The potential tariff picture is starting to come into view now that the International Trade Commission has made its recommendations on what remedies for cheap imports should look like. The four commissioners offered three different proposals that ranged from an import fee to a 35% tariff on all solar cell and module imports.
Suniva and SolarWorld, which brought the case before the ITC, were hoping for much higher tariffs that would have doubled the price of solar panels in the U.S., and had even asked for quotas that would limit solar imports coming to the country. Here's how the tariffs, as proposed today, could impact different players in the solar industry.
What tariffs might look like
The tariff proposals varied by commissioner, and it's worth walking through each one. Commissioners Irving Williamson and David Johanson proposed a tariff of 30% on cell imports over 1 GW (0% below 1 GW) in the first year and 30% on all modules. The quota would step up 200 MW in each of the remedy's four years and the tariff would step down by 500 basis points each year.
Commissioner Rhonda Schmidtlein proposed a 10% tariff on cells up to 500 MW and 30% above 500 MW of imports. Modules would get a tariff of 35%. The quota would increase just 100 MW each year and the tariff levels would drop only 1% each year. This was the most aggressive proposal of the three.
The proposal by Commissioner Meredith Broadbent was most similar to the Solar Energy Industries Association's proposal, asking for an 8.9 GW quota in solar cell and module imports with a license fee that could be acquired at auction. The minimum bid of $0.01 per watt would raise at least $89 million and could be put back into the development of domestic solar manufacturing.
These proposals will now go to President Donald Trump, who can implement them as proposed or come up with another plan, or even decide not to implement tariffs at all.
The impact on solar manufacturers
There's no doubt that solar manufacturers importing modules or cells will be adversely impacted, but the tariff proposals could have been worse. A 35% tariff on a $0.35-per-watt solar panel will add $0.1225 to each module. Cell prices were $0.20 per watt in the second quarter, according to GTM Research, and a 35% tariff would add $0.07 per watt to costs. Module manufacturing would have to be built in the U.S., but that's the least burdensome manufacturing step to build out.
For companies like Canadian Solar (NASDAQ: CSIQ), JinkoSolar (NYSE: JKS), and Trina Solar, which sell a lot of solar modules in the U.S., the strategy will be mixed depending on demand. They have the flexibility to sell solar modules all around the world, and right now China and India are demonstrating more growth than the U.S. without the import headaches. That will mute the impact financially, and I doubt they will go to the effort to build manufacturing in the U.S. The buildout time for a new plant could be a year or more, and if tariffs are changed or eliminated it could undermine the economics of the investment. It's just not worth the risk for Chinese manufacturers to build in the U.S.
A company like SunPower (NASDAQ: SPWR) may see a different dynamic. It sells high-efficiency panels that have a higher cost per watt than competitors', making the current tariff proposals more burdensome than a fixed tariff per watt. It could choose to build module assembly facilities in the U.S., even making its commodity-cell-based P-Series product domestically. I would expect SunPower to adjust its manufacturing in some way to maintain a big presence in the U.S.
On the installer side, this is about as good as the news could be for residential companies Vivint Solar (NYSE: VSLR) and Sunrun (NASDAQ: RUN). An increased cost of $0.10 or so will be manageable given overall installation costs of around $3 per watt. On the other hand, utility-scale installers will have a harder time, given their costs are closer to $1 per watt. They may have to adjust pricing to adapt to tariffs. But even a 35% tariff won't kill the utility-scale solar industry.
Bad, but not deadly to solar
If Trump does decide to impose tariffs as proposed, it would be an incremental negative for solar companies across the U.S., but won't be a death blow. Those who can transition to sales in other countries will do so, and others will consider how to adjust production or deal with tariffs. Even installers will be able to deal with proposed tariffs at these levels, even though some utility-scale demand will likely dry up. For solar investors, the proposed tariffs could have been worse.
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