Kelly and Kevin Gallagher - Blinded by the (solar) light

Finally, the merits of the actual case are dubious. Prices of Chinese-made PV modules in China are lower than they are outside of China, so it’s hard to see how they are “dumping” on the U.S. market. The true problem is overcapacity, which market forces will correct in time. The Chinese government has undoubtedly provided support to its solar industry, but so has the US government with its loan guarantees, investment tax credits, and production tax credits. At the local level, SolarWorld Industries America (the lead filer of the complaint) itself received millions in tax breaks and subsidies in Oregon when it decided to locate its manufacturing facility there. Indeed, the Commerce Department only found evidence of small Chinese subsidies in its March 2012 ruling. SolarWorld only had six co-filers, but more than 100 U.S. firms lined up against it.

Chinese government support for solar energy has already benefited the world in terms of improved welfare, climate mitigation, and reduced global energy prices. The rest of us are essentially free-riding on this support. Rather than punish China for its laudable efforts, the Obama Administration should applaud it and do its part to correct market distortions too.

Read it at TripleCrisis
Blinded by the (solar) light
By Kelly Sims Gallagher and Kevin P. Gallagher

Follow up to the post on Misguided Mercantilism Hurts Solar Energy Consumers. Last night I was discussing this topic with an expert friend of mine who currently works in the Solar industry. He basically outlined this entire report making special note of the ability of Chinese firms to avoid the tariffs. While this lessens the negative impact, we ultimately agreed the policy is still a step in the wrong direction and risks unnecessary trade wars with China.

Misguided Mercantilism Hurts Solar Energy Consumers

The Obama administration has acted to protect Americans from cheap access to solar energy, imposing tariffs of 31 percent and even 250 percent on solar cells and panels imported from China.

As I noted previously, this case echoes one of the most famous documents in the history of free-trade literature, Bastiat‘s famous ”Candlemakers’ Petition.” In that parody, the French economist and parliamentarian imagined the makers of candles and street lamps petitioning the French Chamber of Deputies for protection from a most dastardly foreign competitor:

You are on the right track. You reject abstract theories and have little regard for abundance and low prices. You concern yourselves mainly with the fate of the producer. You wish to free him from foreign competition, that is, to reserve the domestic market for domestic industry.

We come to offer you a wonderful opportunity. . . .

We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival … is none other than the sun.

Read it at Cato @ Liberty
Next, the Sun
By David Boaz
(h/t Don Boudreaux at Cafe Hayek)

This move has to be disheartening for those parties interested in moving the US away from oil and coal towards more 'green' energy. In order to support domestic solar producers and possibly add a few jobs in that industry, the Administration has raised the price of solar to consumers. This move is therefore also a win for oil and coal producers who are spared the tougher competition from Chinese solar companies. Imports represent real benefits, but that notion is all too often forgotten by both political parties. This is just one more example to add to the list of misguided mercantilism.

Bill Maurer - Shorting First Solar: Perception Versus Reality

So why have things gotten so much worse? Well just think about things logically. When you don't sell as much as expected, your inventory levels rise. Over the past two years, First Solar's inventory levels have risen from $172 million to $582 million. Yes, you can't sell what you don't have, but that is a staggering inventory increase. Also, if you have too much inventory, you might need to sell it for less than expected. That will impact margins. Another issue is accounts receivable. First Solar's accounts receivable total (including trade receivables and unbilled A/R), has increased from $295 million to $867 million over the past two years. In just the past two years, accounts receivable and inventory have increased from one third of current assets to one half of current assets. On the flip side, cash and marketable securities (as a percentage of current assets) have declined from nearly 51% to 23% over that time. The balance sheet hasn't just gotten weaker, it has become less flexible, and that could force more issues down the road.

Read it at Seeking Alpha
Shorting First Solar: Perception Versus Reality
By Bill Maurer

First Solar (FSLR) has been a stock on my watch list for quite some time since I expect the solar industry to be a primary source of growth over the next decade. The sheer magnitude of the stock’s decline considering its low levels of debt and earnings potential has given the impression of this move being overdone. This article explains why the stock may be a value trap and is sufficient reasoning to pause when considering buying at current levels. Depending on how the next several quarters play out FSLR may offer meaningful upside potential, but for now I remain in search of other ways to play the solar sector. (Chart Source: Bloomberg)