Why the future of solar in the U.S. looks bright

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Tom_Kline_New_Energy_SolarTom Kline14 February 2018

Despite a new U.S. tariff on imported solar cells and modules, the US solar market is still forecasted to expand rapidly due to increasing cost efficiencies and the wider drive for renewable energy.

On January 22nd, the United States government announced a tariff on all imported solar cells and modules. This decision stemmed from a petition by two recently bankrupt solar manufacturing companies, which claimed to have been negatively affected by relatively cheaper imported modules.

The Trump administration approved recommendations to impose the Section 201 Trade Act decision as part of the president’s “America First” campaign to protect local manufacturers from foreign competition. This comes after the U.S. International Trade Commission (ITC) found locals had been affected by cheaper imports.1

The tariff will not be applied to the first 2.5 GW of unassembled solar cells each year...

Despite the wider U.S. solar market being heavily against the movement to levy a tariff,2 pursuant to Section 201 of the Trade Act, the Trump administration imposed a four-year tariff that will begin at 30%, and will decrease by 5% each year thereafter. The tariff, however, will not be applied on the first 2.5 GW of unassembled solar cells each year.3

Fortunately, the magnitude of the tariff is less severe than market forecasts and considerably more favourable4 when compared to the 50% tariff originally proposed by the petitioners. Although the terms of the tariff have largely been finalised, it still remains subject to further exclusions that will be determined by 22 February 2018. The tariff has also received criticism from various world leaders and may be challenged at the World Trade Organization (WTO).5 The last Section 201 trade case against steel imports in 2001 was overturned 21 months later due to pressure from WTO members.

The tariff is expected to result in a 10 cent per watt increase in the first year for solar modules, stepping down to a 4 cent per watt increase by the fourth year. This will increase the expected capital cost of utility-scale projects in the U.S. by less than 10% in the first year.6 In fact, GTM estimates that these price increases will push the overall build cost of solar back to where it was in early 2017, but still below the cost in 2016, as overseas manufacturers simultaneously drive down costs through enhanced production efficiencies.7

Reports from Bloomberg New Energy Finance (BNEF) further portray the exponential growth of solar technology and highlight the tariff as somewhat trivial in the long-term cost of solar. Illustrated in figure 1, the cost of producing one watt of power in 2017 was one-fifth of the cost in 2010, and further reductions are expected over the next 5 years.8

The tariff is predicted to cause a reduction of 11% for solar installations in the U.S. between 2018 and 2022 in comparison to prior forecasts.9 However, the impacts for the market are not as significant as previously expected due to solar developers stockpiling panels in 2017 for near-term projects and the ongoing reduction in panel production costs.

Accounting for the tariff over the medium term, GTM Research still estimates that approximately 21.9 GW of solar will be deployed across the U.S. over the next two years, which in context, is roughly 35 times the amount of utility-scale solar currently operating in Australia.10

Over the long-term, we believe the U.S. solar market remains positioned for strong growth. Solar Energy Industries Association (SEIA) and GTM Research both forecast U.S. solar capacity over the next three years to grow at a greater level of MW than the prior three years, and that the percentage of solar generation will become an increasingly greater portion of the country’s overall electricity generation.11

American cities and states also continue to drive the industry by committing to their respective renewable energy programmes. Recent examples of this include the New York government creating a state-wide energy storage target for 2030 to encourage faster adoption of clean energy technology,12 as well as the Minnesota government promoting community solar projects to bolster market development.13

Despite the tariff we remain very positive on the outlook for the U.S. solar market and importantly the tariff will have no impact on any of New Energy Solar’s existing, operational or committed projects.

Tom Kline was the inaugural CEO of NES, having launched the business in December 2015, in his then role as Chief Operating Officer of Walsh & Company. Tom relocated to the US in April 2017 to oversee the operation of NES’ portfolio of solar power projects in California and North Carolina. Tom will also guide the business’ continued investment in North American projects.  

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