LOS ANGELES – A simmering trade dispute is highlighting a debate about the kinds of jobs America can sustain in a greening economy.
The Obama administration’s recent decision to slap import tariffs on Chinese solar cells was hailed by some domestic solar manufacturers as a victory for job creation, leveling the field while also sending a powerful message to Beijing about monopolistic behavior in crucial industries.
But a close look at the U.S. solar industry suggests that the tariffs may actually be a job killer, because the vast majority of positions in the sector aren’t on the assembly line. Instead, upward of 70 percent of U.S. solar employment is in installation, sales and distribution – and companies that hire those workers argue solar cells must get significantly cheaper to remain competitive with other energy sources.
“What China is doing to boost its manufacturers is unfair, but tariffs could actually reduce jobs,” said Gordon Johnson, a green tech analyst at Axiom Capital Management. “The price of solar panels goes up and looks unaffordable compared to alternatives.”
Although the U.S. pioneered photovoltaic solar cells decades ago, it has fallen increasingly behind lower-cost manufacturers of the technology, including China, South Korea and Malaysia. But the U.S. is among the world’s fastest-growing solar consumers, opening vast opportunities for service-sector jobs in the sunlight-extraction business.
The matter comes to a head in mid-May, when the Commerce Department will announce a determination on a possible second round of tariffs on Chinese-made silicon-based photovoltaic cells, which convert sunlight into electricity and are by far the most popular solar technology.
While tariff advocates say protecting a solar manufacturing base is crucial to the nation’s energy security, others argue the U.S. has already lost that footrace. Instead of swooping in to rescue remaining plants, they say, the focus should be on reducing the cost of solar to speed liberation from fossil fuels, which dovetails with the goal of reducing unemployment.
“Installation is where all the jobs are,” said John Smirnow, vice president of trade and competitiveness at the Solar Energy Industry Association. “There are 5,600 companies in the healthy, vibrant and growing solar-services sector.”
The Commerce Department’s May 17 ruling, in response to allegations of dumping by the U.S. unit of a German solar panel maker, could fundamentally alter the solar landscape in the U.S. Dumping is when a company or industry sells its products below cost to capture the market. If additional tariffs are applied, they will probably be much higher than the relatively light first round announced in March, which ran from 2.6 percent to 4.7 percent.
The smaller tariffs – designed to balance out Chinese subsidies of its solar factories – could squeeze margins for installers, but most experts agree they aren’t enough to radically reduce consumption. Anti-dumping duties, however, could run above 20 percent, dramatically increasing the cost of switching to solar.
Cost is a key factor in getting businesses and homeowners to convert to solar power. A typical residential roof setup costs about $25,000, which can be lowered through rebates and tax incentives. At that price, it still could take about a dozen years for the systems to pay back the up-front costs through lower electricity bills.
If tariffs on Chinese cells come in as high as many predict, they could raise the out-of-pocket cost of such an installation by $1,250 – and commercial projects by far more.
Such an increase could be a deal breaker for many would-be customers, especially with a 30 percent federal tax credit set to expire after 2016, said Lyndon Rive, chief executive of SolarCity, the nation’s largest solar installer.
SolarCity has 1,600 employees in 14 states and is hiring three new employees a day. The San Mateo, Calif., company puts solar panels on Wal-Mart stores, government offices and university campuses, as well as thousands of houses.
“The No. 1 decision for our customers in terms of going solar is whether they can save money,” said Rive, who worries that higher prices could offset government subsidies. Several European countries are already curtailing solar incentives, he said. “We have to be competitive with whatever the local power company is charging, or we’re in trouble.”
According to a study by the Solar Foundation, 52,503 Americans worked in the solar installation business last year, and 17,722 worked in sales and distribution, compared with 24,064 in manufacturing. And although almost 10,000 new installation jobs were created in 2010 and 2011, manufacturing actually lost almost 1,000 positions while seeing several domestic makers go out of business, including Solyndra Inc., which failed despite government loan guarantees.
The growth in service jobs has tracked closely to the falling costs of photovoltaic cells, often the most expensive item in any installation. Thanks largely to aggressive pricing by Chinese manufacturers, the cost of solar panels has fallen 28 percent in the past 12 months, according to data from research firm Solarbuzz.
Walter Ellard, installation director of SunFusion, a San Diego company with 25 employees, said he pays about 40 percent more for U.S.-made solar cells than Chinese ones. “Some customers prefer American-made, but otherwise it’s not even close,” he said.
As recently as five years ago, China was a bit player in solar, far behind in both quality and cost. Then the Chinese government threw its weight behind its solar manufacturers, offering low-cost loans and other subsidies, leading to a massive production increase that dwarfed competitors.
Today, seven of the 10 largest solar cell manufacturers in the world are based in China.
Only one – First Solar in Tempe, Ariz. – is a U.S. company, and it does the bulk of its manufacturing overseas in countries such as Malaysia. In April, it said it would lay off 2,000 workers worldwide and close a German factory, blaming, in part, the low cost of Chinese cells.
China’s total production capacity alone, at 36 gigawatts worth of cells, is more than double worldwide demand, said Johnson, the analyst. “This is quintessentially a commodity product,” he said. Although American scientists are still at the forefront of emerging solar research, “when it comes to making traditional solar panels, the U.S. has already lost the cost edge.”
The Coalition for American Solar Manufacturing counters that if the U.S. stops making the dominant technology, it will resign itself to consuming solar without creating new technologies.
“The situation will damage the economy in the long term,” said Carlo Santoro, director of business development at MX Solar, an Italian solar panel maker that’s part of the coalition and has seen its U.S. work force drop to 20 people from 120 in the last two years. “What happens if you have no manufacturers left to innovate with?”
The coalition was formed by SolarWorld, a German company with a large solar cell plant in Oregon that employs about 1,000 people and filed a petition to investigate China’s solar industry in October.
Ben Santarris, SolarWorld’s spokesman, said many of China’s solar cell makers are losing money, which he contends proves they are dumping just to push U.S. and European manufacturers out of business. Last summer, SolarWorld laid off 180 workers in Camarillo, Calif., and consolidated its manufacturing in one plant.
“You have 12 U.S. solar manufacturers that have had significant downsizing, closures or bankruptcy in the last two years,” he said. “The government of another country should not be able to decide whether an industry can survive in this one.”
The rapid pace of the market makes that issue moot, said Kevin Lapidus, senior vice president of legal and government affairs at San Francisco solar developer SunEdison and a board member of the Coalition for Affordable Solar Energy, formed last year to oppose the tariffs.
SunEdison employs 700 people in nearly a dozen countries. Not only could tariffs provoke a trade war with China, he said, but they could work against state and federal goals to move away from fossil fuels.
“The real issue in this industry isn’t about parity with China, it’s about parity with natural gas,” Lapidus said. “We can’t take people off the playing field to protect a minority of the jobs.”