuzz at 4.2GW. The actual quantity of modules that got shipped to the US in 2013 was slightly higher than the 4.2GW figure, simply due to inventory build-up that is characteristic of an emerging country that is heavily dependent on imported goods. First, we remove module supply that is completely decoupled from any China (or Taiwan) related cell/module supply.
This process starts with segmenting out the dominant tier one supply component of this: First Solar, REC Solar, SolarWorld, and SunPower. This accounted for a large chunk of the US market in 2013, as shown in the ‘blue’ pie segment in the left of the graphic, with each of these suppliers having appreciable market share in the US. (There is some China/Taiwan cell/module component from the above players, but it’s a relatively small number.)
Next, we have to remove the ‘all-other’ category that includes thin-film panels and other non-China/Taiwan cell/module suppliers to the US market. This effectively takes into account a large number of suppliers that have smaller volumes than the likes of First Solar and SunPower; but, collectively this forms a fairly large part of overall US market supply. This is shown in the ‘yellow’ pie segment on the left in the graphic.
What we are left with is the ‘grey’ part of the left pie chart, and this is the part that falls under what many consider the loophole of the prior ITC ruling, and is basically the portion of supply to the US market in 2013 that consisted of Taiwan-made c-Si cells as part of China-shipped c-Si modules.
Once we go through the numbers, we find out that the ‘grey’ loophole portion represents approximately 2.2GW, with about 75% of this coming from the top 10 Chinese c-Si module suppliers. This is important to understand also when any contingency issues are explored: the fact that it is not “China PV Inc.” that would have to do a re-organisation for the US market, but only a small number of key suppliers, especially the top 10 Chinese.
Solar cells made in Taiwan during 2013
Now, let’s get some triangulation on this 2.2GW value for 2013. We have also done an independent analysis top-down from the Taiwan cell manufacturing perspective. The pie chart on the right of the figure shows the geographic split of c-Si cells made in Taiwan and which end markets the c-Si modules (using these Taiwanese cells) ended up in last year.
It is no great surprise that Japan represented about half of Taiwan cell production, given the heavy reliance on outsourcing now being done in Japan, as many of the Japanese module suppliers wrestle between whether to be fab-lite or truly fabless. After Japan, the next main country for Taiwan made c-Si cell based modules in 2013 was the US market. Approximately 25-30% of Taiwanese cells made in 2013 were made into modules that ended up in the US. Doing the arithmetic here, we get to within 5% of the US supply route analysis performed above.
Forecasting US module supply in 2014 pro-rata
Forecasts for solar PV deployment in the US during 2014 vary from approximately 5.2GW to 6.4GW, depending on a host of factors. But, taking 5.8GW as the midway point for this back-of-the-envelope study, we can quickly evaluate the supply side, similar to the 2013 analysis shown above.
Let’s assume first that Taiwan cell production will reach about 9.5GW during 2014, and that 55% ends up in the Japanese market (representing just a 5% Y/Y increase into Japan). Then let’s assume the same 'rest-of-world' shipment volume for Taiwan cells, as occurred in 2013. This leaves about 2.7GW of Taiwan cells that could be made available for US demand. Is this enough?
Looking at the US demand for modules in 2014, and assuming that the First Solar, REC Solar, SolarWorld, SunPower category will increase US-based shipments this year by 15%, and that the ‘Other non CN/TW cell/module’ group will grow by a similar level, then approximately 3.6GW is still missing from US based 2014 forecasts.
Comparing the 2.7GW of Taiwan cell output (available for the US in 2014) and the 3.6GW needed for US module supply in 2014 to reach a 5.8GW market, we can see quickly that there is about 0.9GW of undersupply to the US market: and all this independent of any ITC ruling. So, in a status quo environment in 2014, the US needs Taiwan.
Should the US be worried about the 0.9GW shortfall?
Were it not for Japan, the answer would definitely be ‘no’. But the numbers above assume a pretty strong shipment volume of Taiwan cells to Japan in 2014. Therefore, the 0.9GW is probably on the cautious side, with the final requirement possibly a few hundred megawatts lower than this.
When we start to get to a 500MW or so figure, then we are within reach of supply volumes that could come from Korea, India and other Southeast Asia producers. And if the Taiwanese accelerate module capacity additions, then the scope for Taiwan modules gaining market share in the US is a distinct possibility also.
Failing each of these options, the fall-back is simply that the leading Chinese c-Si suppliers go full throttle and set up vertically integrated fabs in Southeast Asia. In many ways, this would put an end to the question of a loophole, and avoid the constant threat of trade actions emerging in the future (as they surely will).
Critically, however, it would also decouple China and Taiwan production from the equation altogether (wafer, cell and module). And this is more than likely the contingency strategy that has been in the minds of the leading Chinese suppliers to the US market for the past 12 months, having learned first from the 2012 US case, and then the procrastinations that characterised the Brussels/Beijing pact of 2013. Even uncertainty (ahead of a ruling) is sufficient to impact shipment volumes, as was seen vividly in Europe during Q3’13.
An investment of under US$500 million - and a mere six-month lead-time - can see a 1GW wafer-to-module c-Si fab built these days. This investment level comes down if existing tools are relocated, or capacity at tier two producers is acquired at bargain-basement pricing and shipped overseas. Factor in the third-party country’s excitement of local job creation - and the association with an established global PV leader - and the motivation to make this happen is simply enhanced.
It would only take two or three of the leading Chinese suppliers to undertake this strategy, and the outcome of any ITC ruling would be negated. And if this happens, then the only factor left in the equation becomes one of state aid legality.
At the end of the day, the Southeast Asia route may be a small price to pay in order to maintain market penetration in the third largest PV end-market over the next few years.