The US must enshrine clear, consistent, and long-term federal policies to create a world-class clean energy supply chain, not tariffs with a short shelf-life that generate uncertainty among companies that might want to re-shore production capacity, according to project developers working across the wind, solar and storage sectors, as well as industry advocacy bodies.
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“Tariffs are an incredibly punitive and inefficient way to incentivise manufacturers to invest for the long-term to meet the demand we have in the US,” stated Ray Long, senior vice president of policy and external affairs at Clearway Energy, which has 5GW of renewable plant in operation, said at the recent American Clean Power Association Cleanpower conference.
President Joe Biden is counting on utility solar to play a major role in his energy transition plans through 2035, his target for achieving a carbon-free electric grid. The White House considers PV the cheapest source of clean energy that could provide at least 37% of the nation’s electricity within 15 years versus 3.5% today.
His predecessor Donald Trump in February 2018 imposed ad valorem tariffs on solar cells and crystalline-silicon modules under Section 201 of the Trade Act of 1974 to raise the cost of cheap imports and level the playing field for local suppliers with a dwindling 20% share of the fast-growing US market.
Trump viewed the tariffs as part of a new, tougher trade strategy with China, the main source of inexpensive solar components, which he accused of employing massive state subsidies to underpin its export economy and engaging in currency manipulation and theft of American intellectual property.
Among his stated goals for the broader plan were to pressure Beijing into buying more American goods and services to reduce a $500bn annual bilateral trade deficit and help persuade US companies to return manufacturing capacity here that it transferred in recent decades to China.
The four-year tariffs, which exempt an initial 2.5GW of imported solar cells each year and more recently bifacial modules, a minor but growing market segment, are assessed as a percentage of the imported component’s value. Originally 30%, they have stepped down to 15% now.
Set to expire in February 2022, the US International Trade Commission, an independent quasi-judicial federal agency with broad investigative responsibilities on trade matters, last month recommended extension of the tariffs, a move sought by Auxin Solar and Suniva with plants here.
The World Trade Organisation allows for a four-year renewal if rates continue to decline which the two companies want to be “minimal”. Biden now has discretion to consider this recommendation and make a final decision.
‘Not one cent’
The Solar Energy Industries Association (SEIA), a national trade group based in Washington, DC, with a heavy membership of downstream project development, distribution, and installation companies, is leading the lobbying charge to scrap them.
“The US has collected $2.6bn in Section 201 solar tariffs, but not one cent of that helped the domestic manufacturing industry. In fact, America lost 6,000 solar manufacturing jobs over the last four years when the petitioners promised we’d create more than 45,000 jobs,” SEIA CEO Abigail Ross Hopper recently stated.
“President Biden has made it clear that climate change is an existential threat and that we need to deploy as much clean energy as possible to address it. A new round of Trump-imposed safeguard tariffs will hamper US solar development in their wake,” she said, adding SEIA was hopeful that he “sees the damage they will cause to his clean energy vision”.
Some domestic panel producers contend that the tariffs must remain in place to enable them to compete while they expand manufacturing capacity.
“How do I possibly make a sale when my competition is offering a module that’s been brought into this country, and the price of that module is lower than my bill of materials?” Mamun Rashid, CEO of Auxin Solar based in California, told Marketplace.org.
Long-term signals critical
Where opponents and supporters of tariffs agree is that the US has nowhere near the solar production required to help achieve a 2035 clean grid. Clearway’s Long said numbers he has seen suggest the US must install between 75GW and 100GW capacity a year, at least three to four times what is expected this year.
“As exciting as this is for the industry, with these trade policies that are being implemented, it is really a daunting thing to think how we are going to meet that with pressure to buy American, not to import panels and so forth,” he said. “You can’t flip the switch and start producing this stuff immediately.”
One of the biggest shortcomings of tariffs is their transitory nature, in part because of legal and political challenges, and this complicates longer-term investment decisions, according to Josh Skogen, senior vice president and head of procurement at AES Clean Energy.
Once imposed, “Tariffs have proven to be challenged, have exclusions, be nuanced and overturned just as soon as they get put in place,” he said, citing “three or four” decisions overturning inclusion of bi-facial panels in the Section 201 tariffs.
Even when companies have come to the US to set up module assembly in the last four years, during their business plan to build out those facilities, “additional tariffs have come on and eroded their whole economic pro forma that they used to make that investment,” Skogen added.
For example, months before leaving office, Trump raised the module tariff to 18% from a scheduled 15% this year, which was reversed last month by the Us Court of International Trade. Tariffs on aluminium and steel have come and gone from the European Union.
For companies that are currently producing major equipment items for solar, wind or batteries overseas to come and set up operations in the US, they need a long-term signal. “Clear and concise,” said Skogen.
Developers said that the version of the Build Back Better bill passed by the House of Representatives and now in the Senate with generous federal incentives for solar, wind, battery storage and other clean energy would be a great policy advance.
“This is the sort of thing, a long-term, very rich tax credit package which is designed to incentivise manufacturers to spend the money and make the investments in large output facilities in the US,” said Long.
Clearway has heard there is a “tremendous amount of interest” by supplier companies in some southeast Asian nations including Malaysia, Thailand and Vietnam to set up manufacturing hubs in the US. “The opportunity is immense with demand increasing,” he said.