Will Trump’s solar tariffs really boost U.S. manufacturing?

Source: Zack Colman, E&E News reporter • Posted: Monday, January 29, 2018

The White House is playing up a piece of its recent solar trade decision — but analysts are uncertain whether it will have the Trump administration’s desired effect.

At issue is a provision that would allow U.S. manufacturers to import up to 2.5 gigawatts of solar cells without paying tariffs. The goal was to give domestic panel-makers an incentive to bring more inputs from abroad to build more modules within the United States.

“On the solar panels, [President Trump] left enormous amount of latitude in that decision that where we actually have a business — which is making the panels, not the actual cells; the cells can be imported — we’re protecting our panel-makers because we do make panels here in the United States, and we should continue to make panels and hire more workers in the United States,” National Economic Council Director Gary Cohn said Tuesday.

That pre-tariff quota leaves a considerable amount of breathing room based on 2017 figures, experts said, as the United States imported just a few hundred megawatts of solar cells.

“The U.S. imports between 200-500 MW of cells annually,” Jade Jones, a senior solar analyst with GTM Research, said in an email. “There is a lot of latitude.”

The tariffs, which begin at 30 percent in the first year and decline 5 percent each of the next three years, weren’t as extreme as the solar industry envisioned in terms of rate and length. That’s calmed fears for the broader domestic industry, though installations are still expected to fall (Climatewire, Jan. 23).

But that also likely squashed the Trump administration’s goal of boosting domestic production — considered a long shot in any case by the broader solar industry — through a tariff and tariff-free quota for cell imports. That’s partly because companies might be willing to absorb the cost of tariffs in the short term rather than make more expensive, longer-term investments in the United States, which opponents of the tariffs argued was always the case.

“It is still unclear if there will be manufacturers interested in setting manufacturing sites in the US, rather than just paying taxes for their module exports to the US,” Edurne Zoco, research director of solar energy and storage at IHS Markit, said in an email.

The partition between modules, of which all imports will be taxed, and cells resulted in part from a last-minute push by several solar panel-makers.

Whether 2.5 GW combined with the module tariff is enough to compel much additional production, however, is unclear. Panel-makers had sought a 10-GW mark. They argued that while solar cell imports were relatively low, stiff enough tariffs on modules would induce more cell imports and bump up against the quota.

“Late to the game were assembly manufacturers,” an industry source said. “Getting their message through eventually made it into the right meetings.”

A handful of solar panel-makers retained counsel in Washington, D.C., to keep tabs on the tariff issue as a decision drew near, said Suvi Sharma, CEO of Fremont, Calif.-based Solaria.

Sharma and his like-minded competitors, such as San Antonio-based Mission Solar Energy LLC, made the case that plans to expand production facilities within the United States would wither without access to tariff-free cells. Many of those production centers could ramp up within a year if the quota ceiling for cells were high enough, Sharma said.

Analysts were mixed on what effect the quota would have on production and imports.

The U.S. capacity for module manufacturing is already small at around 2 GW annually, only 1 GW of which is fully utilized, Zoco said. Given that cell imports would outpace module-making ability, the 2.5-GW quota is unlikely to make a significant difference.

Too much is still cloudy, noted Jenny Chase, head of solar analysis with Bloomberg New Energy Finance.

Chase said the United States had roughly 1.7 GW per year of crystalline silicon module capacity and manufactured about 900 MW of cells. Chase said both of those will likely increase this year and that she expected cell imports to hit the 2.5-GW limit.

At the same time, even while subtracting utility-scale models where tariffs make projects unviable, total module demand and new builds this year would fall about 14 percent and 12 percent, respectively, in 2019 compared with baseline projections.

“The U.S. solar trade patterns are clearly about to change,” Chase said in an email.