US solar builders brace for higher costs as Biden hikes tariffs

The Biden administration has raised import tariffs on China and Southeast Asia as plummeting global solar prices hurt U.S. factory expansion plans.

Last week, President Biden announced plans to increase U.S import tariffs on Chinese solar cells and panels from 25% to 50% among a host of other products, on the grounds of unfair Chinese business practices.

U.S. tariffs have kept direct imports from China at minimal levels and two days later the White House also announced that it would also lift a two-year exemption on other import tariffs for bifacial panels made either in China or in the four Southeast Asian countries of Malaysia, Cambodia, Thailand and Vietnam, where many Chinese manufacturers have shifted operations.

Most U.S. solar developers are sourcing bifacial panels from the four Southeast Asian countries.

Biden imposed the two-year tariff exemption until June 2024 to support solar deployment while domestic manufacturing is expanded but factory growth has been slower than many had hoped.

Solar developers wanted the tariff exemption extended to keep prices low and give them a wider choice of supplier.

China dominates global solar supply and exports from Malaysia, Cambodia, Thailand and Vietnam accounted for 84% of U.S. panel imports in the fourth quarter of 2023, up from 78% in the third quarter, according to S&P Global Market Intelligence.

The removal of the tariff exemption for bifacial panels would increase the capex cost of U.S. utility scale solar projects by reducing competition between manufacturers, a spokesperson for developer EDP Renewables (EDPR) told Reuters Events.

In a further move, the Department of Commerce (DOC) opened an investigation into whether producers in the four Southeast Asian countries are benefiting from government subsidies and dumping products in the U.S. market. 

The investigation could lead to anti-dumping and countervailing duties (AD/CVDs) and was prompted by a petition filed by the American Alliance for Solar Manufacturing Trade Committee (AASMTC) on April 24. The AASMTC believes Chinese owned companies are moving more actual production to the four Southeast Asian countries ahead of the end of the tariff exemption next month.

         Forecast China share of global solar manufacturing capacity


Source: International Energy Agency's Renewables 2023 report (January 2024).

The U.S. tariff decisions follow a surge in Chinese exports which have driven down global solar prices and raised fears over the future of U.S. and European solar manufacturers. Global panel prices fell almost 50% last year, according to the International Energy Agency (IEA).

The solar price slump is hampering U.S. plans to expand domestic production through tax credits issued under the 2022 Inflation Reduction Act.

“While low prices may seem attractive, these are artificially low and unsustainable for American manufacturers," an AASMTC spokesperson told Reuters Events. "If China secures a monopoly of the solar market, they will have full discretion over market pricing, destroying healthy competition.”

The petition by AASMTC and resulting DOC investigation has created fresh market uncertainty for solar developers, the Solar Energy Industry Association (SEIA) has warned, following several years of shifting tariffs and volatile costs.

Developers will gain a clearer picture in the coming months. The International Trade Commission (ITC) must make a preliminary assessment within 45 days while the DOC must issue a preliminary ruling on countervailing duties within 130 days and an initial ruling on anti-dumping within 190 days.

Made in America

Solar will dominate U.S. power installations in the next few years and the exemption on import tariffs for bifacial panels aimed to encourage solar deployment while domestic manufacturing catches up.

U.S. module production capacity was a mere 8 GW in 2022 and U.S. solar panel imports soared by 82% in 2023 to 54 GW, highlighting the growing thirst for products.

                                   Forecast US power installations

                                                             (Click image to enlarge)

Source: U.S. Energy Information Administration, January 2024

The 2022 U.S. Inflation Reduction Act offers solar and wind developers a 10% tax credit for using U.S.-made content, on top of a 30% baseline tax credit.

Many developers are pivoting to U.S. solar modules but most solar projects closer to construction are sourcing panels from Southeast Asia.

EDPR has recently shifted from Southeast Asian imports to U.S. modules to diversify portfolio risk.

Southeast Asian imports “remain slightly more competitive but include some trade and tariff risks associated with imported panels," including the newly filed anti-dumping case, an EDPR spokesperson said.

“As the trade landscape has evolved, so has our procurement strategy, marked by a diversification that minimized portfolio level risk,” the spokesperson said.

Other developers like Invenergy, Lightsource bp and Longroad have committed to sourcing U.S. modules. Last year, Invenergy announced it would build the U.S.' largest solar panel factory in Pataskala, Ohio.

Solar protection

U.S. solar installations must hit 60 GW/year within the next few years to hit President Biden’s climate goals.

U.S. module manufacturing capacity could rise from 8 GW/year to 62 GW/year and cell capacity from 3 GW/year to 35 GW/year if all announced plans were actually implemented, American Clean Power association (ACP) said last year.

However, since then, global solar prices have plummeted prompting calls for urgent action in the U.S. and Europe.

The cost of manufacturing solar equipment in China is 55% lower than in the United States, according to the latest analysis from S&P Global Commodity Insights.

The gap has increased a lot in the last year “given the steep price decline of raw materials, particularly polysilicon,” Alex Kaplan, Principal Market Analyst, Solar at S&P Global Commodity Insights, told Reuters Events.

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The Biden administration's increase of import tariffs on China for 25% to 50% illustrates the concern over China oversupply.

The tariff increase will help to keep imports directly from China at minimal levels, Edurne Zoco, Executive Director of Analysis, Clean Energy Technology at S&P Global Commodity Insights, told Reuters Events.

Maintaining the 25% rate “could have opened the door to increased shipments directly from China for some manufacturers," Zoco said.

Reporting by Neil Ford

Editing by Robin Sayles