Solar companies and investors will likely learn late this week whether the Section 201 trade case filed by Suniva and joined by SolarWorld will be moving forward, recommending tariffs or other remedies to President Trump. The fate of the U.S. solar industry could be riding on the decision and no one quite knows what the International Trade Commission will find.
Since the trade case was filed, First Solar (NASDAQ:FSLR) has been the biggest beneficiary on the stock market, and for good reason. The manufacturer may get around all solar tariffs because it makes a thin-film product, not traditional silicon solar cells that are a focus of the complaint. But it also has a large manufacturing facility in the U.S. that could produce up to 1 GW of solar modules each year. That dynamic could give First Solar an essentially captive market, which would be a boon for earnings. But if the complaint doesn't go forward, First Solar could face a more challenging operating environment.
Section 201 would be a windfall for First Solar
If Suniva's proposed remedy against solar imports flooding the U.S. is adopted, a price floor of $0.78 per watt would be placed on solar modules coming into the country. Today, modules sell on the open market for $0.38 per watt or less, so there would effectively be at least a $0.40-per-watt increase in module prices.
For First Solar, that would be a huge win because it could sell as much as 1 GW per year produced in the U.S. for no tariff. If we assume the company can capture $0.30 per watt of the increase in spot prices, the windfall would be at least $300 million per year. If all of First Solar's production evades tariffs, the windfall could be over $1 billion per year if the company diverted all production to the U.S.
It's unlikely the impact on module pricing would be as dramatic as I've laid out above or that First Solar would be able to capture anywhere near $1 billion of windfall, but there would probably be hundreds of millions of dollars coming into its coffers that wouldn't otherwise without tariffs. Of course, if there aren't any tariffs or price floors, then the company is in a very different position.
Without tariffs, First Solar's lead may be evaporating
If First Solar isn't helped by solar tariffs or other remedies, its competitive position may not be as strong as investors think it is. A lot of the world's solar manufacturers are upgrading equipment to make mono-silicon rather than multi-silicon (mono is more efficient) and they're installing passivated emitter rear contact (PERC) equipment that makes cells even more efficient. PERC technology also increases performance in high temperatures and low-light conditions, instances that First Solar typically demonstrated an advantage over silicon solar cells.
In other words, First Solar used to have an advantage in the amount of energy produced versus silicon modules that had the same efficiency rating. This performance advantage is what First Solar has used to become a dominant player in utility-scale projects in the desert. But the performance advantage may be diminishing as PERC modules become more common.
On top of the reduced performance advantage, First Solar may already be behind on efficiency. Some mono-PERC modules already exceed the 18% efficiency level First Solar says it will be producing when Series 6 modules start coming off production lines next year, and SunPower (NASDAQ:SPWR) says it will have a 19% efficient mono-PERC module out later this year.
If silicon solar manufacturers can beat First Solar on efficiency and are no longer at a big disadvantage in performance in extreme conditions, then First Solar has less of an advantage over commodity silicon-based modules, and it may be forced to compete on cost alone as a result, potentially squeezing margins.
Cloudy skies ahead?
If there isn't any injury found in the Section 201 trade case, it could be bad for First Solar long term. Today, investors are assuming First Solar will be the beneficiary of tariffs and are also pricing in a solid performance from its Series 6 product being launched next year. But competition may be catching up more quickly than anyone realizes, and if tariffs don't materialize, the company may not see the windfall investors expect.