Understanding Trade Law Impacts
This interview was originally published in LevelTen Energy’s Q2 2024 PPA Price Index report.
LevelTen Energy sat down with Clean Energy Associates (CEA) to unpack the impacts of expanded solar tariffs, AD/CVD investigations, and other issues on project development and PPA prices.
LEVELTEN: The US solar industry is navigating a confluence of trade law shifts right now: expanded Section 301 and 201 tariffs, anti-dumping and countervailing duties, and the latest chapter of anti-forced labor policy enforcement. There is a lot to unpack here. Can you help us think about which of these will bring the greatest challenges for solar development/PPA costs in the US?
CLEAN ENERGY ASSOCIATES (CEA): The inherent uncertainty in AD/CVD 2.0 presents the greatest risk to solar development and deployment in the United States at this time. Duty determination for AD/CVD cases is a convoluted affair, involving multiple government agencies and complex decision matrices over very long timelines. AD/CVD duties have a much higher impact than the duty rate may suggest, as they are unknowable in advance, applied retroactively, and once a duty order is in place the rates change every year.
Further, the duties themselves can be quite substantial, especially if a company does not cooperate with US government officials. Petitioners have proposed dumping margins ranging from 70-270%, and although typical anti-dumping rates for solar components from China are in the 10-35% range for cooperative companies, the risk remains that adverse circumstances are found and a much higher duty may apply.
This is just the tip of the iceberg for AD/CVD. Now, look at the rollout of Section 301 tariffs: A specific tariff is established for specific components with a definitive timeline for applying those tariffs. Simple and easy to grasp, it allows developers to make changes to their projects and/or supply chains and move forward — versus waiting and crossing your fingers throughout the doldrums of the AD/CVD case proceedings.
LEVELTEN: We read reports in February of a questionnaire sent to US solar developers by the Department of Homeland Security probing for signs of forced labor in their supply chains. How should we think about the potential for UFLPA/forced-labor-related impacts in the PV supply chain in the coming months? How exposed is the US PV upstream to these types of laws 2.5 years into the UFLPA?
CEA: UFLPA remains a substantial risk to project schedules for both large and small module original equipment manufacturers (OEMs). The tier one manufacturers that constitute most of the import volume into the US have run the gamut with Customs and Border Protection (CBP) and now understand what is needed to pass muster. That does not mean they are immune to inspection and detention, but rather that in the event they are detained, they will usually have evidence to prove the provenance of what resides in their bill of materials.
A few months back, CBP signaled it would widen the scope of its detentions to smaller OEMs (in terms of US import volumes), which makes intuitive sense given that the major players have moved into a “monitoring” state. Following this, CBP began detaining product from at least two Indian PV makers in April, representing the first major expansion of UFLPA enforcement in solar beyond the tier one Chinese-owned companies.
So, does risk remain? Absolutely, as the burden of proof demanded by CBP is substantial and takes time for OEMs to process. If anything, the need for many module makers to shift supply chains to deal with AD/CVD concerns may prompt renewed attention from CBP inspectors.
LEVELTEN: As solar components from China (or inputs with subcomponents of Chinese origin) grow increasingly out of reach for US developers, what alternatives can they turn to? What will the price impacts of these alternatives be? Costs aside, what volume of solar components is being produced right now by US manufacturers?
CEA: The US PV market has already done a lot to minimize its exposure to Chinese supply chains, sourcing polysilicon from Wacker, Hemlock, and OCI while securing cells and modules from Southeast Asian countries like Cambodia, Malaysia, Thailand, and Vietnam. Of course, this is what drove the 2022 anti-circumvention and 2024 AD/CVD cases. There has also been a huge drive to move ingot and wafer production outside China. For perspective, based on what is expected to come online by the end of 2024, there is likely to be a minimum of 60 GW-worth of polysilicon, ingot, and wafer capacity outside of China that will primarily serve the US market.
There is indeed a price premium for sourcing from non-China suppliers. The EU is receiving Chinese modules composed of Chinese subcomponents for prices ranging from $0.10-$0.12 per watt. This stands in stark contrast to the $0.20-$0.25 per watt that US developers were signing contracts for before the most recent bout of duties. US pricing is even higher for folks looking for AD/CVD-compliant supply in the near-term.
In terms of what is being produced stateside, for an integrated value chain, the story remains largely the same, with First Solar leading domestic suppliers by a very wide margin. US crystalline silicon module makers (except QCells) have largely been dependent upon imported cells from Southeast Asia. The US now has over 15 GW of operational module capacity, more than double the figure from before the IRA was signed. And there are several large, multi-GW factories rapidly scaling up now to take that figure potentially into the 40 GW range by the end of this year, based on equipment we see coming into the US; the domestic market is rapidly shoring up its ability to make modules. Other segments of the supply chain, from the cell-level upwards, are not following as quickly.
Developers and their suppliers now need to make some tough decisions. Do they accept the new tariffs on solar cells from the AD/CVD case, or make big investments in US solar cell production?
LEVELTEN: The Section 301 updates have now doubled tariffs on Chinese solar cells and modules. How significant is this change? In a general sense, what will its impacts be on supply-side logistics and development costs/PPA prices?
CEA: The Section 301 tariff rate has doubled from 25% to 50%. The impact to the solar sector is minimal though, given US cell supply has largely turned to Southeast Asia (SEA) in recent years.
However, cells from China could be commercially viable if a US module manufacturer is willing to take on UFLPA detention risk. If spot prices for Chinese TOPCon cells are four c/W, adding in the impact of the 50% Section 301 and 50% AD/CVD results in an eight c/W cell.
LEVELTEN: The Section 301 updates also increase tariffs on Chinese steel and aluminum beginning in 2024. Of course, metals like these are used in solar racking and other project components. Is there much of a sense of how much new tariffs on minerals and other commodities may wind up impacting solar projects’ CapEx?
CEA: While the new Section 301 tariffs cover many different steel and aluminum products, they do not include the extruded aluminum that is used in racking, tracker assemblies, and PV module frames. However, these extruded aluminum products are subject to an AD/CVD investigation against more than a dozen countries.
LEVELTEN: The new tariffs also impact lithium-ion batteries for EVs, but do not yet impact utility-scale energy storage products. Has the large-scale storage sector largely been spared from these tariffs’ impacts? Or do other mineral-specific tariffs come into play for storage?
CEA: The stationary storage segment is not immune to the Section 301 tariffs, but has indeed been granted a reprieve, as new Section 301 tariffs on stationary lithium-ion batteries will not come into effect until 2026. There is currently a lithium iron phosphate (LFP) gigafactory underway in Arizona; however, it is not clear that it can serve full US market demand, and any delays will mean that the 301 tariffs will have to be paid given the limited non-China LFP capacity.
Battery Energy Storage System (BESS) developers reliant upon Chinese imports will either need to find alternative supply options or absorb the price impact of the tripling of battery tariffs from 7.5% to 25%; however, given ongoing price declines in battery production, we see this as more of a speed bump than a roadblock for BESS deployment.
Tariff changes to mineral inputs mostly focus on raw materials and not processed chemicals. US capacity to process battery chemical inputs continues to lag cell production capacity, and we don’t see this changing in the next few years.
LEVELTEN: Obviously, all project input costs impact projects’ CapEx. These are complex policies, but can you help PPA buyers set expectations around how much solar PPA prices may be impacted by tariffs and other trade laws, and why?
CEA: We can say this: The rash of trade activity we have seen in the past month or so may very well be taken up a notch following the US elections in November. The downward price trend for both PV modules and lithium-ion batteries has been interrupted, and the current short-term rise in costs could see another bump upwards if Section 301 tariffs increase again come Q1 2025.
If factoring in additional costs to mitigate supply-disruption risk due to UFLPA, or operational costs due to increased frequency of severe weather in places like Texas and California where solar and storage abound, then yes, there will be upward pressure on PPA prices.
LEVELTEN: Is there anything not addressed in the questions above you think is important to discuss?
CEA: The default supply chain for the US may shift from Southeast Asian (SEA) cell/module to SEA cell/US module due to SEA cell capacity still running a Section 301 advantage vs. Chinese cells. Further, SEA cell factories remain reliant on the US market for their utilization, and a failure to serve that market could result in the supplier shutting down under-utilized factories.
Lastly, as most new crystalline silicon (c-Si) US module factories are new and subject to ramp risks/delays, proper QA, traceability audits, and other vendor due diligence programs become increasingly important to developers that want to ensure their projects are delivered on time, on budget, and achieve desired performance metrics from day one.
