How will commercial solar be affected by tariffs?

The following post is by Kyle Pennell, Content Manager at PowerScout.

This week, the Trump administration slapped tariffs on imported solar panels and solar cells. Set to start at 30 percent, the tariffs will decline each year by five percent and expire after four years.

Commercial and residential rooftop solar installations emerged relatively unscathed from the tariff ruling. Compared to utility-scale solar installations, rooftop installations have higher “soft costs” – the costs associated with customer acquisition, marketing, supply chain costs, installation labor, and so on. Soft costs account for nearly two-thirds of the overall commercial solar installation price tag. Of the remaining hard costs (those associated with equipment), the panels themselves only comprise about 10 to 15 percent of the overall installed system price.

In other words, for a typical commercial solar installation, the total cost will increase only about three or four percent. A standard system costs around $20,000; a three percent increase, then, would add just $600 to the price tag.

Overall, however, many analysts believe that the tariffs won’t have a significant effect. Fatih Birol, executive director of the International Energy Agency, said, “The global solar industry will adjust. The penetration of solar in the U.S. will continue.”

MJ Shiao, head of GTM Research’s Americas division, said the tariff decision “has a meaningful but not destructive impact on solar installations.”

And for at least some in the solar industry, the tariffs actually spell good news. While they comprise a small minority (about 15 percent) of jobs in the solar industry overall, domestic panel manufacturers broadly stand to gain from the tariffs. Companies that produce novel solar products could also benefit.

Tesla, for instance, will begin nationwide installations of its solar roof this year. Unlike traditional solar panels, the solar roof is composed of roofing tiles that look like any other but contain solar cells to generate electricity. Tesla imports the solar cells used in the tiles, but the tariff on solar cells won’t go into effect unless 2.5 gigawatts’ worth of cells are imported. Since only 0.5 gigawatts of cells were imported last year, the tariff on cells is unlikely to limit production. Tesla has also announced their plans to use imported solar cells to produce traditional solar panels.

Like other U.S. panel manufacturers, First Solar also stands to benefit from the tariffs. The company produces thin-film panels made with cadmium telluride and doesn’t even require imported solar cells. First Solar has announced plans to expand its existing manufacturing capacity in Ohio, and its share price climbed nine percent in after-hours trading following the tariff announcement. Ohio Senator Sherrod Brown (D) said the trade decision was “welcome news” and suggested that tariffs will “help level the playing field” for American panel makers.

Even some installers, who were broadly united against any kind of tariff, have benefited (at least temporarily) from the tariff announcement. Share prices for Sunrun and Vivint Solar, for instance, were bolstered by relieved investors who had expected even steeper tariffs.

Jigar Shah, the founder of SunEdison, said the tariffs were “exactly what the solar industry asked for behind closed doors” and characterized them as “good news” overall.

Still, over 80 percent of U.S. solar installations utilize foreign panels, and the tariffs will hurt some segments of the industry, especially solar installers. Abigail Harper, president of the Solar Energy Industries Association, said the tariffs will “create a crisis in a part of our economy that has been thriving, which will ultimately cost tens of thousands of hard-working, blue-collar Americans their jobs.” The SEIA estimates that 23,000 jobs could be lost this year alone – though that figure is considerably lower than last year’s estimate from Bloomberg New Energy Finance and Clearview Energy Partners, which projected that tariffs could cause the U.S. solar industry to shed 88,000 jobs this year.

As prices rise, previously anticipated installation rates are expected to slow. While the tariffs are in effect, total installations will decline about 10 percent relative to the level that was previously projected. But utility-scale solar, not commercial and residential solar, will suffer the most. Prices for utility-scale installations could jump by 10 percent, and 65 percent of the overall decline in installations will be due to the slowdown of utility-scale projects.

The tariffs stem from a trade complaint brought by solar panel manufacturers Suniva and SolarWorld. The companies filed a petition with the U.S. International Trade Commission last year, blaming foreign competition for crippling domestic solar panel manufacturing. Together, they argued in favor of severe tariffs on imported solar panels.

The petition and the ITC’s subsequent ruling were broadly opposed by solar installers, as well as free trade advocates and developers of solar power plants. A bipartisan group of 69 members of Congress sent the ITC a letter urging the commission to oppose tariffs.

The tariffs were primarily aimed at panel makers in China and other Asian nations. Trump regularly vilified China and its trade policies during the 2016 presidential campaign.

But China’s Jinko Solar, one of the world’s largest panel producers, said the tariff decision was “better than expected” and even suggested that it might build a manufacturing plant in the U.S. And despite the fact that it’s owned by Shunfeng International Clean Energy Ltd., a Chinese company, Suniva thanked the president for “holding China and its proxies accountable.”

China and South Korea have criticized the White House’s decision and may petition the tariffs before the World Trade Organization. Under pressure from the WTO, the administration might withdraw the tariffs.

China might also retaliate with tariffs of its own. And since China is America’s number one trading partner, Chinese tariffs could badly damage the U.S. economy.

Kyle Pennell is the Content Manager at PowerScout — we help homeowners figure out if installing solar is right for them and get competitive bids from multiple installers. Our long-term mission is to accelerate the adoption of solar (and other smart home improvements), which will help mitigate climate change.

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