This Could Be the Biggest Disruption the U.S. Solar Industry Has Ever Seen

By Travis Hoium Markets Fool.com

The most consequential trade ruling in the short history of the American solar industry could be coming in the next few months, brought on by a manufacturer most U.S. consumers have never heard of. When Suniva filed for bankruptcy earlier this year, it made a petition under Section 201 of the 1974 Trade Act, which allows tariffs to be placed on an industry that's seeing "significant harm" from imports.

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Suniva requested a duty of $0.40 per watt on imported solar cells, and a price floor of $0.78 per watt on solar modules. Today, the open market has modules selling for less than $0.40, so this could be a huge negative for every developer from residential installers like Tesla (NASDAQ: TSLA), Sunrun (NASDAQ: RUN), and Vivint Solar (NYSE: VSLR) to larger developers like NRG Energy (NYSE: NRG) and NextEra Energy (NYSE: NEE). And while it would definitely be a major negative for Chinese manufacturers like Canadian Solar (NASDAQ: CSIQ), JinkoSolar Holding Co. (NYSE: JKS), and JA Solar Holdings (NASDAQ: JASO), we don't know if U.S.-based First Solar (NASDAQ: FSLR) and SunPower (NASDAQ: SPWR) would have a net benefit.

As you can see, a lot of players could be impacted by this trade case. Here's what we know and what we don't.

Power plant for First Solar, which may or may not be affected by tariffs, depending on how they're written. Image source: First Solar.

Suniva's case is moving forward

In a first step, the U.S. International Trade Commission has officially accepted Suniva's petition and will hear the case on Aug. 15, make a recommendation by Sept. 22, and recommend an action for President Trump to take by Nov.13. Yes, the solar industry's future could be in the hands of Donald Trump, so the range of possible outcomes is enormous.

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What we don't know is the scope of the case. If it includes only Chinese solar cells and modules, the impact, even to Chinese manufacturers, could be minimal. And previous tariffs have been written narrowly enough that there's been little impact on solar panel prices in the U.S.

But if the trade case is broadened to include all imports, it could sweep First Solar and SunPower, which both manufacture most of their cells overseas, into the mix. And every solar developer would see costs rise dramatically. Analyst Ben Gallagher of GTM Research (a subsidiary of Wood Mackenzie, a subsidiary of Verisk Analytics) said utility-scale single-axis tracker pricing could rise from $1.08 per watt to $1.56 per watt overnight.

Who takes the brunt of this trade case?

Developers would definitely be hurt most by solar tariffs. Residential and commercial solar installations would drop, and utility projects signed in the last couple of years would have little chance of being completed. From an investment standpoint, Tesla could be spared, depending on where it's sourcing solar cells for its Buffalo plant. But Vivint and Sunrun would definitely see costs rise sharply.

As I mentioned, Chinese manufacturers would also feel a negative impact, but they have a global customer base, so the impact would be muted. And depending on how rules are written, they might not be affected at all.

Wouldn't this be a boon for First Solar and SunPower?

As two leading U.S. solar companies, First Solar and SunPower should hypothetically benefit from tariffs on solar imports. But if rules are written too broadly, they could be swept up in the ruling as well with their Asian manufacturing.

First Solar's CEO Mark Widmar said this of his company's flexibility in adapting to solar tariffs :

Now if the trade case were to get some traction, could we look to continue producing some Series 4 in Perrysburg, as an example, potentially? Again ... it's a longer date of horizon, depending on what happens with this case. We have the optionality of adding incremental capacity in Perrysburg if need be. Again, the toolset accommodates production volume that is closer to 1.1 gigawatts versus the currently planned 550 megawatts, so a lot there to be evaluated.

SunPower doesn't have the same manufacturing capacity in the U.S., but it could adapt if tariffs are put in place. Here's what CEO Tom Werner said during SunPower's first-quarter conference call:

... we're an American company, we source a lot of materials from America, and so it'll of course be relevant if things were to play out, how they would play out in terms of what's considered American content and what isn't, but we have a significant supply chain in America. And we, of course, have produced models in America previously. Our supply chain is a worldwide supply chain, so we have flexibility and we'll evaluate options as we need to.

While I don't think tariffs would be good for First Solar and SunPower unless they were written very specifically to hurt Chinese manufacturers, both companies could see an incremental benefit in their North American manufacturing and production flexibility. And they could even make massive investments in the U.S. if it would mean more market share here.

Overall, tariffs are bad for U.S. solar jobs

What's interesting in all of this is that the Solar Energy Industries Association is fighting tooth and nail against the Suniva petition, a change from taking a fairly neutral stance in previous trade cases because the group represented all sides. But most U.S. solar jobs are in installing solar panels, not manufacturing, so a big tariff like Suniva wants could cost hundreds of thousands of jobs.

If this case reaches Donald Trump's desk he'll be deciding between those jobs and the potential for more U.S. solar manufacturing. And no one knows which side he'll take.

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Travis Hoium owns shares of First Solar and SunPower. The Motley Fool owns shares of and recommends Tesla. The Motley Fool owns shares of NRG Energy and Verisk Analytics. The Motley Fool has a disclosure policy.