The International Trade Commission found "injury" against Suniva and SolarWorld on Friday, September 22, 2017, and that could mean tariffs or other protections are coming to imported solar modules. Ultimately, it's up to President Trump whether or not there will be protections, and given his rhetoric on the topic, I think it's safe to say the likelihood of some hammer coming down on solar imports is high.
While the impact on solar manufacturers depends on rules and where they manufacture, the impact on solar installers is much easier to predict. Costs are going up -- potentially a lot -- and a lot of solar projects will no longer make sense for installers or their customers.
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Higher costs are the last thing residential solar companies need
At its core, the adoption of solar energy comes down to the energy source's price competitiveness. Residential solar companies are selling customers solar systems because they're a lower cost than buying energy from the utility and commercial and utility-scale projects are bid competitively against competing electricity prices as well.
If the trade case indeed raises the cost of a solar module by around $0.40 (as proposed), it'll increase costs for everyone. Vivint Solar (NYSE: VSLR), Sunrun (NASDAQ: RUN), and Tesla's (NASDAQ: TSLA) SolarCity unit will see costs go up over 10% in an instant. And they'll have to either take lower margins, or raise prices, which is tough for businesses that are already in a precarious position.
SunPower (NASDAQ: SPWR) could see the cost of its own modules rise in the U.S., putting its residential and commercial businesses in jeopardy if it doesn't adapt. SunPower is the No. 1 commercial installer in the country, and it already faces razor-thin margins, so a sharp rise in costs could be devastating. Unlike Vivint, Sunrun, and Tesla, it has the opportunity to build manufacturing capacity in the U.S., but right now, it has very little product that would get around tariffs.
Utility-scale installers will be the biggest losers
While residential and commercial projects will be negatively impacted by tariffs, the utility installation business will be decimated. According to GTM Research, a single-axis solar tracking system costs $1.08 per watt, and if costs go up nearly 40%, the associated cost of electricity from solar power plants will rise as well. Existing contracts will be canceled, new bids won't be competitive, and a multibillion-dollar industry will dry up overnight.
Most installers of utility-scale solar systems like Mortenson Construction, Arraycon, and CSW Contractors aren't publicly traded, but developers like AES (NYSE: AES), Canadian Solar's (NASDAQ: CSIQ) Recurrent Energy, and NRG Energy (NYSE: NRG) are. They'll likely see their pipelines fall significantly, and the value of development units will drop as well.
Utilities and contractors involved in utility-scale solar will be able to adapt their businesses, but if tariffs do hit the solar industry, we'll likely see a number of solar developers go out of business. Their model is based on a continuous flow of projects being built, and solar and the industry slowdown would put them in serious financial hardship.
Installers have few options if tariffs hit the solar industry
Solar installers' business models are built on the solar industry being financially competitive against fossil fuels and the price customers pay for electricity from their utility. If costs go up because of U.S. protectionist measures, it'll shrink the entire solar industry, and all installers will be left fighting over scraps in the smaller industry that's left.
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