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Trump's Solar Tariffs Won't Kill the Industry

solar panel

The Trump administration just struck a huge blow against the U.S. solar industry, slapping tariffs on imported panels that could drive up the cost of new projects. Higher costs could undermine solar’s competitiveness, and slow the industry’s growth going forward.

The post, Trump’s Solar Tariffs Won’t Kill the Industry, was first published on OilPrice.com.

The announcement came in response to trade complaints from some solar panel manufacturers with operations in the U.S., who allege that cheap imports are driving them out of business. The Trump administration agreed, and the new tariffs are largely aimed at solar panel imports from China. The move also is apparently the first in a series of upcoming tariffs that could hit steel, aluminum and other products from China, actions that risk setting off a trade war.

The tariffs on imported solar panels will be set as high as 30 percent, with a gradual phase down to 15 percent. First Solar (NASDAQ:FSLR), a U.S. manufacturer of thin-film solar panels, saw its share price skyrocket on the news, as its competition — foreign manufacturers — will see costs rise.

But the rest of the solar industry will be hurt. The problem for the U.S. solar industry is that it relies on cheaper imported panels for 80 percent of its supply. Developers import panels from places like China and install them around the country. The new tariffs will directly impact the cost of most new solar projects across the country.

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The Solar Energy Industries Association, a trade group, estimates that the tariffs will eliminate 23,000 jobs this year and lead to the cancellation of billions of dollars’ worth of solar investments. “They will create a crisis in a part of our economy that has been thriving,” said Abigail Ross Hopper, president of the association.

But the move will not be the death knell of the industry. There are a few reasons for this. First, the panels themselves represent just a fraction of the overall cost of a solar project. Other costs include financing, permitting, legal, labor, installation, etc. As a result, the 30 percent tariff could boost overall utility-scale solar costs by perhaps less than 10 percent, and residential solar systems by a mere 3 percent, according to Bloomberg New Energy Finance.

Second, the decision is less severe than what was recommended to President Trump. The U.S. International Trade Commissions recommended a 35 percent tariff back in October. Judging by the reactions of affected companies, the Trump administration’s ultimate decision was somewhat of a relief. It was “better than expected,” JinkoSolar Holding Co., the world’s largest producer of solar panels and China’s largest exporter, said on Monday. Other manufacturers from Asia voiced similar sentiments.

Moreover, the U.S. is only one market in a global solar industry that is growing robustly. With solar installations expected to top 100 GW across the world this year, costs should continue to fall, offsetting some of the cost increases related to the U.S. tariffs.

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In other words, the tariffs are definitely not welcome, and definitely damaging to the solar industry, but they don’t amount to an existential threat. BNEF figures suggest the cost of solar modules could jump 10 cents to 43 cents per watt — a sizable increase. But, because prices have fallen so dramatically in recent years, the increase only sets the industry back to about 2016-2017 price levels, which was a time when the solar industry was still doing very well. In fact, the industry installed a record 13.6 GW in 2016, a record high.

According to Goldman Sachs, the upshot is that solar demand in the U.S. could see a reduction of 5 percent this year, although a steeper drop off is possible if some projects are delayed into 2019. But by the fourth year of the tariff, in which the levy drops to 15 percent, the measure will only raise the cost of modules by 4 cents per watt.

“This is not a goodbye for renewable energy in the U.S.,” Fatih Birol, executive director of the IEA, said at the World Economic Forum in Davos. “I don’t believe this decision will reverse the solar expansion in the U.S. The global solar industry will adjust. The penetration of solar in the U.S. will continue.”

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