Supply chain issues continue to plague the U.S. solar industry, but steps are being taken to help improve the situation as the nation aims to triple domestic solar manufacturing capacity by 2024.
A consortium of U.S. power producers announced plans this week to spend over $6 billion on solar modules in efforts to strengthen the domestic solar supply chain and drive growth. The US Solar Buyer Consortium—comprised of The AES Corp., Clearway Energy Group, Cypress Creek Renewables and D. E. Shaw Renewable Investments (DESRI)—is looking for manufacturers to supply up to 7 gigawatts (GW) of solar modules annually starting from 2024.
“Our joint commitment to procure at this scale can provide the certainty suppliers need to ramp up capacity and overcome current supply chain constraints,” DESRI CEO David Zwillinger said in a statement.
The producers say increasing solar energy deployment is crucial to hitting net-zero emissions by 2050 and limiting global warming. Like others in the industry, they say more action is needed, following recent moves by the White House to waive tariffs on solar panels from four Southeast Asian countries and other efforts, to address supply chain challenges.
“With legislation pending before Congress, policymakers can scale our domestic manufacturing workforce and restore our country’s legacy as a manufacturing leader,” added Craig Cornelius, CEO of Clearway Energy Group. “We appreciate the Biden administration’s commitment to invest in American workers and urge lawmakers to seize this opportunity.”
On June 6, President Joe Biden waived tariffs on solar panels from Cambodia, Malaysia, Thailand and Vietnam for two years and invoked the Defense Production Act (DPA) to give domestic solar panel manufacturing a hand and expand manufacturing of electrolyzers, heat pumps, insulation and transformers.
The move followed the launch in March of an anti-dumping circumvention investigation by the Department of Commerce. The investigation takes aim at Chinese polysilicon photovoltaic (PV) manufacturers that were possibly routing supply chains through nearby countries to get around U.S. solar panel tariffs imposed during the Trump administration.
The investigation, which stemmed from a February complaint by California-based Auxin Solar, sent the sector into a tizzy with some projects being postponed or canceled. Concerns haven’t disappeared as the sector awaits the outcome of the investigation.
Back to Status Quo?
The time between news of the investigation and of tariff relief from the White House was “turmoil” and “a lot of stress,” Adam Jordan, managing director of Enverus Intelligence Research, told Hart Energy.
Enverus is working to find out whether decisions to cancel projects can be walked back, he said.
“I don’t believe that two years of tariff pause is enough time or enough guarantee to see significant changes from those four countries to increase production in a meaningful way.”—Adam Jordan, Managing Director, P&R Intelligence, Enverus
Going back to the status quo pre-tariff pause sounds great from a solar production and installation perspective, he said. “At least we have more certainty around the cost in terms of tariffs,” he later added. However, supply chain concerns remain.
Similar to other sectors, the solar industry has struggled with global supply chain disruptions stemming partly from the pandemic. Costs rose as the sector coped with U.S. tariffs on panels imported from Asia.
The Biden administration’s latest plans to create grants, loans and preferred supplier contracts within the U.S. can help ease supply chain pressure, according to Jordan.
“The stated policy doesn’t seem to be too concerned about supply chain outside of the U.S. right now, because we want those jobs,” Jordan said. However, “I don’t believe that two years of tariff pause is enough time or enough guarantee to see significant changes from those four countries to increase production in a meaningful way.”
He believes countries involved in the tariff investigation will still do everything that can to increase the supply of panels to the U.S., but massive capital investments are unlikely.
“There’s a very strong incentive to take advantage of the next two years to get as much as they can out of existing capacity before the next change comes,” Jordan said.
Enverus analysis showed waiving tariffs for two years will have minimal impact on increasing U.S. solar production, according to a recently released report Jordan wrote. It also revealed that supply chain pressure could rise if the tariff reprieve causes demand for PV components to increase, adding to uncertainty brought by changes of the political landscape.
Enverus’ concerns about the ability to get panels to commercial operations remain.
“Freezing tariffs does not mean that panels just magically appear either,” Jordan said. “If you dig into some of the disclosures and financial statements of the public companies, you’ll see that supply chain concerns stretch beyond raw materials, components. It’s everything. I can’t think of a thing that supply chain hasn’t touched.”
Getting raw materials such as polysilicon was impacted due to prolonged COVID shutdowns in some areas with quarantines in place, creating backlogs, he said. Equipment costs also jumped as commodity prices for steel, aluminum and copper increased.
“Then, there’s inflation,” he said. “So, it’s still a very complicated situation with a lot of headwinds, but … expect to see a scramble for every module, component, ingot that we can get out of these countries.”
Eyes are now on what the U.S. industry and legislators do. Funds offered through the DPA must be approved by Congress.
“Do we see state and regional incentives try to create programs to bring in that grant money, to bring in those loans, to create jobs in their own districts and jurisdictions, whatever it might be, to take advantage of that?” he asked. There’s hope, “but again, two years is a microsecond in a legislative sense.”
As for the investigation, a preliminary decision from the Commerce Department is expected by late August. If it finds violations have taken place, solar modules from Cambodia, Malaysia, Thailand and Vietnam could see tariffs ranging from 50% to 250%, according to Enverus.
“Enverus feels the investigation has merit and will likely conclude with increased tariffs on solar components sourced from Southeast Asian countries,” he said.
That would challenge the economics of many projects with some companies having greater potential exposure to risk than others.
In June, The White House said the U.S. was on track to triple domestic solar manufacturing capacity by 2024. Expansions, since President Biden took office, are expected to grow current base capacity by 15 GW, bringing the total to 22.5 GW by 2025. That would be enough for more than 3.3 million homes to move to solar energy each year, it said.
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