China-U.S. Renewables Spat Widens As China Probes Trade Rules Violations
The Chinese government came out with a study saying that subsidy programs by 5 states in the U.S. that provide incentives for renewable energy were against free trade rules according to WTO policies and guidelines. [1] The findings come after the U.S. government imposed tariffs up to 250% on Chinese solar equipment, accusing Chinese solar players of benefiting illegally from government support. Analysts are keenly eyeing what is being described as an escalation in trade protectionism in solar and other renewable energy sectors. Rising trade restrictions could have a serious impact on the sales of players like LDK Solar (NYSE:LDK).
We have a $3.67 price estimate for LDK Solar, which is at a 40% premium to its current market price.
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Solar subsidies
According to the Chinese Ministry of Commerce, subsidy programs in 5 states in the U.S. for programs in solar and wind power were in violation of WTO agreements. The list of states includes California and New Jersey, which are among the biggest markets for solar energy in the U.S. The Chinese government started the investigation to look into subsidy programs in the U.S. in November, a month after the U.S. Department of Commerce started looking into the complaint that Chinese solar companies including LDK Solar were receiving unfair support from the Chinese government. Some analysts also expect China to retaliate to the tariffs by imposing counter tariffs on U.S. solar exports such as polysilicon, a key raw material to make solar panels.
The sparring could get more intense as companies in Europe consider lodging similar complaints against Chinese manufacturers. [2]
Europe is the largest market for solar equipment and tariffs on imports could be lethal on the Chinese solar manufacturers according to industry sources. Trade restrictions could further constrict companies as they deal with falling demand and lower module prices. With LDK Solar’s huge debt load, any further deterioration in the solar sector could have a serious impact on the company’s health.
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Notes:- China Says U.S. Renewable Subsidies Violate Trade Rules, Bloomberg [↩]
- Suntech says Europe could deal lethal blow, Reuters [↩]