A few days ago, Bloomberg reported that the Biden administration was mulling banning imports of polysilicon from Xinjiang, China, a region responsible for supplying ~45% of the world's solar-grade polysilicon.
Just before leaving office, the Trump administration announced an import ban on agricultural products from Xinjiang over allegations of forced labor from detained Uighur Muslims employed in their production.
Since then, a group of bipartisan lawmakers has been pushing President Biden to move a step further and impose import restrictions on polysilicon, allowing Customs and Border Protection to seize any imports that it suspects were made with forced labor. Banning products from companies based in Xinjiang comes with considerable risk, with the likes of Nike Inc.(NYSE:NKE), H&M and Burberry recently facing huge backlash from Chinese consumers threatening to boycott their products over statements they made regarding forced labor practices in the region.
But it appears that Biden is not about to let that deter him.
Politico has now reported that the Biden administration will go ahead and ban imports of solar materials from Xinjiang-based Hoshine Silicon Industry Co. Ltd, a major manufacturer of raw materials used in the polysilicon used in most solar panels.
Hoshine has been the subject of a report earlier this year on forced labor from Uyghur's Muslims in the global supply chain of the material in Xinjiang.
The Hoshine trade ban stops short of establishing a region-wide WRO to block imports of polysilicon from all entities in Xinjiang. However, that does not mean that more is not about to come. The CBP's usual modus operandi involves blocking imports from individual companies as it gradually builds a legal case for broader action.
Here are the key winners and losers as the Chinese situation unfolds.
Winners: U.S. Solar Manufacturers
U.S. solar panel manufacturers are the biggest winners of the latest ban, and also for another key reason we will discuss shortly.
FSLR">First Solar is the largest solar manufacturer in America and the Western Hemisphere and also the third-largest in the world with revenue (TTM) of $2.7 billion. First Solar manufactures solar panels, photovoltaic power plants, and related services, including construction, maintenance, and recycling of solar products. The Tempe, Arizona-based company employs thin film semiconductor technology to achieve enhanced efficiency and sustainability in its solar modules.
FSLR jumped 8% on Thursday trading on news of the ban, thanks to the company recently committing to building more solar panels in the United States.
Cowen analyst Jeff Osborne says the latest development is "a positive for First Solar" given the company does not use polysilicon and could lead to accelerating orders from utility-scale developers looking to avoid traceability issues in the future.
But that's just part of what makes this solar stock attractive right now.
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Two weeks ago, First Solar committed to building a new 3GW per year panel factory in Ohio at a cost of $680M. The company says it seeks to "reshore" manufacturing that has moved outside the United States, bolstered by President Biden's ambitious clean energy goals. CEO Mark Widmar says the company's three Ohio plants combined would produce panels that could generate 6 GW of power annually by 2025, more than half of all solar panels the company estimates will be produced annually in the U.S.
But here's another big reason why American solar stocks like First Solar are soaring: Solar tax credits.
While the Biden administration has not named solar yet as a manufacturing priority, it supports extending tax credits for solar panel purchases or to require federal contractors to purchase more solar panels from U.S. suppliers.
U.S. solar manufacturers are fully supporting the proposed tax credits, saying they could boost domestic production of solar panels while also creating tens of thousands of new jobs.
First Solar has backed the tariffs saying they are essential to fight low-priced goods from abroad. However, industry specialists say tax credits are not enough, and hefty subsidies via tax breaks would be needed in addition to the tariffs, to get the sector really going.
Widmar is skeptical whether even that will work: "China heavily subsidizes whatever strategic industry it chooses to focus on. How does any American company ever compete?" he has posed.
Also on the move is San Jose, California-based Sunpower Corp., with SPWR shares nearly 10% up over the past five trading days. SunPower manufactures crystalline silicon photovoltaic cells and solar panels based on an all-back-contact solar cell technology.
SunPower really is an old head in the solar industry and has tried its hand at many aspects of the business. However, the company's latest act involves becoming a more specialized player in solar technology, after selling its microinverters business to Enphase in 2018 and completing the acquisition of Maxeon (NASDAQ:MAXN) in 2019.
A key benefit of this strategy has been a reduction in SunPower's cost of capital and a healthier balance sheet. It's too early to tell whether SunPower's streamlining efforts will pay off in the long run but if you love a good turnaround story, this company might be a good buy.
Losers: Chinese Manufacturers
The ban by the Customs and Border Protection comes days after the Commerce Department's Bureau of Industry and Security banned four other firms located in Xinjiang to its "entity list": Xinjiang Daqo New Energy Co., Xinjiang East Hope Nonferrous Metals Co., Xinjiang GCL New Energy Materials Technology Co., and the Xinjiang Production and Construction Corps.
Related: Solar Has An Unlikely New Enemy
All the four companies are involved in the manufacture or use of polysilicon products, with Xinjiang Production and Construction Corps having been the target of a previous import ban by the Trump administration.
Daqo New Energy Corp., another polysilicon maker with a factory in Xinjiang, has dipped 7% after the news. Daqo is a Chinese company that manufactures monocrystalline silicon and polysilicon solar PV systems.
Daqo's addition to the entity list has come despite the company recently going out of its way and hosting a visit to its main manufacturing facility in Xinjiang in an extraordinary effort at transparency.
And the ban will certainly not make life any easier for one of China's leading solar names, Jinko Solar.
One of the biggest trends that has been driving the phenomenal growth being witnessed in the renewable energy sector is falling costs. And nowhere has this been more evident than the solar sector. Indeed, solar photovoltaics (PV) has seen the sharpest cost decline of any electricity technology over the last decade, with the International Renewable Energy Agency (IRENA) finding that between 2010-2019, the cost of solar PV globally dropped by 82%.
But that bullish thesis is now in grave danger.
A quadrupling in the cost of polysilicon has pushed solar module prices up 20% YTD and threatens to lay to waste years of gains.
Polysilicon makers have struggled to keep up with demand, lifting prices to as high as $25.88/kg, up from $6.19/kg less than a year ago.
Jinko's been in correction mode for most of the year due to the said supply chain issues. Since January, the shares have lost nearly 40%.
Overall, Biden's latest move is likely to be strongly bullish for U.S. solar equipment manufacturers over the long term.
Just months after president Biden rejoined the Paris Climate accord, global energy market navel-gazer IHS Markit has ranked the United States as the most attractive market for renewable energy investments in the world.
The United States has claimed the top spot on the latest IHS Markit Global Renewables Markets Attractiveness Rankings mainly on sound market fundamentals and the availability of an attractive–though phasing down–support scheme. The survey
tracks attractiveness for investment for non-hydro renewables such as solar PV, offshore wind, and onshore wind. The ranking evaluates each country on the basis of seven subcategories that include market fundamentals, current policy framework, infrastructure readiness, investor friendliness, revenue risks and return expectations, easiness to compete and the overall opportunity size for each market.
By Alex Kimani for Oilprice.com
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