The Biden administration found a widespread flouting of trade laws by the world's biggest solar manufacturers amid an investigation that has rattled the industry and will likely push companies to invest more heavily in producing components in the United States.
Four companies that account for as much as half of the solar cells imported into the U.S. are avoiding steep tariffs on solar products manufactured in China by using other nations as a pass-thru in the production process, according to preliminary findings of a Department of Commerce investigation.
The findings come despite large solar industry groups and many lawmakers aggressively lobbying Commerce Secretary Gina Raimondo to drop the investigation. Dozens of solar companies in the U.S. blame the probe for price spikes and panel shortages in the spring and summer. They warn this stepping up of enforcement will inhibit growth and undermine the president's goal of further driving down the cost of solar energy.
But the administration is pressing ahead with robust enforcement of U.S. trade laws as it tries to steer clean energy manufacturing back to the U.S. The investigation was launched in March at the behest of a small U.S. manufacturer in California called Auxin Solar. The company said it was being driven toward financial ruin by competitors making panels with materials illegally sourced in China.
"What we're trying to do is just provide relief against unfair trade practices," said a senior Commerce official who briefed reporters on condition of anonymity. The official said the administration is merely enforcing laws that have been in place for more than a decade. "There's no reason for anyone to be confused about how this operates," the official said.
Federal investigators found ample evidence supporting the allegations that Chinese firms are dumping heavily government-subsidized solar components into the American market. They are focused on the role of Malaysia, Thailand, Vietnam and Cambodia as conduits for such Chinese materials.
Federal investigators are now headed to Southeast Asia to verify their findings, a step largely considered a formality.
The companies the Commerce Department believes to be violating trade law are BYD Co., Canadian Solar International Ltd., Trina Solar Science & Technology Ltd. and Vina Solar Technology Co. The size of the tariff on products from those companies varies based on how much of production is linked to China.
The Commerce Department analyzed the extent to which initial investment, research and development and parts manufacturing is happening in China versus in nations where companies claim to be operating.
Officials from the companies did not immediately respond to request for comment. But executives from Chinese solar companies had earlier said the allegations are baseless, noting hundreds of millions of dollars are being invested locally in their Southeast Asia subsidiaries on solar technology and operations.
They maintain that the factories are not merely pass-thrus to avoid tariffs. The U.S. began placing the tariffs on Chinese solar products in 2012, after finding highly subsidized panels were being "dumped" into the American market at prices below the cost of production.
Months before the department issued its latest findings, the investigation had already sent the American solar industry into turmoil, as firms worried they would be hit with steep retroactive penalties that could add up to 50% the cost of panels.
The White House stepped in to assuage those concerns and get the industry back on track in June with an order that exempts American companies buying the components in question from getting slapped with any tariffs or penalties until mid-2024.
The intervention succeeded in revitalizing the market, but tensions and anxiety in the solar industry continued to simmer as the investigation lumbered on. The Biden administration promises an infusion of subsidies from the Inflation Reduction Act will give the industry the resources it needs to shift more manufacturing to the U.S. and move supply chains away from China.
China now controls more than 80% of solar panel production. It commands 95% of production of certain elements that are essential to making a panel, including polysilicon and wafers.
China's market dominance was seeded by its government with a $50 billion investment into the solar supply chain. As China drove prices down, companies elsewhere, including the United States, stopped trying to compete in vital areas of solar manufacturing.
Cheap Chinese materials ultimately factored big in making solar some of the most affordable energy in the U.S.
But moving production back to the U.S. has since become a major White House priority. Biden administration officials say China's control over the solar supply chain poses an increasing threat to America's energy independence and financial health as the nation's reliance on solar power grows.