The decision by the Trump administration to impose tariffs on the imports of solar panels has been widely criticized, as it is seen to undermine the growth of the solar energy sector in the U.S. However, independent energy analyst Geoffrey Styles believes there are some good reasons to support the measure. The Chinese government after all heavily supports its own industry. What is more, if solar power is as important to future U.S. energy supply as many think, then it makes sense to take steps to reduce over-reliance on Chinese imports.
The administration’s decision to impose a new tariff on US imports of solar equipment from China and other countries raises understandable concerns. However, the right choice in this case is less obvious than suggested by the jobs and free-trade arguments from the main US solar trade association (SEIA) or the Wall St. Journal’s editorial page. Solar power generates less than 2%of US electricity today. If it is to grow as experts forecast and advocates claim is essential, then considerations such as long-term energy security can’t be ignored, while near-term job losses from a new tariff would be more than offset by subsequent growth.
Last October the US International Trade Commission issued its recommendations in favor of the complaint by two US manufacturers of solar panel components. I usually favor low tariffs and open access, especially when the markets in question are functioning smoothly and the principal impacts from trade are the result of “comparative advantage” in production or extraction between countries. However, there is little about the market for solar equipment, including the photovoltaic (PV) cells and modules at issue here, that qualifies as free.
The production and deployment of solar energy hardware has depended since its inception, and from one end of its value chain to the other, on significant government interventions
The production and deployment of solar energy hardware has depended since its inception, and from one end of its value chain to the other, on significant government interventions. In the case of China-based PV manufacturing, these have included low-interest government loans, preferential access to land, and minimal environmental regulations. China-based PV manufacturers were also able to take advantage of extravagantly generous European solar subsidies in the 2000s to scale up their output, drive down their costs, and ultimately send much of the EU’s solar manufacturing industry into bankruptcy.
On the US end, both solar manufacturing and deployment (installation) have benefited greatly from federal tax credits, cash grants from the US Treasury, and a web of state quotasfor aggressively increasing utilization of renewable energy sources. Justified on grounds of energy security, “green jobs”, and climate change mitigation, these measures have strongly promoted solar power and delivered an extraordinary 68% compound annual growth rate in US solar installations since 2006. On a per-unit-of-energy basis, these supports are also at least an order of magnitude more valuable to the solar industry than the federal tax benefitsreceived by the oil and gas industry.
Cheap imports
One of the factors that makes this decision so difficult and politically sensitive is that a whole industry has apparently grown up around cheap solar imports, to the point that the main solar benefit to the US economy today is from installation, not manufacturing. US companies and their employees build solar panel racks and other “balance of system” gear, finance rooftop and other solar projects, and construct these installations.
These companies could be at risk of losing business and shedding jobs, if a large tariff were imposed on imported solar cells, modules and panels. Those impacts might be less than feared, though, because the cost of the actual sunlight-converting PV hardware now makes up less than a third of total solar project costs. In other words, a tariff that doubled effective PV cost would drive up total solar costs to a much smaller degree, and least of all for residential solar, which has the highest total costs per kilowatt.
There’s another important aspect of this debate that hasn’t received much attention. If solar power is as important to our future energy diet as many think, then it should be no more desirable to become heavily reliant on China for our supplies of PV components than it did to depend on growing imports of Middle East oil. That was the main energy security issue for the US for the last 30 years, until the shale revolution unexpectedly reversed that trend. Relying on solar imports from China in the long run will be nothing like depending on Canada for the largest share of the petroleum the US still imports.
PV isn’t TV. If solar power becomes a major part of US energy supplies by mid-century, it will actually matter if we have a robust manufacturing base to drive its deployment
It also makes sense to address this situation now, before solar power has grown to 20% or 30% of the US electricity mix, and with the US economy near full employment, when those workers that did lose their jobs would have the best chance to replace them quickly.
TV sets
From the start, the complaint of unfair competition lodged by Suniva Inc. and Solar World Americas – Chinese- and German-owned, respectively – has been derided as an effort to prop up a couple of marginal players at the expense of the much larger US solar-installation sector. That ignores the position of First Solar (NASDAQ:FSLR), a US-based PV manufacturer with $3 billion in global sales. The company is on record supporting the trade complaint. Of course they aren’t a disinterested party; they stand to benefit from a tariff that would raise the cost of competing PV gear from China and elsewhere.
That’s precisely the point of the complaint: strengthening US solar manufacturers, so that the growth of solar energy in this country doesn’t end up like TV sets and other consumer electronics. There’s more at stake, because PV isn’t TV. If solar power becomes a major part of US energy supplies by mid-century, it will actually matter if we have a robust manufacturing base to drive its deployment, rather than relying on any one country or region for its key building block.
Editor’s Note
Geoffrey Styles is an independent energy expert, advisor and communicator. He is Managing Director of GSW Strategy Group, LLC, a Washington DC-based energy and environmental strategy consulting firm helping organizations and executives.
This article was first published on Styles’ Energy Outlook blog and is republished here with permission.
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Are Hansen says
The only problem is that the US hasn’t got anywhere the production capacity to fill domestic demand. This ruling by the Trump maladministration is not to support US manufacturing, but to hinder solar power in the US as it competes with fossil fuel interest
Nigel West says
The US decision to place import duties on solar panels follows the EU placing similar tariffs on imported panels late last year. I don’t recall accusations then of the EU protecting fossil fuel interests.
US manufacturers now have an opportunity to increase domestic production of solar panels which they should seize. Washing machine makers with US plants have announced they will be taking on more staff now that restrictions have been placed on Chinese made machines.
An unintended consequence of the measure might indeed be to provide some respite for competing fossil fuels, and might help existing nuclear plants too. But, if hindering solar power was really the US Government’s objective they could have chosen to cut tax incentives for renewables and avoided possibly sparking an escalating trade war with China.
Helmut Frik says
Europ has minimum prices which are to be phased out as I remember, which is quite different from a duty if you look at the flow of money. And it was made at times when chinese manufacturers wer making losses with their salse, today they earn money, so it is a bit similar, but by far not identical. And there is and was enough critics againt it.
Helmut Frik says
Just a parallel news how chinese companys see future levels of mass production of solar power : https://www.pv-tech.org/news/longi-tripling-monocrystalline-wafer-capacity-to-45gw .
Will US or Wurope ramp up production on similar levels (Longi is just one of many companys expanding their production)
Karel Beckman says
I agree with Are. I think that the author, Geoffrey Styles, is under no illusion about Trump’s motives by the way. This is of course the missing piece: if you want to protect the solar panel manufacturing sector because you think it’s important, then you should also invest in it or stimulate the use of solar power.
Hans says
The difference between the dependency on OPEC oil and the dependency on Chinese PV, is that oil is geographically bound but PV can be manufactured anywhere in the world. Would China want to play political games with PV panels as leverage, alternative PV production can be set up quite quickly somewhere else. Most of the Chinese PV manufacturing equipment and know-how actually comes from Germany. German equipment manufacturers would be quite happy to get new costumers from other countries.
To paraphrase Rick Perry: Importing PV panels is importing freedom.
Gary Busch says
Thre is an important military aspect to the solar power business which is being overlooked. See https://www.academia.edu/6625559/The_Military_Use_of_Solar_Energy_And_Solar