When shares of First Solar (NASDAQ:FSLR), SunPower (NASDAQ:SPWR), Tesla (NASDAQ:TSLA), and SolarEdge Technologies (NASDAQ:SEDG) plunged near the end of trading Wednesday last week, it threw investors for a loop. The U.S. trade representative announced that bifacial solar panels will be exempt from solar tariffs, which are currently 25% of the cost of imported solar panels. The move may make tariffs effectively obsolete for much of the industry.
Late last week, shares rebounded as the market realized fewer tariffs would also expand the market for solar energy. Here's a look at what we learned last week and how it affects different parts of the industry.
Solar exemptions and where we stand now
Until Wednesday, SunPower was the only company that had been given an exemption from solar tariffs. It makes a back-contact solar cell that's significantly different from commodity solar cell construction, which is why it was granted the exemption. It also didn't hurt that it bought the second-largest solar manufacturing facility in the country.
An exemption on tariffs for bifacial solar panels is based on similar logic. Bifacial technology allows a solar cell to collect power from the front and back of a panel. The second side can increase the energy production of a panel by between 11% to 27%, depending on the mounting and tracking system being used.
Not all solar manufacturers are building bifacial solar panels, but they have the ability to do so, with some minor changes. An exemption from tariffs in the U.S. could be an incentive to increase production.
The losers of these exemptions
As more solar companies become exempt from tariffs, it reduces the premium local manufacturers can charge for solar panels. First Solar clearly has the most to lose because it's the largest solar manufacturer in the U.S., and its thin-film solar panels were never included in solar tariffs.
SunPower will also see pressure on its P-Series production in Oregon. If commodity solar prices fall, it may also see pricing pressure on its high-efficiency solar panels that got an exemption from tariffs.
Tesla's Gigafactory 2 in Buffalo, N.Y., may not be a great investment, either. It was already behind schedule, but now there's little economic incentive to produce solar panels in the U.S.
Someone always benefits
More exemptions and lower solar panel prices will definitely help developers and utilities. Bifacial solar panels are primarily designed for ground-mounted solar farms, so developers and project owners like NextEra Energy (NYSE:NEE), TerraForm Power (NASDAQ:TERP), and Brookfield Renewable Partners (NYSE:BEP) could all see lower development costs for solar projects.
Its stock dropped yesterday, but SolarEdge could be another one of those beneficiaries if installation volumes grow. It provides inverters and power optimizers to solar installers, so it should actually see tariff exemptions as a bullish sign.
Good for solar energy overall
The solar industry overall should see its pie grow as tariffs are exempted. But manufacturers like SunPower and First Solar who have spent the past two years finding ways around tariffs or investing on the basis of being exempt may not see the benefit they once expected.
I think the big benefit from falling tariffs will ultimately be developers of renewable energy projects, who are buying the most cost-effective product in the market. They'll start to take bifacial solar panels very seriously, potentially pushing the technology into more U.S. developments.