Over the past year, the threat of tariffs has been one of the most significant headwinds in the deployment of solar energy in the United States. While anti-dumping (AD) and anti-circumvention (CVD) duties on solar products have been suspended, supply threats from other international trade enforcement actions still loom.
About 80% of the US supply of crystalline silicon solar modules comes from four Southeast Asian countries: Malaysia, Vietnam, Thailand and Cambodia. Over the past year, suppliers with operations in these countries have been investigated for alleged AD/CVD violations by harboring Chinese solar products dodging tariffs.
The original anti-dumping and countervailing investigations on imports of crystalline silicon photovoltaic products were initiated in November 2011. The United States International Trade Commission determined that domestic producers were materially injured by imports, and in December 2012 , the Department of Commerce imposed import duties. In 2019, the department extended the two import tariff orders.
Customs duties related to anti-dumping/countervailing offenses have always been high. The current AD rate for infringing Chinese companies is up to 238.95% of the cost of goods. Since 2012, solar tariffs on Chinese anti-dumping have varied from less than 1% to more than 100%. In 2017-2018, major suppliers Trina Solar accounted for 92.5%, Risen Energy 100.79%, Canadian Solar 95.5%, JinkoSolar 95.5%. With this threat in mind, the US solar industry has been paying close attention to two major AD/CVD cases that have unfolded over the past year.
A-SMACC
The first round of potential tariffs was launched by an anonymous group of US solar industry players called American Solar Manufacturers Against Chinese Circumvention (A-SMACC). The group filed a petition with the U.S. Department of Commerce, saying Chinese solar products in violation of tariff law, “hampered U.S. industry, gutted our supply chains, and jeopardized our clean energy future.”
The petition alleged that Chinese integrated producers had begun building cell and module assembly plants in Vietnam, Malaysia and Thailand, while continuing to be “heavily dependent” on labor, raw materials and Chinese inputs. He said “Chinese producers have developed a circumvention system” that involves moving the end of the production process of CSPV products to a third country “for the express purpose of avoiding AD/CVD duties.”
In November 2021, the anonymous petition A-SMACC was rejected by Commerce. AD/CVD Director Abdelali Elouaradia said that “the failure to publicly disclose the names of A-SMACC members prevents interested parties from fully commenting on requests for circumvention investigations and may prevent commenting on certain issues that may arise if the trade initiates circumvention investigations.”
Abigail Ross Hopper, president of the US Solar Energy Industries Association (SEIA), welcomed the trade decision, saying it “provides a wave of certainty for companies to keep their investments moving, hire more workers and deploy more ‘clean energy”.
Solar Auxin
However, the US market was not yet clear, as another major AD/CVD case started in February 2022. This time, a small US-based panel assembler, Auxin Solar, filed a petition which added Cambodia to the other three nations previously. under surveillance. At the time, Roth Capital Partners said the new petition “addresses all the flaws” in the A-SMACC filing.
Shortly after the filing, George Hershman, CEO of Solv Energy, which is among the largest project developers in the United States, said “the rollout is frozen.” Since Solv projects can exceed $300 million, a tariff of 50% to 250% would impose between $75 million and $375 million in additional costs. This level of risk is untenable and is why Hershman described the case as “an affront to the solar industry”.
Even before the survey was accepted by the trade, the chilling effect of potential tariffs was felt, as supplies began to dry up and projects were canceled or delayed. In March 2022 Commerce announced that it was accepting the petition and would continue the investigation.
Petitioner Auxin Solar celebrated the decision. “For years, Chinese solar producers have refused to set a fair price for their products in the United States and have gone to great lengths to continue to undercut American manufacturers and workers by establishing circumvention operations in countries not covered by these rights. Fair trade and enforcement of our trade laws are essential to rebuilding America’s solar supply chain and making Solar in America again.
However, much of the US solar industry was quite unhappy with the decision to start. “The solar industry is still reeling from a similar tariff petition that surfaced last year,” Ross Hopper said. “The sheer threat of tariffs has altered the growth trajectory of the industry and is one of the reasons we now expect a 19% decline in near-term solar forecasts.”
SEIA subsequently reduced its forecast further, estimating a 46% drop from the initial deployment projections for 2022.
Uncertain times
Three months of uncertainty followed the announcement of the trade investigation, leading to project delays and cancellations, a sharp drop in module supply, a sharp increase in shipping costs and production stoppages related to the Covid-19 in China.
Congressman Scott Peters of California addressed the issue during 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 US solar jobs and jeopardize our shared clean energy goals,” Peters said. “Already 318 projects are canceled or delayed, and if the administration decides to impose tariffs, it could see solar capacity drop 75 GW from the pace needed to meet the president’s solar target.”
On June 5, the Biden administration announced a 24-month tariff exemption, easing some of the near-term pressures on the supply chain and reopening the supply of photovoltaic panels. The trade is still investigating the matter, but no tariffs will be levied within this timeframe if any violations are found. Projects that were considered all but canceled have since resumed accordingly.
Wood Mackenzie’s analysis concluded that while this has created some short-term clarity, tariff implementation is still seen as “high risk” by tax equity investors despite the two-year pause. The company said developers should expect to continue to see high capital costs and high barriers to entry as a result.
The effect of the investigation has been exponential, Wood Mackenize said, as weeks of inactivity resulted in months of delay. Development companies had already begun to reallocate machinery and personnel to non-energy projects, leading to a spike in labor shortages for short-term projects.
WoodMac said the resumption of talks for canceled and delayed large-scale solar projects that have been pushed back to 2023 and 2024 could result in about 30% to 40% of those projects being installed sooner.
In total, the analyst has increased its deployment forecast this year, with an expected increase of 1.5 GW, or around 17%, in utility-scale PV in 2022, and an increase of around 3 GW in deployment projections. for 2023.
New strategy?
Although the Biden administration suspended solar tariffs for two years, it appears the administration is targeting a new strategy to reduce reliance on imported Chinese solar components. Along with the tariff break, the administration passed the Defense Production Act, a World War II-era law designed to stimulate domestic manufacturing and procurement of goods needed in an emergency.
Aaron Bates, CEO of US module maker Toledo Solar, said global supply chains were already fragile and even before the Covid-19 pandemic there were concerns about the sustainability and safety of the supply of the vast majority of components deployed in pursuit of the energy transition from foreign countries.
“Everything we buy in our supply chain is within 300 miles of our facility,” Bates said. This type of supply chain leads to price stability without tariff risk and low shipping costs, as well as greater transparency and lower carbon intensity than solar products shipped from China.
Although China is building huge amounts of solar capacity, the country also brought as many as 47 coal-fired power plants online last year. That’s more coal-fired plants that have been commissioned than the rest of the world combined ended last year.
Differences in working conditions are also relevant when considering an import strategy versus US-made products. Last December, the US government unanimously passed the Uyghur Forced Labor Prevention Act (UFLPA) that bans all imports from China’s Xinjiang region, due to alleged 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 imported goods have no connection to forced labor.
“The world and the American people cannot stand the presence of goods made in the exploitative conditions experienced by Uyghurs and other minority ethnic groups in their global supply chains,” said US Labor Secretary Marty. Walsh.
One of the ways the United States is planting the roots of a new national supply chain is through legislation. Last August, the landmark bill called the Inflation Reduction Act (IRA) of 2022 was signed into law. It contains a record $370 billion in climate and energy spending. Very significant direct incentives, similar to those found in the Solar Energy Manufacturing for America (SEMA) bill, are placed on US-made solar products throughout the supply chain. The law is expected to usher in a new decade of rapid solar construction, supported by demand-side incentives, a decade of tax credits, research and development funding, production credits and incentives designed to meet environmental justice.
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