Solar Panel Tariffs Shaping Up to Be a Speed Bump Rather than a Roadblock

Earlier this year, the Trump Administration announced that it would impose tariffs on solar panels and cells imported into the United States. In advance of this decision, solar developers and installation companies feared substantial trade barriers could disrupt their burgeoning businesses. However, based on early evidence, the tariffs appear to be a project development speed bump rather than a roadblock.

The administration's decision on tariffs is the ultimate result of a petition argued before the U.S. International Trade Commission ("ITC") by Suniva Inc. and SolarWorld Americas Inc., two domestic manufacturers of solar photovoltaic panels. Following proceedings at the ITC, the President agreed to impose tariffs that will stay in effect for four years, beginning in 2018, and are set at a 30 percent rate in the first year, declining 5 percent in each of three successive years to a 15 percent rate in 2021.

Analysts currently anticipate that installations in 2018 will roughly match those in 2017, and the tariffs' impact appears to have been less dramatic than feared for a number of reasons. First, the rates announced are lower than the 50 percent duties sought by Suniva and SolarWorld. The tariffs are certainly a substantial additional cost for developers and installers, but given other efficiencies and cost reductions in panel and cell costs, their effect is to bring project prices back roughly to where they were in late 2016 or early 2017. Many rooftop installers have announced that they will simply absorb the tariffs' cost, although the economics of utility-scale projects are more vulnerable because the panel cost represents a greater proportion of overall project costs.

Another reason is that the tariffs do not apply to all solar panels, such as certain kinds of thin-film panels. The Administration's decision also exempts the first 2.5 gigawatts of imported panels each year from the tariffs. And while no one anticipates a surge in domestic panel manufacturing, a couple of companies have announced plans to set up operations in the United States—in part to avoid paying the tariffs.

Finally, companies had time to prepare for the tariffs' impact and have made adjustments to their businesses to stay competitive. Some developers and installers stockpiled panels in advance of the imposition of tariffs, providing at least a short-term supply of lower-priced panels. Companies have also sought to distinguish themselves by pairing solar projects with energy storage and/or grid services capabilities, while others have targeted niche markets such as community solar.

None of this is to say that the tariffs will not have any impact. Companies are adjusting as well as can be expected, but analysts estimate that over the next four years, installations will be 10–15 percent lower than they would have been without the tariffs. Although some companies have announced layoffs, most now predict that the tariffs' employment impact will be in stifling job creation rather than eliminating existing jobs. All in all, the tariffs do not appear to be the game-changing development that many in the industry feared.