Energy Transition in Germany
Scenario: The transition in Germany to 80 percent renewable energy in the electricity sector by 2050 (known as the “Energiewende” or energy transition) creates a regulatory environment that will probably be marked by repeated legislative amendments (the German Renewable Energy Act, including relief for energy-intensive companies and self-generated electricity, grid-charge regulations, EU laws on state aid, EU Energy-Efficiency Directive, the emissions trading system, and integrated energy).
Impact on WACKER: Additional energy costs due to rising federal levies if the German government departs from its current policy of exempting energy-intensive industry from paying such levies and ancillary costs in full or in part.
Measures: We continually monitor regulatory activity in Germany and in the EU. Whenever we anticipate changes in the current legal situation, we try to introduce our viewpoint into legislative procedures through discussions with policymakers and by participating in trade associations. In addition, we search for, and take advantage of, market opportunities arising from regulatory changes (e. g. industrial demand-response management).
Evaluation and Risk Assessment: An amendment of the German Renewable Energy Act came into force at the start of 2017. Moreover, the German government and the EU Commission have reached agreement on the rules regarding self-generated electricity, combined heat and power plants, and sheddable loads. On the whole, these decisions did not cause any substantial increase in WACKER’s burden beyond the previous level. We consider it possible that other legal provisions relating to the energy supply, for example grid charges, might be amended in 2018. Such amendments would probably have a low impact on WACKER’s earnings this year, but their impact could increase substantially over the coming years.
Polysilicon Trade Restrictions
Scenario: The Chinese Ministry of Commerce (MOFCOM) has concluded its anti-dumping proceedings against polysilicon imports from the USA. The EU has completed its anti-dumping proceedings against Chinese solar companies and extended its measures. Until November 2018, sales of WACKER’s polysilicon in China will comply with the terms of an amicable agreement reached with MOFCOM. If necessary, there will be a subsequent expiry review that can take up to 12 months to complete. During this time, MOFCOM’s measures and the minimum-price agreement will remain in place.
Impact on WACKER: Negative impact on the company’s earnings, net assets and financial position; influence on sales volumes; impact on long-term customer relations.
Measures: Our aim in numerous discussions with policymakers in the USA and China is to mitigate or rescind punitive solar-sector tariffs (US tariffs on Chinese solar modules and cells, and Chinese tariffs on polysilicon from the USA) and, as a result, tariffs on WACKER’s US-made polysilicon. According to Chinese anti-dumping laws, we can also apply to have the tariffs reviewed individually and, if necessary, have separate tariffs set. This is because WACKER did not, in fact, import any polysilicon from the USA to China during the investigation period of the anti-dumping proceedings. We will apply for such a New Shipper Review in due course. An additional point of focus is to have the European Commission stand by its decision to gradually reduce its measures against Chinese solar cells and modules, so that these steps expire, as planned, in September 2018. This should, in turn, have a positive effect on MOFCOM’s pending decision in November 2018 regarding measures against European polysilicon.
Evaluation and Risk Assessment: The tariffs on polysilicon imports from the USA to China will remain in effect until January 2019. From our point of view, it is not foreseeable whether these tariffs will be withdrawn or continued after January 2019. If the European Union allows its restrictions on Chinese solar cells and modules to expire in September 2018 as planned, we expect the Chinese authorities to then lift their restrictions on polysilicon from Europe in November 2018. But if both sides decide to conduct further reviews, we assume that China and the European Union will keep their respective measures and minimum-price agreements in place until these reviews are completed. With regard to our German-made polysilicon, it is not possible to entirely rule out the risk that our minimum-price agreement with China might be adversely amended in 2018 if trade relations between the European Union and China were to worsen. Should this happen, we consider it possible that WACKER might be affected by trade barriers and punitive tariffs. The potential impact on our 2018 earnings would then probably be high.
New Regulations for Production Processes and Products
Scenario: Due to new legal rules, the production and use of chemical substances is regulated more strictly. New regulations make it necessary to modify our production processes or reformulate our products.
Impact on WACKER: Additional investments in production facilities and revenue losses in individual application fields.
Measures: WACKER continually monitors the regulatory environment surrounding its products and production processes so that it can react promptly to impending changes. We have already implemented initial measures to modify production processes. Any other necessary measures will be aligned with the regulatory changes in each specific situation.
Evaluation and Risk Assessment: It is always possible that new legal provisions necessitate modifications to our product portfolio or production processes. We consider it likely that new legal provisions will require additional investment in our production facilities or changes to our product portfolio. Should such changes occur, the short-term impact on WACKER’s earnings would probably be low. The medium-term impact could be of medium scale.