Tuesday was the day bankrupt Suniva and SolarWorld made their case to the International Trade Commission arguing what they think protections against solar imports should look like. Tariffs, price floors, and import quotas were all discussed, and could all be bad for the solar industry as a whole in a variety of ways.
Coming out against protections were the diverse group of Sunrun (NASDAQ:RUN), SunPower (NASDAQ:SPWR), NextEra Energy (NYSE:NEE), NRG Energy (NYSE:NRG), and many more companies. It was rare solidarity against protections because if tariffs or quotas are imposed, the only real winner will probably be First Solar (NASDAQ:FSLR), which isn't involved in the case.
The ITC won't make a recommendation to President Trump as to what should be done to make U.S. solar manufacturing more competitive until November 13, but we at least know what's on the table. And depending on what commissioners choose to recommend and what President Trump chooses to do, it could be bad for almost everyone.
Tariffs will be bad
The two price remedies Suniva and SolarWorld have proposed are a $0.25 tariff on imported solar cells or a $0.32 tariff on imported modules and a price floor of $0.74 per watt on solar modules. Recent module prices have been around $0.35 per watt, so we're talking about more than doubling the price of solar modules in the U.S.
These tariffs would make most utility-scale solar projects unworkable, as NextEra and NRG's delegation made clear, costing the industry thousands of jobs. Commercial solar systems would be affected as well, although not as much, and residential costs would rise too. As solar systems get smaller they become less price sensitive, sparing some of the financial pain that will hit larger projects.
Exact impacts are tough to know until we know what final tariffs will look like, but it's clear that every solar projects would be more expensive at any tariff level.
Quotas would be devastating
The other proposal floated by SolarWorld is an import quota system. That could put a cap on solar imports above a certain level, essentially letting domestic manufacturers charge whatever they can in the constrained environment. For Suniva, SolarWorld, and First Solar there could be a spike in solar module prices in the U.S., leading to a spike in profits.
It's not clear what a quota would be set at, but that could limit the U.S. solar market. There's only about 400 MW of solar cell capacity at SolarWorld's Oregon facility, and it's not clear when or if Suniva's capacity would come online. In 2016, the solar industry installed 14,626 MW in the U.S., so there's a big gap to fill if there ends up being a quota.
It would take years for any meaningful solar manufacturing capacity to be built in the U.S., so we would just see the market shrink to near where a quota is set at. That could devastate solar in the U.S.
What to look for now
We already know that these proceedings are starting to impact business. There are reports of rising module prices as developers stockpile and everyone covers themselves against a negative ruling. SunPower CEO Tom Werner had this to say at the ITC hearing:
In the last few weeks, we lost a multi-hundred million dollar opportunity to First Solar -- who is NOT in this proceeding -- because we couldn't offer price certainty and they could.
SunCommon's Kevin Schulte says solar module prices have already gone up $0.10 to $0.25 per watt in the market, putting pressure on the residential solar installer. NRG's representative said they would lay off workers building projects because they'll no longer be competitive.
There's also no question that Sunrun, Vivint Solar (NYSE:VSLR), and Tesla (NASDAQ:TSLA) will likely see a lot of financial pressure on their solar operations as well with even a small increase in costs. I wouldn't be surprised to see thousands of layoffs from those three companies alone, and many installers going out of business.
The only real winner given the remedies being discussed will be First Solar -- as long as tariffs or quotas are in place, it could have most of the U.S. solar market to itself. By the looks of it, First Solar is already capitalizing on that position.