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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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Will U.S. Solar Survive The Trade War?

When President Trump announced a 30-percent tariff on Chinese solar panels, the U.S. solar industry responded with an unsurprising outcry against the protectionist measure that aimed to make locally produced panels more competitive but, the industry said, would ultimately hurt a growing industry by raising its costs considerably.

Indeed, costs went up, with a recent report from Energy Sage calculating that the cost of a residential solar installation is 5.6 percent higher than it would have been without the tariffs. This amounts to US$960 per household or US$236.5 million in total for the period between September 2017 and September 2018.

In addition to the higher installation costs resulting from higher panel prices, the tariffs also led to the shelving of a number of expansion projects worth US$2.5 billion as of June, Reuters reported at the time. The figure compared with US$1 billion announced in local panel manufacturing capacity expansion, so the net effect was negative.

Yet some saw a silver lining in the tariffs: they would prompt panel manufacturers to move production to the States, creating jobs and profits. Indeed, many companies did move their production either to the States or just out of China to respond to the panel demand of U.S. solar companies. A recent Reuters report notes how LG and Canadian Heliene took advantage of the tariff to begin panel production in the United States and how SolarEdge did the same by moving part of its production from China to Romania and Hungary.

The problem is that other tariffs are now undermining this silver lining effect. To date, the United States has imposed tariffs on more than US$250 billion of Chinese goods and commodities, and this includes steel and aluminum, both used in the manufacturing of solar panels. In other words, while the initial solar tariffs sought to protect local production, the later ones made this local production costlier because of the use of imported steel and aluminum. Replacing these cheaply has turned out to be a challenge as evidenced by more shelved expansion plans.

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Chinese Jinko Solar, for instance, which was among the first panel makers that announced plans to move production to the United States to avoid the hit from the tariffs, has reduced a US$410-million project for a production plant in Florida, Reuters’ Nichola Groom reports. The company now plans to invest just US$50 million in the plant. A local company, Solaria, also shelved plans for more production as a result of higher prices for imported raw materials and products used in panel manufacturing.

Now Trump has threatened tariffs on what remains of China’s trade with the United States, which is likely to aggravate the effect on the solar industry. The problem is that China is the largest source of cheap materials used in most industries, so finding a competitive replacement would be difficult. Of course, there is always a chance for the trade war to end before these tariffs are imposed but judging by the progress—or rather lack thereof—made so far, this is far from certain.

By Irina Slav for Oilprice.com

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