On January 22nd, 2018, the Trump administration delivered its decision regarding the Section 201 solar trade case brought by SolarWorld and Suniva, instituting a tariff on imported solar panels (and washing machines!). While on the surface this may seem like a blow to the renewable energy industry, the tariff is significantly less severe than both the remedies requested by the trade case petitioners and those proposed by the U.S. International Trade Commission. In fact, many renewable energy industry analysts are hailing this outcome as a win, and we at Wunder do not expect to see a material impact on our business.
So what is the tariff?
The USTR (The Office of the United States Trade Representative) will place a tariff on imported solar cells and modules that starts at 30 percent in the first year and gradually drops to 15 percent by the fourth year. The first 2.5GW of imported cells will be excluded, and a number of tariff exemptions for certain parties are expected.
Naturally, all solar projects in the U.S. do not use imported hardware, so to understand the impact of this tariff we can look to 2017 industry figures, when roughly 6.4GW’s of new solar projects incorporated imported solar panels. The first 2.5GW’s of imports are exempt, so a 30% tariff would only be applied to roughly 3.9GW, producing an effective tariff of ~18%. Based on our calculations, which have been corroborated by other leading solar organizations such as Greentech Media and SEIA, we expect to see a net price increase of approximately 10% for large utility-scale solar projects (>5MW), and a more modest 3% increase for residential solar projects (<50kw). Wunder Capital exclusively finances commercial-scale solar projects, which are expected to see a net price increase of approximately 5%. Large utility-scale solar systems will be impacted most because hardware represents a relatively large portion of the total cost for projects of that size. Both residential and commercial projects will be impacted the least, as solar hardware represents a much smaller portion of total project cost.
It is worth noting that this price increase is expected to decline over time due to the tariff’s scheduled reductions and due to fewer solar imports (as a result of the tariff). It’s also expected that some countries and individual companies will be exempt from the tariff, although that list has not been made available yet.
An important backdrop to all of this, hardware prices have consistently fallen year-over-year for the past forty years, dropping 50% in the last 5 years alone. This ~10% price reduction per year, driven by both manufacturing scale and improving technology, means that the tariff (with an expected price increase of ~5%) will only translate into 6 months of anticipated cost decrease.
How will the tariff affect Wunder?
At Wunder, we’re fortunate to focus on the solar market segment that is expected to be impacted least. We don’t finance large utility-scale solar systems, which will rise in cost the most, and we also don’t finance residential systems, which have thin margins and may not absorb cost increases easily. Instead, we finance commercial-scale solar projects. For systems of this size, a relatively small amount of the total project cost is made up of hardware, so prices are not expected to rise much, and systems of this size have comparatively large profit margins, which can more easily absorb an increase in costs.
At Wunder, we’re also not beholden to a single local market. We operate nationally - we currently have projects live in 15+ states - and are able to focus on regions that exhibit strong solar economics, defined most simply by high electricity costs from local utilities. Due to the strong economics in these regions, we anticipate little impact in our project pipeline due to the tariff.
Finally, we’re actually quite relieved that a tariff decision has been made because it introduces certainty back into the market. Over the last several months, as this case has proceeded, we’ve seen many of our solar installer and developer partners buying and warehousing panels in bulk as a hedge against future panel availability. A tariff will reduce the costs associated with stockpiling and provide our partners with renewed access to a steady and predictable supply of solar cells.
The solar industry has proven to be a resilient one, and upon inspection this tariff actually appears to be a well-balanced outcome. Domestic solar hardware manufacturers will see a competitive bump, and the rest of the solar industry should experience relatively little impact. Wunder, and the renewable energy revolution, will be able to continue to grow rapidly and pull forward our clean, plentiful energy future.
P.S. We wish the best of luck to our washing-machine brethren!