Solar power has been touted as a panacea to the world’s energy crises. The rate at which we are using the world’s oil reserves mean that in the next 30 to 40 years we will run out of oil, unless major new discoveries are found. Coal can sustain us for a few hundred years but this comes at a high price to the environment. Already coal fired power stations are major contributors to global warming. In planning for the future, governments the world over have crafted renewable energy policies with solar energy playing a major role.
Due to the fact that the green energy industry is still in its infancy, there is a need for continuous government support until the market for green products is well established in order to guarantee returns for private investors. However there is not a coordinated policy limiting the amount of subsidies that governments can give to companies. This has come to light in the ongoing trade dispute between the European Union and China. Germany’s Solarworld (SWV: GR) has brought a complaint before the European Commission against cheap Chinese solar panels being imported to Europe. It is believed that Chinese solar companies are highly subsidized by their government. With both parties making counter-accusations, and no solution in site, the EU may impose tariffs on Chinese manufactured solar panels. This measure could attract retaliatory actions from China.
Solar Companies Most Affected
Prominently listed companies have seen their stocks trading lower in the last three weeks. The biggest drops were seen on February 21 when it became clear a trade war between the EU and China was likely. JinkoSolar Holding Co., Ltd. (NYSE: JKS) and Canadian Solar Inc. (NASDAQ: CSIQ) fell 12 percent, while JA Solar Holdings Co., Ltd (NASDAQ: JASO) and Trina Solar Limited (NYSE: TSL) stocks dropped on average by about 9 percent. For companies that are heavily reliant on government subsidies in order to remain viable, such news does not bode well with investors.
Who Stands To Lose the Most?
Should the EU move forward and impose tariffs on Chinese solar panels, this will be a double edged sword. While this will increase the prices of Chinese made solar panels, and provide temporary relief to European producers, in the long-run companies in Europe will also suffer. Polysilicon a key component used in the production of solar panels comes from Europe. Any disruptions in the solar industry in China will hurt European suppliers. Thus it is important both sides reach a kind of agreement soon, in order to avert a trade war, which will hurt what is otherwise one of the fastest growing industry in the world.