Who Will Win the US Solar Tariff Fight?
Recent news suggests that the United States solar tariff equates to doomsday for the solar industry. However, there are many additional factors at play that add complexity to future projections – including politics, the economy, and technology. Although many in the industry agree the tariff will slow the growth of solar installations, experts are mixed in the extent to which they believe this will harm the national industry.
Stakeholders who might appeal the trade case to the World Trade Organization (WTO) could face an uphill battle. According to the WTO, three of six appellate members' terms have expired. Industry experts are worried about the future capacity of this world arbiter.
"Trump has blocked the appointment of every candidate for the appeals board, raising concern over the invalidation of the WTO," said Dan Gross, a private equity and infrastructure investor and lecturer at Yale University.
While the solar tariff alone is unlikely to spell destruction of the United States solar industry, the economics of solar could dramatically change if the Trump Administration assesses import duties on steel and aluminum. If additional tariffs are applied to these metals, which are critical components for solar modules, it could deal a double blow to the industry.
The import duty, which assesses a 30-percent tariff on imported crystalline silicon photovoltaic (CSPV) cells and modules, is expected to have the greatest impact on utility-scale projects. This is because many projects are determined by solar’s economic competitiveness with other generation sources.
However, Gross said he expects that much of the projected price increase as a result of the tariff has already been “baked in” to the cost.
When Suniva originally filed the trade case in April, the threat of tariffs caused solar developers to make large purchases. According to Solar Energy Industries Association (SEIA), this led to a global shortage of certain solar modules and a subsequent increase in prices.
“While the 30-percent tariff is certainly not helpful for the development of new solar installations, its impact on the levelized cost of solar energy will not undermine the fundamental competitiveness of United States solar in markets,” Gross said. Even with the policy uncertainty and increase in price, the nation installed more than 2 gigawatts of solar for the eighth straight quarter in the third quarter of 2017, SEIA said.
Additionally, the projected price increase as a result of the tariff could be assuaged by the dramatic cost reductions in solar. Costs have plummeted 70 percent since 2010, according to SEIA. Although the tariff will increase the cost of installations, future savings from technological developments are unknown.
Rocky Mountain Institute made a recent announcement that it is developing opportunities to create a pre-engineered and pre-assembled modular product that can reduce the cost of solar by $0.20 per watt. This could mitigate the projected increase from the solar tariff.
There are other factors at play that will impact future market performance, such as the recent tax bill. According to the United States-based installer Namaste Solar, “The solar tariff will have the most impact on our commercial customers with large installations, but they will also see additional savings from the new tax bill.”
America First
The President’s pledge to put “America First” has been a key component of Trump’s agenda. While the tariff ostensibly puts American solar manufacturers first, opponents claim that it does so at the expense of the national solar industry – which, SEIA said, is growing at 17 times the rate of the national economy.
Tariffs are an economic tool used to protect domestic industries by raising the cost of cheaper imports. The solar tariff may appear to fall under the “America First” banner. However, the tariff will inevitably increase cost. An increase in cost will make the economics of financing solar projects less viable, thereby harming installers and leading to layoffs.
According to Dan Whitten, VP of communications at SEIA, “The president’s decision will effectively lead to the elimination of 23,000 American jobs, including many in manufacturing, and will result in the delay or cancellation of billions of dollars in solar investments. It is a fallacy to believe what the petitioners proposed would benefit American workers.”
However, the factors mentioned in the first section of this article may not have been taken into account when SEIA calculated this layoff figure.
The Heritage Foundation, a conservative public-policy think tank, also voiced opposition to the tariff, claiming that it represents the government picking winners and losers. An article on its website said, “It uses the law to pay Paul by robbing Peter. The requested tariffs might shield a privileged few United States solar manufacturers that don’t have competitive products for a short time. But that protection would come at the expense of other Americans who finance, install and use solar power.”
Manufacturing Growth
While the tariff is likely to reduce demand for new solar projects in the near term, it is uncertain whether the tariff sends a strong enough signal to attract new manufacturers to the nation. The tariff is designed to start at 30 percent and gradually decrease to 15 percent, with an expiration date of 2022. Given the time it takes to build a new factory, the tariff is likely too small and too brief to cause a revival in solar manufacturing in the United States.
“Most of the industry insiders I know have indicated that a 30-percent tariff will not be sufficient to spur investment in new solar panel factories in the United States - or even to restore bankrupt solar panel manufacturers to profitability,” Gross said.
Suniva and the 14 crystalline silicon cell manufacturers in the United States are likely to benefit, since they will be exempt from the tariff. However, according to SEIA, Suniva filed for bankruptcy in April 2017.
“This is a unique situation where virtually no one benefits and almost everyone loses,” Whitten said. “Unfortunately, the United States does not have the manufacturing capacity in place to support the demand. Now, United States installers will just be forced to pay higher prices which will, in the near-term, decrease demand and cause the layoff of tens of thousands of American workers across the supply chain in all 50 states.”
However, national manufacturers have announced that they are ramping up production to meet demand.
In addition, there is proof that the tariff is attracting some companies to relocate operations to the United States. Chinese manufacturer Jinko Solar has announced it will be investing over $400 million to build a 1.75-gigawatt solar factory in Jacksonville, Fla. which is projected to create 800 jobs.
First Solar, Inc., which is based in Arizona, has seen its stock double since the trade case was introduced in April. This is because the company manufactures some panels in the United States. It uses a technology that is exempt from the tariff since it doesn’t include silicon.
Regardless, SEIA plans to continue to advocate for policies that can support the solar industry. “We are going to look to states and cities and communities to try to help us mitigate the damage this tariff is imposing on the solar industry,” Whitten said. “Most energy policy is actually made at the state level. We think we can make a significant difference advocating for supportive policies in the states.”
Note: Dan Gross is on the advisory board of Clean Energy Finance Forum.
New information was added to this article on 2/6/2018.
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