Recent decision by US government to substantially increase tariffs rates for Solar panels imported from China is causing a very mixed reaction in the US solar industry and may ultimately negatively impact consumers who will see a spike in the cost of solar panels cost and installation fees. The goal of the tariffs is to protect US solar panel manufacturers who in the recent years have found themselves increasing unable to compete against the low prices of Chinese imported solar panels. The logic behind this decision is that while in the short run, it may slow down the growth of some US Solar companies, the demand for solar panels is so high that in the long run, the industry will continue to experience steady growth.
In recent years, the US solar industry has been experiencing a real boom. Today, it is a 8.4 billion dollar industry with 2,200 US firms installing solar panels both for residential and commercial clients and about 35 major US manufacturers of solar modules. Last year alone the rate of installation of solar panels grew 109%. There have been a number of forces at play fueling this trend for increasing demand on solar panels. Some of these factors have to do with an overall increased level of awareness in the American public about the environmental benefits of solar panels vs electricity from the grid, attractive annual costs saving benefits and heavy subsidies from both federal and state governments that offered consumers as much as 30% savings in rebates on the cost of installation. Yet another significant factor that made this growth possible, is that the price of the solar panels themselves dropped, driving down the overall costs that consumers would have to pay and therefore fueling the demand. Many home and business owners who even 5 years ago felt that they could not afford the exorbitant prices of solar panels, have been able to purchase and install them last few years.
Why did the cost of solar panels drop?
The reason why the cost of solar panels went down is very simple: the US market was flooded by cheap, good quality solar panels imported from China. A Chinese-made solar panel with 220 to 240 watts of power costs on average for $165 to $196, while an American-made one with 240 to 260 watts costs $240 to $288. Considering that an average size home or facility of 1,800 sq ft requires anywhere between 12-20 solar panes, this difference translates into significant savings when purchasing solar panels made in China. As a result of being able to offer such low prices, Chinese manufacturers were able to capture a whopping 60% of the 2.8 billion US solar modules manufacturing sector, literally squeezing their US competitors out of business.
Import tariffs as a way to protect US manufacturers of solar panels
Flooding the US market with cheap Chinese solar panels that were being priced below production costs caused an uproar among US manufacturers of solar panels. As Steve Ostrenga, CEO of Helios Solar Works, a Milwaukee-based manufacturer pointed out, the Chinese were “unfairly undercutting American companies on prices.This situation was unsustainable, it was hurting us. We couldn’t compete. It had to be fixed”. One common practice to protect the home industry and keep foreign competitors in check that is frequently employed both by US and other governments is to impose high import tariffs on the competitors. This forces them to either import less products or raise their own prices, or both, thereby leveling the playing field for the home industry. This is exactly what US government decided to do in this situation, and on May 17, 2012, the US Chamber of Commerce announced that the new tariffs imposed on Chinese imported solar panels will now be as high as 250%. The US manufactures expressed strong support and approval of this decision.
The tariffs are two-tiered. The first is targeting a group of 61 current exporters, including Yingli Green Energy and Trina Solar, who will now be paying rates of roughly 31%.The second tier is comprised of all other Chinese producers who are not currently exporting to the U.S. These manufacturers would face rates of up to 250% in case they begin exporting solar panels into the US. The second tariff is being imposed to prevent potential efforts by the current Chinese exporters to circumvent the tariff by shifting production to other companies. It remains to be seen how effective these new tariffs will be, as Chinese manufacturers could also shift production to other countries such as Taiwan to avoid the punitive tariffs.
The ruling will be finalized in the fall. However, the Coalition for Affordable Solar Energy, an industry group opposed to the tariffs, made a statement that it plans to advocate to lower the rates before the decision is finalized.
Punitive tariffs can potentially backfire and hurt the US solar industry
US companies in the solar industry who are in the business of selling and installing the panels are actually worried that the tariffs will drive up costs and hurt their business. In fact, most of the jobs in the US solar sector are in the field of sales and installation, and these jobs have been on the rise precisely because the cost of the solar panels themselves went down. Many installation firms in the US have been experiencing steady growth, increases in revenue and have been able to hire more employees because they have been relying on the Chinese solar panels. Many companies that are installing solar panels are worried that they will have to raise their own prices if the Chinese manufacturers will be forces to raise theirs, which will ultimately result in business losses. This sentiment was clearly expressed by Jeff Wolfe, CEO of groSolar, a Vermont-based firm that installs commercial solar panel systems, who is worried that if he will be forced to raise prices, he could lose out on new projects, which bring in $5 million to $15 million each on average. With regard to new job openings Wolfe commented, ” We have a few job openings right now but I’m rethinking them”.
What are the consequences for consumers?
At this point it is not clear how these decisions will impact consumers. If the tariffs will take affect causing and increase in the solar panel prices, consumers will need to be prepared to pay more to purchase and install solar panels. It is possible that even if the spike in prices happens, it would be temporary. As the industry continues to grow and develop, competition from both domestic and international solar manufacturers should bring the prices back down eventually.
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