Trump solar tariff roils market, slows growth but is far from the ‘worst-case scenario’
Energize Weekly, January 31, 2018
The tariff placed on imported solar cells by the Trump administration last week is roiling markets and is projected to slow growth, but not blunt the development of the solar industry.
On Jan. 22, President Donald Trump approved a four-year tariff, starting at 30 percent and stepping down 5 percent a year to 15 percent in 2021, on photovoltaic (PV) solar cells and modules. The first 2.5 gigawatts of imports each year will be exempt from the tariff.
The move was made after the International Trade Commission (ITC) ruled that imports have undermined domestic solar cell makers, but some question whether it will really help American manufacturers or even hold up to foreign challenges.
The tariffs are projected to cut solar installations 11 percent between 2018 and 2022, a reduction of 7.6 gigawatts, according to the cleantech research and marketing group, GTM Research. In 2015, a total of 7.3 gigawatts was installed.
“This is not by any means a worst-case scenario,” Cory Honeyman, a GTM Research analyst, said on a GTM podcast.
The two domestic solar cell makers who brought the trade complaint—Suniva Inc. based in Norcross, Ga., and Hillsboro, Ore.-based SolarWorld—sought stiffer tariffs, a floor price on modules, and quotas.
Honeyman said that the stockpiling of cells by installers and a rise in prices in anticipation of the ruling, thereby already baking in higher project prices, may soften the impact in 2018.
“While significant, the industry has developed a buffer to absorb some of the impact: stockpiles have been built up in anticipation, exempt ‘thin-film’ manufacturing capacity has been kept online, and buyers still have access to manufacturers in tariff-exempt free-trading partners,” Bloomberg New Energy Finance analyst Hugh Bromley said in a note.
Analysts say the market will be more vulnerable in 2019 and 2020. By then, the tariff, if it stands up to challenges, will be reduced to 20 percent.
Still, the tariff will add about 10 cents a watt to the price of modules in the first year, stepping down to 4 cents per watt in the fourth year. Suniva had called for a 32-cents-a-watt tariff.
The biggest impact will be on utility-scale projects, which use large numbers of cells. GTM forecasts that 65 percent of the 7.6-gigawatt reduction will come from these large projects. Rooftop solar installations will be less sensitive, but the added cost may hurt emerging markets, such as Wisconsin, Utah and in the Southeast.
The Solar Energy Industries Association (SEIA) has estimated that in 2018, the tariff will lead to the loss of 23,000 existing and potential jobs in the sector, which employs 260,000 and has been among the country’s fastest growing.
Since 2010, the cost of PV cells has declined by more than 70 percent, largely fueled by imports, which account for more than 80 percent of the domestic market. Between 2012 and 2017, the number of domestic solar jobs, mainly in assembling panels and installing them, doubled.
But the ITC in its report found that nearly 30 U.S.-based PV manufacturers have gone out of business since 2012.
In 2015, responding to a dumping complaint by SolarWorld, the U.S. Department of Commerce imposed a 40 percent tariff on Chinese solar cells. At the time, Chinese products accounted for about 40 percent of the U.S. market. China retaliated by putting tariffs on U.S. polysilicon.
“China moved production elsewhere and evaded U.S. relief, while maintaining capacity. Today, China dominates the global supply chain,” U.S. Trade Representative Robert Lighthizer said in a statement.
Malaysia, South Korea, Vietnam and Thailand, along with China which now has 8 percent of the American market, account for 83 percent of solar cells used in the U.S.
That shift prompted the Suniva-SolarWorld complaint citing Section 201 of U.S. trade law, under which petitioners do not have to show unfair trade practices, but only that the imports are hurting the domestic industry.
South Korea has already filed challenges and demands for compensation at the World Trade Organization (WTO) in response to the solar tariff and a second tariff the Trump administration put on washing machines.
The U.S. has never prevailed in a Section 201 at the WTO. In the last such case, President George W. Bush placed sanctions on imported steel, and several nations successfully challenged the move at the WTO. The U.S. steel tariffs were eventually dropped.
Even if the tariff is upheld or the U.S. decides to continue to enforce it, several analysts question whether size and duration of tariff are sufficient to revive the domestic industry.
“While tariffs may delay investments in solar generation at first, we think the long-term impact will be limited since the tariffs expire in four years and the recent pricing of solar energy for 2023 reached record lows,” said Lesley Ritter, an analyst at Moody’s Investors Service in a statement. “The near-term impact is also partly mitigated by annual tariff declines, exceptions for the first 2.5 gigawatts of imports, and exemption of Canadian panels.”