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By the time the U.S. completed tariffs on Chinese solar companies in 2012, there weren't a whole lot of teeth left in them. The scope of the investigation was reduced to just solar cells, instead of the module or other supplies, making it easy for manufacturers to get around regulations. A process known as "tolling" emerged to get around tariffs that could reach 250% and as a result, the tariff is essentially meaningless.
SolarWorld, the one who brought forward the original complaint, is back again, asking U.S. regulators to close the loophole the 2012 tariff left. If successful, it could make Chinese solar panels uncompetitive in the U.S. Even a 5% or 10% increase in the cost of solar panels would push buyers to non-Chinese brands, which are already popular in the U.S.
We don't know if SolarWorld's request will go anywhere, and the Solar Energy Industries Association has already said it supports negotiations, not further tariffs. What investors need to keep in mind is how this could impact companies in the industry.
Who this could affect
Some of the biggest players in the solar industry would be negatively affected if the U.S. does close the tariff loophole. In the third quarter, Trina Solar (NYSE: TSL ) shipped 19.2% of its panels to the U.S., Yingli Green Energy (NYSE: YGE ) shipped 27% here, and 46.9% of Canadian Solar's (NASDAQ: CSIQ ) panels went to North America. Adding to the challenge, Europe introduced a price floor for Chinese made solar panels so Chinese manufacturers could fight tariffs on two fronts.
These companies have not only been selling modules into the U.S., they're beginning to get into project development as well. Tariffs would impact both businesses.
Installer/finance companies like SolarCity (NASDAQ: SCTY ) and Sunrun, who use these panels, could also see costs go up, something that's already happening because panel demand is so high. The good news for installers is that there are manufacturers in Europe, Taiwan, Japan, and the U.S. who would be eager to fill the gap if Chinese solar panels are suddenly cost-prohibitive. The impact on the downstream side would be minimal, even in a worst-case scenario.
Does it matter?
The question for the solar industry is whether or not another tariff even matters. Like I said above, the SEIA thinks a more comprehensive tariff would be counterproductive, and would do nothing but make installing solar more costly in the U.S.
By the time a tariff was implemented, Chinese manufacturers may have a way around the rules, and non-Chinese manufacturers would have enough capacity to fill the gap. Over the next few years, I think we'll see next-generation solar capacity built outside of China, so a tariff may not fundamentally change those plans.
There's no doubt a tariff would be an incremental negative for Chinese manufacturers, but like the last one, I don't think it's a deal-breaker for them long term. China itself and Japan are where the future of demand is for Chinese manufacturers, not the U.S. And while costs may go up slightly for installers, soft costs are more a driver of value in the U.S. rather than module costs.
SolarWorld may be right by fighting for improved tariffs, but I don't think it'll matter long term. U.S. manufacturers can be competitive with subsidized Chinese companies as it is, and by the time a tariff is put in place, the industry may have moved on to next-generation panels. At the end of the day, this isn't a reason to sell SolarCity, or even Canadian Solar, Trina Solar, or Yingli Green Energy.