The long-awaited solar panel tariff decision is here – key points for industry stakeholders
The Biden Administration has announced that it is extending for an additional four years the tariffs on imports of crystalline silicon photovoltaic (CSPV) cells and other products that were first imposed in 2018 pursuant to Section 201 of the Trade Act of 1974. CSPV cells, used in solar panels and other CSPV products, are an important component of most solar energy projects. The tariffs had been set to expire on February 6, 2022; the Administration’s announcement came on February 4.
The Administration’s decision is set against the backdrop of its ambitious goals to reduce greenhouse gas emissions to 50 percent of 2005 levels by 2050. Expanding the deployment of renewable generation – including CSPV cell-based generation – in the US is seen as a key part of this effort. The US Department of Energy recently estimated that solar power could serve up to 40 percent of US electricity demand as part of the strategy to achieve the Administration’s goals.
The updated tariffs will apply to imports of covered CSPV products at an initial rate of 14.75 percent ad valorem, declining by 0.25 percentage points each year thereafter to 14 percent in the last year of the extension period. In addition, the tariffs apply to imports of CSPV cells not partially or fully assembled into other products that exceed an annual quota volume, which the Biden Administration doubled from the previous 2.5 gigawatts (GW) to 5 gigawatts per year.
Covered CSPV cell imports that fall within the quota volume are exempt from the tariffs. In addition, bifacial panels containing covered CSPV cells will continue to be excluded from the tariffs.
The Administration also authorized the US Trade Representative to negotiate for the exclusion of covered imports from Canada and Mexico. In 2024, the US International Trade Commission will reassess the impact of the extended tariffs, with the Biden Administration having a second opportunity to remove or modify the tariffs.
In deciding to extend the tariffs for an additional four years, the Biden Administration found “that the safeguard action on imports of CSPV cells, whether or not partially or fully assembled into other products, continues to be necessary to prevent or remedy the serious injury to the domestic industry, and that there is evidence that the domestic industry is making a positive adjustment to import competition.” Exclusions to the tariffs – such as for “bifacial panels” – were found to be critical because “[b]y excluding bifacial panels, we will ensure that solar deployment continues at the pace and scale needed to meet the president’s ambitious climate and clean energy targets and create good jobs at home.''
Market impact and industry reaction
The looming deadline for a decision on whether to extend the tariffs had garnered strong reactions from different segments of the solar industry, with developers concerned about equipment prices and US manufacturers seeking to extend the tariffs to protect their share of the market. With the announcement that the tariffs will be extended for a further four years, some measure of market uncertainty has been removed.
Notwithstanding the Section 201 tariffs, imports have continued to dominate the domestic CSPV cell market. Industry source IHA Markit reported in June 2021 that 8 of the top 10 panel suppliers are based in China. In 2020, 19.2 GWs of PV solar was installed in the US, with the vast majority of panels coming from sources in Asia. Globally, non-US suppliers also dominate. For example, the US Department of Energy (DOE) reported that of the 140 GWs of PV solar modules shipped worldwide in 2020, only 3 percent, or 4.4 GWs, were manufactured in the US.
At the same time, many analysts believe that the Section 201 tariffs have been partially effective in giving domestic CSPV manufacturers breathing room to adjust to the rapid growth of global competition. For example, in recommending to President Biden that the tariffs be extended, the US International Trade Commission (ITC) noted that domestic CSPV module production capacity increased by approximately 241 percent from 2018 to 2020. This increase included the opening of three new CSPV module plants and the expansion of existing US facilities. There was a related increase in employment as well. However, domestic production of CSPV cells declined during the same period, along with related employment. Thus, the ITC determined that the tariffs remain “necessary to prevent or remedy serious injury to the US industry” and that while the US panel industry has made a “positive adjustment to import competition,” the adjustment is not yet complete.
The US solar industry has generally been divided on the issue of extending the tariffs. Many companies and organizations that actively opposed the extension of the tariffs emphasized that solar panel prices in the US are among the highest in the world, resulting in lower demand for solar energy. Similarly, many developers argued that an extension of the tariffs would result in increased project costs. In contrast, CSPV equipment manufacturers in the US generally support the extension, arguing that they continue to be injured by the subject imports.
However, US manufacturers also expressed disappointment with the Biden Administration’s decision to increase the tariff quota from 2.5 GW to 5 GW and to continue exemptions for bifacial panels. To a degree, the Administration’s decision to extend the tariffs represents a compromise between these competing interests.
Meanwhile, project developers have been seeking to adjust the allocation of the cost impact of the tariffs in key contracts such as power purchase agreements, engineering, procurement and construction contracts and module supply contracts. Developers are no longer willing to solely bear these risks and are negotiating for terms that require material counterparties to share in the cost. This reflects a more general trend in contracting as developers seek relief for potential change-in-law risks and other market conditions, including additional costs limitations associated with ongoing international trade issues, expected requirements associated with cybersecurity concerns, COVID-19 impacts, extreme weather, contractor capacity and expected changes in state policy.
A challenging path, now and in future
Despite the uncertainty associated with the potential tariff extension and other trade, security and cybersecurity issues being watched closely by the US government, FERC reports that, during the first 10 months of 2021, 9,604-MWof solar was added in the US, and the Energy Information Administration projects that an additional 21 GWs of solar will be deployed in 2022 and 25 GWs in 2023.
Panel manufacturers and project developers will continue to face a challenging path in managing equipment procurement for solar generation projects as well as other potential law changes and market conditions. We expect that developers will continue to seek relief from both identified and anticipated risks impacting solar development in the US when contracting to develop and construct solar generation projects.
Other trade issues on the horizon
The Section 201 tariffs on CSPV cells are only one of many trade issues facing the US solar industry in 2022. As we previously discussed here, US Customs and Border Protection has increasingly been using Section 307 of the Tariff Act of 1930, as amended, to prevent the import of silica-based products believed to be the product of child labor or forced labor.
Last year, the US Department of Commerce considered and rejected allegations that certain Chinese-origin CSPV cells and modules were circumventing antidumping and countervailing duties by being shipped through or further processed in Vietnam, Thailand and Malaysia. This month, US producer Auxin Solar Inc. filed a very similar petition alleging that certain imports from Cambodia, Malaysia, Thailand and Vietnam are circumventing the same antidumping and countervailing duties. If successful, the petition could lead to the imposition of additional duties on imports from those countries.
Despite the certainty that the Biden Administration’s decision on Section 201 tariffs brings, the industry continues to face a challenging market environment, in no small part due to the many related trade law and policy and supply chain issues facing the industry. In this environment, forewarned is forearmed. Prudent companies and investors are continuing to closely watch developments in Washington as 2022 unfolds. If you have any questions about the tariffs or any other aspect of renewables, please contact any of the authors or your regular DLA Piper contacts.