Trade watchdog imposes 10% duty on solar panel imports to ‘protect local industry’

The only remaining solar panel manufacturer in South Africa has received protection from low-priced imports, mainly from China. The International Trade Administration Commission (Itac) introduced a 10% general import duty to protect manufacturers, attract new investments and encourage the deepening of the input value chain.

However, the protection came seven years after ARTsolar, the only remaining manufacturer, applied for the 10% duty to stem the inflow of cheaper products.

Several other solar panel and supply chain manufacturers have since closed their doors.

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The import duty will be reviewed after three years to assess the industry’s performance.

Itac says that in coming to its decision, it factored in rising electricity tariffs, the fact that the local photovoltaic module (solar panel) industry is still in its infancy, that many manufacturers have already shut down due to strong competition from low-priced imports, a significant decline in market share, and worsening profitability in the local market. 

It did not respond to the question of why the investigation took seven years to be completed.

Itac quotes a 2018 United Nations report on global trends in renewable energy investment, which noted an “extraordinary surge” in solar investment worldwide, notably in China.

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China became the leading destination for renewable energy investments, accounting for approximately 45% of the global total of $279.8 billion in 2017. The country also accounted for just over half of the new global solar capacity in that year. 

Global oversupply

ARTsolar general manager Viren Gosai says there is currently a global oversupply of PV modules. This has resulted in a massive decrease in the price of solar panels.

Two years ago, a solar panel was priced at 25c (USD cent) per watt. It has almost halved to 13c (USD cent) per watt.

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“This price decrease is not sustainable. Many raw material manufacturers have been closing because it is not possible to keep supplying at these lossmaking prices.”

ARTsolar was able to keep afloat by diversifying its business and becoming involved in installations, although its primary business was manufacturing.

Gosai says the 10% duty will not materially impact their business because of the oversupply of panels, which is still mainly from China. However, it will equalise the cost between local and imported solar panels for large commercial projects.

ARTsolar retrenched 220 people in 2016 due to the flood of low imports and the stop-start reactions to the Renewable Energy Independent Power Producer Programme (Reippp).

“It was not possible to keep incurring huge labour costs if there was no production.”

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He adds that local bidders were all committed to supporting the government’s requirement for local content in the Reippp bid process, but once it came to the implementation phase, they bypassed local producers by importing cheaper products. 

The costs

In its analysis, Itac says government realised that renewable energy generation could become a “highly significant catalyst for industrial development and job creation”. 

However, delays in the approvals of Reippp projects, high upfront costs, high local manufacturing costs and low demand challenged the local industry.

Chinese manufacturers can achieve extensive economies of scale due to support from export subsidies. Local manufacturers are forced to import products that carry import duties, which increases their production costs. 

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Donald MacKay, director of XA Global Trade Advisors, says South Africa has imported R13 billion worth of solar panels in the last 12 months. This would have attracted R1.3 billion in duties if they had been in place. 

He says local installers who think they can now buy panels from ARTsolar to sidestep the 10% duty are mistaken because the company will increase its prices to follow the duties. 

Gosai says this is simply not true. He explains that solar panels in a typical installation at a utility scale make up 20% of the total installation cost. The difference a 10% duty on imported panels will make on the total installation cost remains “insignificant”. Most installers will absorb the increase for smaller rooftop installations. 

Importers objected to the increased duty, stating that it would lead to cost increases and job losses. They suggested that government explore other incentives to support local manufacturers instead of increasing customs duties. 

Encourage localisation

Itac, however, decided to recommend the 10% duty as it believes it will protect the remaining local manufacturers, attract new investments, and encourage the localisation of certain input materials. 

Gosai says as the Reippp kicks off and commitment to local content increases, they will be able to rehire some of the staff members they had to let go. ARTsolar currently has around 110 staff members, which could double to over 200.

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“Hopefully, this will also kick-start the rest of the value chain in terms of the bill of material suppliers.”

MacKay believes the 25% local content requirement on solar panels supplied in the Reippp is already a strong protectionist measure.

“This is not the path to industrialisation. You cannot tax productive investments and expect good outcomes. When you tax investment, you simply get less investment.”

This article was republished from Moneyweb. Read the original here