Can a U.S. Solar Company Win a Rigged Game With China?

Dear Rich Lifer,

China’s monopoly on the solar industry is facing a new challenge from America. 

Solar First, the only U.S.-headquartered major manufacturer of solar panels, recently committed $680 million to build a new panel factory in Ohio. 

The focus on combating climate change has intensified since President Biden took office and declared his plan to make the U.S. electric grid carbon-free by 2035. 

That, along with the potential for tax breaks to encourage “reshoring” of manufacturing in key sectors, has set the stage for companies like Solar First to thrive. 

Today, we’ll take a look at the uphill battle that the American solar industry will face in becoming a serious competitor to China…

And some solar energy stocks you should consider adding to your portfolio.

The Challenge of Reshoring 

Manufacturers like Solar First, which want to build from scratch in the U.S., support tariffs to fight low-priced goods from abroad. 

But the pressure that tariffs put on panel prices usually decreases the adoption of solar technology and the employment of panel installers. Because of this, others in the industry, like solar-panel importers and companies that install panels, oppose tariffs.

Abigail Ross Hopper, president of the Solar Energy Industries Association, stated that tariffs “have had a detrimental impact on the solar market.”

First Solar CEO Mark Widmar recently told CNN that the removal of tariffs would “create challenges.” But he went on to say, “We believe we’re in a position where we can sustain headwinds such as a removal of tariffs and an increase in corporate tax rates.” 

Right now, Mr. Widmar says his customers feel like they are forced to pay higher prices because of the tariffs, essentially penalizing them for purchasing the kind of green energy source that is being pushed for environmental purposes. 

That’s why he would drop support for tariffs and instead lobby for tax breaks. This way, tax-payers, not solar-equipment purchasers, would be paying to encourage domestic manufacturing. 

Economists and industry specialists say that both tax breaks and tariffs on low-cost imports will likely be needed to reshore the solar industry and compete with China. Even then, many believe it’s a long shot. 

Chinese Dominance 

Kelly Sims Gallagher, an energy professor at Tufts University’s Fletcher School who has studied China’s renewable energy policy, believes it will be very hard for the U.S. to be cost-competitive with China.

Mr. Widmar explains: “China heavily subsidizes whatever strategic industry it chooses to focus on. How does any American company ever compete?”

Local Chinese governments began backing local solar entrepreneurs with inexpensive financing and other support in the early 2000s. Chinese solar manufacturing boomed, and prices fell sharply, allowing Chinese companies to export materials at prices no one could match. 

By 2011, Chinese manufacturers essentially controlled the solar panel industry, making up about 60% of global sales, which is why the U.S. began imposing tariffs. 

Despite the tariffs, according to Wood Mackenzie, imports make up 85% of U.S. sales of solar panels. Even Solar First currently only makes 40% of its panels domestically. They do, however, plan to increase this number to 60% with the new factory. 

First Solar’s Journey

First Solar has had a rollercoaster journey on its path to pave the way for the U.S. solar industry. When the company went public in 2006, its stock price increased eightfold. 

At the time, First Solar’s panels produced electricity at a lower cost per megawatt than Chinese companies. However, Chinese subsidies soon overcame the cost advantage, and by 2011, First Solar was losing money, closing factories abroad, and abandoning plans for new factories.

There has been a mix of highs and lows for First Solar since then. It has run annual losses in five of the past 10 years. Last year, it had $2.71 billion in sales, slightly less than it did in 2011. 

Now that First Solar is reviving its plan to build its third plant in Ohio, it’s counting on help from the White House and Congress to bolster the solar industry. 

For years, the U.S. solar industry has relied on a rich investment tax credit, now 26%, for purchasers of solar installations. President Biden has encouraged Congress to extend the credit for 10 years.

Mr. Widmar is also lobbying for a new tax credit that would be tied to U.S. production of renewable energy, an approach pushed by Senate Finance Committee Chairman Ron Wyden (D., Ore.). 

This proposal would give the maximum tax credit to companies like First Solar, which produces almost every part of its panel domestically, while those who import panels get zero credit. 

While the battle remains uphill, solar energy is here to stay, which means that investors should start looking at stocks in this emerging industry to add to their portfolios…

Solar Energy Stocks

Matthew DiLallo of the Motley Fool recently revealed three solar stocks to invest in, and we want to share them with you!

The first was, to no surprise, First Solar (FSLR) because of the high quality of its panels, its global leadership in the field and its strong balance sheet. 

The second company was Brookfield Renewable (BEP), the renewable energy yieldco created by leading alternative asset manager Brookfield Asset Management. This company is a global leader in hydroelectric power plants, and its solar-powered growth is on track to expand its cash flow per share at an 11% to 16% annual rate through 2025.

The final company worth considering was SolarEdge Technologies (SEDG), which creates optimizers and inverters used to convert the sun’s energy into usable electricity at the lowest cost on the market. This has enabled the company to win market shares from competitors and maintain a strong, cash-rich balance sheet.

The solar industry is poised to grow rapidly in the coming years, so now is the time to invest. 

To a Richer Life,

The Rich Life Roadmap Team 

 

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