Over the last year, the threat of tariffs has been one of the most significant headwinds in the deployment of solar in the United States. While antidumping (AD) and anti-circumvention (CVD) tariffs on solar goods have been paused, supply threats from other international trade enforcement still loom.
About 80% of the US supply of crystalline silicon solar modules come from four Southeast Asian nations: Malaysia, Vietnam, Thailand, and Cambodia. Over the last year, suppliers with operations in these nations have come under investigation for suspected AD/CVD violations by harboring tariff-dodging Chinese solar goods.
The original AD and CVD investigations on imports of crystalline silicon PV products were launched in November 2011. The US International Trade Commission determined that domestic producers were being materially hurt by the imports, and the Commerce Department in December 2012 imposed import tariffs. In 2019, the department extended both import tariff orders.
Tariffs related to AD/CVD violations have historically been high. The current AD rate for Chinese companies found in violation can reach 238.95% of the cost of goods. Dating back to 2012, solar tariffs on Chinese antidumping have ranged from less than 1% to over 100%. In 2017-18, major suppliers Trina Solar were 92.5%, Risen Energy 100.79%, Canadian Solar 95.5%, JinkoSolar 95.5%. With this threat in mind, the US solar industry paid close attention to two major AD/CVD cases that proceeded through the last year.
A-SMACC
The first round of potential tariffs was launched by an anonymous group of players in the US solar industry called the American Solar Manufacturers Against Chinese Circumvention (A-SMACC). The group filed a petition with the US Department of Commerce, stating that Chinese solar products in violation of tariff law, “hobbled the US industry, eviscerated our supply chains, and put our clean energy future at risk.”
The petition alleged Chinese integrated producers started building cell and module assembly plants in Vietnam, Malaysia, and Thailand, while continuing “to rely heavily” on Chinese labor, raw materials, and inputs. It said “Chinese producers have developed a circumvention scheme” that involves moving the end of the production process for CSPV products to a third country “for the express purpose of avoiding AD/CVD duties.”
In November 2021, the anonymous A-SMACC petition was thrown out by Commerce. AD/CVD Director Abdelali Elouaradia said that “not disclosing A-SMACC members’ names publicly hampers interested parties from fully commenting on the requests for circumvention inquiries and may hamper them from commenting on certain issues that could arise if commerce were to initiate circumvention inquiries.”
Abigail Ross Hopper, president of the US Solar Energy Industries Association (SEIA), celebrated commerce’s decision, stating that it “provides a rush of certainty for companies to keep their investments moving, hire more workers and deploy more clean energy.”
Auxin Solar
However, the United States’ market was not in the clear yet, as another major AD/CVD case began in February 2022. This time, a small US-based panel assembler Auxin Solar filed a petition that added Cambodia to the other three nations previously under scrutiny. At the time, Roth Capital Partners said the new petition “cures all the deficiencies” of the A-SMACC filing.
Shortly after the filing, George Hershman, the CEO of Solv Energy, which is among the largest project developers in the United States, said “deployment is frozen.” Solv’s projects can exceed $300 million, so a 50% to 250% tariff would impose between $75 million to $375 million in additional costs. This level of risk is untenable and is the reason why Hershman described the case as “an affront to the solar industry.”
Even before the investigation was accepted by commerce, the chilling effect of potential tariffs was felt, as supply began to dry up and projects were either canceled or delayed. In March 2022, Commerce announced it accepted the petition, and would move forward with the investigation.
The petitioner Auxin Solar celebrated the decision. “For years, Chinese solar producers have refused to fairly price their products in the U.S. and have gone to significant lengths to continue undercutting American manufacturers and workers by establishing circumventing operations in countries not covered by those duties. Fair trade and enforcement of our trade laws are essential to rebuilding the American solar supply chain and making Solar in America again.”
However, a large portion of the US solar industry was quite displeased with the decision to commence. “The solar industry is still reeling from a similar tariff petition that surfaced last year,” said Ross Hopper. “The mere threat of tariffs altered the industry’s growth trajectory and is one of the reasons why we’re now expecting a 19% decline in near-term solar forecasts.”
SEIA later cut its forecast even further, estimating a 46% drop from initial deployment projections for 2022.
Uncertain times
Three months of uncertainty followed the announcement of the commerce investigation, bringing project delays and cancellations, sharply declining module supply, steeply increasing shipping costs, and Covid-19 related production shutdowns in China.
Congressman Scott Peters of California addressed the issue at the House Energy and Commerce Committee hearing on April 28, delivering the message to Secretary Jennifer Granholm of the Department of Energy (DOE).
“This case could cost us 100,000 American solar jobs and jeopardize our common clean energy goals,” said Peters. “Already 318 projects are being cancelled or delayed, and if the administration decides to impose tariffs, it could cause solar capacity to fall 75 GW short of the pace needed to reach the President’s solar goal.”
On June 5, the Biden administration announced a 24-month tariff exemption, alleviating some of the near-term supply chain pressures and reopening PV panel supply. Commerce is still investigating the case, but no tariffs will be levied under that time frame if violations are found. Projects that were considered all but cancelled have since resumed as a result.
Wood Mackenzie analysis concluded that though this has created clarity for the near-term, tariff implementation is still viewed as “high risk” by tax equity investors despite the two-year pause. The firm said developers should expect to continue seeing high costs of capital and high barriers to entry as a result.
The effect of the investigation was exponential, said Wood Mackenize, as weeks of inactivity led to months in delays. Development firms had already begun reallocating machinery and personnel to non-energy projects, leading to a spike in labor shortages for near term projects.
WoodMac said that resuming talks for canceled and delayed utility-scale solar projects that were pushed to 2023 and 2024 may result in about 30% to 40% of these projects being installed earlier.
Altogether, the analyst increased its guidance for deployment this year, with an expected 1.5 GW boost, about 17%, to utility-scale PV in 2022, and about a 3 GW increase in deployment projections for 2023.
New strategy?
Though the Biden administration pressed pause on solar tariffs for two years, it appears the administration may be targeting a new strategy to reduce the reliance on imported Chinese solar components. Concurrent with the pause on tariffs, the Administration passed the Defense Production Act, a World War II-era law designed to boost domestic manufacture and procurement of goods that are needed on an emergency basis.
Aaron Bates, CEO of US module manufacturer Toledo Solar, said that global supply chains were already brittle, and that even prior to the Covid-19 pandemic, concerns were being raised about the sustainability and security of sourcing the vast majority of the components deployed in pursuit of the energy transition from foreign nations.
“Everything we source in our supply chain is within a 300-mile radius of our facility,” said Bates. This kind of supply chain leads to price stability with no tariff risk and low shipping costs, as well as higher transparency and lower carbon intensity than solar goods shipped from China.”
Though China is building massive amounts of solar capacity, the nation also brought online as many as 47 coal plants last year. That’s more coal plants that have been brought online than the rest of the world combined retired last year.
Differences in labor conditions are also relevant when considering a strategy of imports versus made-in-USA products. Last December, the US government unanimously passed the Uyghur Forced Labor Prevention Act (UFLPA) that bans all imports from the Xinjiang region of China, over allegations of forced labor practices. The region supplies 50% of the world’s polysilicon.
The UFLPA places a “rebuttable presumption” that goods from the region are made with forced labor, and it places the burden of proof on buyers to show that the imported goods have no connection to forced labor whatsoever.
“The world and the American people cannot abide the presence of goods made under the exploitative conditions experienced by Uyghur and other ethnic minority groups in its global supply chains,” said US Secretary of Labor Marty Walsh.
One way that the US is planting the roots of a new domestic supply chain is through legislation. This August, the landmark bill called the Inflation Reduction Act (IRA) of 2022 was signed into law. It contains a record $370 billion in spending for climate and energy. Very significant direct incentives, similar to the ones found in the Solar Energy Manufacturing for America (SEMA) bill, are placed on US-made solar goods across the supply chain. The law is expected to usher in a new decade of rapid solar buildout, buoyed by demand-side incentives, a decade of tax credits, research and development funding, production credits, and incentives designed to address environmental justice.
