On May 17th, the U.S. Department of Commerce ruled in favor of placing heavy tariffs on solar cells manufactured in China and imported to the U.S., also affecting imports dating back to February of this year. The decision is aimed to compensate for Chinese manufacturers selling in the U.S. below fair market value, “dumping” their panels and hurting domestic suppliers. Companies participating in the investigation received a tariff of approximately 31%, while the remaining companies and any newcomers to the market will face a 250% tariff.
The greatest short-term impact is likely a delay in module imports to the U.S. while companies reroute supply chains to avoid tariff barriers. This could mean that a significant percentage of the total market for solar modules is in essence removed from the market until suppliers can adjust to the new tariffs – with no clear idea of when balance may be restored. Especially for larger projects, these delays may cause developers to rethink their financing plans. Existing inventory already in the U.S. may cushion this effect, but currently good estimates for that capacity are lacking.
Fortunately, it is in Chinese suppliers’ best interests to keep providing cost-competitive panels in the U.S. market, and most of the companies targeted in the trade case have global supply chains they can use to their advantage to minimize tariff costs. However, a significant part of the problem aside from the cost of the tariff is the uncertainty of exactly when or how heavily the effects from the tariff will be felt.
Some industry advocates hope that a short-term price bump in imported panels – with the potential for more trade cases in the future – may encourage foreign suppliers to set up small factories stateside. Whether the current upset is enough to give a long-term advantage to U.S. suppliers is as of yet unknown. With virtually all panel suppliers facing the reality of a floundering European economy and subsequent policy rollbacks, few may be in a position to open new manufacturing centers that would shield them from import costs. And since the tariff only targets solar cells – not the actual manufacturing of panels – Chinese companies can still use their domestic factories.
In fact, one of the biggest winners to come out of the trade dispute could be Taiwan. Generally, solar cell prices have dropped so dramatically that profits may remain small for Taiwanese producers even if demand increases. If chronic oversupply continues to hurt prices, the supply chain reordering caused by the new tariff will do little to correct it. Nevertheless, if the increase in solar cell demand is as large as some industry experts seem to think, the new tariff could dramatically shift the landscape for Taiwanese solar cell manufacturers, even if the rest of the sector remains hindered by a broader oversupply.
Predictions that the tariff could cause escalating project costs are for the most part overestimated. Panel costs certainly will rise with most estimates placing the final impact at around 10%, providing that Chinese suppliers rely on Taiwanese or other non-Chinese solar cells to avoid the full 31%+ tariff rate. However, panel costs are typically just a third to a fourth of total project costs once other factors have been accounted for. The final impact on return on investment would level out to less than 3%, according to current estimates. While riskier projects may lose investors, most projects should still be able to proceed.
Unfortunately, as Europe signals its intentions to follow the U.S. with an anti-dumping and anti-subsidy trade case, more trouble is expected for the industry. While wider uncertainty may dampen project development, for now the tariff’s impact on project costs remains manageable.
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