On Jan. 22, the U.S. Trade Representative (“USTR”) announced that President Trump has authorized a safeguard tariff on the import of solar cells and modules coming from Asia and our neighbors in North America. According to the USTR, the new tariff was implemented in large part because of the significant increase in production and generation of solar cells and modules coming from China. China, tapping into its state incentives, subsidies, and employing its own tariff, has controlled the worldwide supply chain of solar cells and modules, according to the USTR. Consequently, domestic production and manufacturing of the same solar cells and modules were impacted negatively.
According the to the USTR, between 2012 and 2016, solar cell imports to the United States exceeded 500 percent, while the price for the same product decreased 60 percent in the domestic market. Several domestic manufacturers of solar equipment have stated that because of these imports they were forced to shutter their businesses and close down. Several companies remaining in domestic operation petitioned the International Trade Commission (“ITC”), which led to the new tariff announced by the USTR. During the same period (2012 to 2016), the United States increased its annual volume of solar generation capacity installed by more than three-fold, largely due in part to the favorable cost of solar equipment in the market arena.
The new tariff on imported solar cells and modules extends for a four-year period and is broken down as follows:
Tariff increases by year:
- Year One – 30%
- Year Two – 25%
- Year Three – 20%
- Year Four – 15%
The first 2.5GW (gigawatts), in the aggregate per year, of solar cells and modules imported into the United States are excluded from the new tariff in each of the four years of its application.
Besides China, other countries that are now subject to the new tariff include Canada, Mexico and South Korea. It is anticipated, however, that the USTR and the administration will likely initiate talks with these countries to discuss the solar cell importation issue and the tariff situation as a whole.
While some in the solar development industry are careful to eye the impact of the new tariff on future development projects, solar development appears to be unaffected by the tariff announcement. Additionally, attention will need to be paid to the application of ITCs on solar development and the use of tax equity financing for the projects moving forward. Seeing a tariff approaching this year, various solar manufacturers have allocated and adjusted for its impact on their pricing to avoid purchasers being dramatically affected.
For more information on the effect of this tariff on solar development, or any matter related to solar or renewable energy development, please contact a member of Taft’s Renewable Energy industry group.