Late last month, India’s Directorate General of Anti-Dumping and Allied Duties recommended the imposition of anti-dumping duties on the import of solar cells from China, the United States, Taiwan and Malaysia. The recommendation followed complaints from the country’s fledgling solar cell manufacturers, who claimed that the imported cells were being priced below cost, hurting their competitiveness. The country’s finance ministry has about three months to review the recommendation and take a final decision. ((First Solar Fights Indian Duty Recommendation in Court, WSJ, June 2014)) While we certainly believe that an imposition of duties would slow down the pace of solar installations in India, the duties are likely to have a more mixed impact on the solar companies that we cover. First Solar (NASDAQ:FSLR) could be a prime beneficiary given that it faces the lowest tariffs, while Chinese manufacturers face duties that are high enough to double their landed prices in the Indian market.
Trefis has a $66 price estimate for First Solar, which is slightly ahead of the current market price.
- Why We Reduced Our Price Estimate For First Solar
- Why Have Solar Stocks Been Underperforming This Year?
- Reviewing First Solar’s Q1
- First Solar Q1 Preview: Bookings & Efficiency Improvements In Focus
- Why We Are Bullish On First Solar
- What Is First Solar’s Fundamental Value Based On Expected 2016 Results?
Tariffs Are A Double-Edged Sword
Protectionism is likely to prove a double-edged sword for India’s solar sector. While the duties are likely to benefit Indian solar cell manufacturers, they are likely to harm solar project developers and domestic panel manufacturers who use imported cells. Most solar project developers in India rely on imported panels (or panels containing imported cells) for their solar farms since they are generally more technically sophisticated. Projects that use imported panels may also find it easier to secure bank financing.  Therefore imposing import duties could throw several projects out of gear and potentially slow down their development.
Slowing solar installations are a situation that India can ill afford, given its growing energy needs, chronic power deficits and environmental challenges. India has been trailing behind other large economies in terms of solar installations. For instance, the country installed just about 950 MW of solar power in 2013, while China installed a record 12 GW the same year. While India’s finance ministry has rarely rejected recommendations made by the anti-dumping body in the past, there is a possibility that the new government could shy away from backing the proposal given the near term consequences.
First Solar Will Be Biggest Beneficiary If Duties Are Imposed
U.S-manufactured silicon based cells are likely to attract duties of around $0.48 per watt, while Chinese silicon cells will attract a duty of up to $0.81 per watt. These duties are significant, since silicon module prices in the country currently stand at around Rs40 (about $0.67) per watt.  This would mean that U.S. silicon-based solar manufacturers could see the landed cost of their panels in the Indian market rise by as much as 80% ( on average), while Chinese suppliers could see their prices more than double.
The proposed duties on First Solar’s thin-film panels are far lower, standing at around $0.11 per watt. This would mean that the company’s prices in the Indian market would rise by less than 20% in the event that duties are imposed, assuming that thin-film panels cost about Rs36 or $0.62 per watt.  This could give the company a significant price advantage in the Indian market, since most of the major solar manufacturers are located in the four countries potentially subject to the duties. While there are high-technology solar manufacturers in other countries such as Japan, it seems unlikely that they would want to scale up business in India, since they already face supply constraints in their lucrative domestic solar market.Notes: