Summary:

Section 201 solar tariffs were placed on solar cells and solar modules. While the tariffs seemed to work at first, now their effectiveness is on a decline.

Main Article:

Why US Solar Tariffs Almost Worked, and Why they Don’t Now

In January 2018, the U.S. government implemented Section 201 solar tariffs on imported solar cells and solar modules. After initial successes, our analysis shows that the effectiveness of this approach is now on a decline.

The trade barriers, composed of multiple layers of tariffs and import quotas, were effective in 2018 and early 2019. The 2.5-gigawatt solar cell import cap was enough to support domestic solar module manufacturing, and tariffs on imported solar modules were high enough to level the playing field.

However, the effectiveness of the trade barriers started to erode in 2019 due to strong demand in the U.S. solar market. We expect that the solar market will grow by 33 percent in 2020 and 48 percent in 2021 from the 2019 level. This will require domestic manufacturers to procure more solar cells from overseas suppliers than the tariff-free import quota supports. They stand to miss out on market opportunities if the quota is not increased to match demand.

Module imports from China on the rise

Solar module imports from China have been on the rise since January 2019. That’s despite a combination of Section 201 tariffs, anti-dumping and countervailing duties (ADCVD), and Section 301 tariffs, a.k.a. ‘the China tariffs.’ According to U.S. customs data, China exported 314 megawatts of solar modules to the U.S. in 2019, and the trend continues in 2020. Over 490 megawatts of modules were imported from China in Q1 2020, already exceeding all of 2019's imports by 22 percent.

Three factors are responsible for this trend:

- Heightened demand for bifacial solar panels.

- On-again-off-again Section 201 tariffs on bifacial solar panels.

- The cost competitiveness of bifacial solar panels made in China.

More than 95 percent of the Chinese solar module imports in 2019 came in the second half of the year, after the announcement of the bifacial solar panels Section 201 tariff exemption. The exemption created a window of opportunity for U.S. solar energy developers to procure cheaper solar modules from China, but policy flip-flops over the past 12 months have made it hard for developers to turn their opportunistic actions into a routine procurement practice.

Double-edged sword

The effectiveness of the U.S. solar panel trade barriers depends on your point of view. From the perspective of domestic solar panel manufacturers, the policy partially achieved its purpose: It grew U.S. production capacity and carved out a sizable market for domestic solar modules.

However, if the purpose of the policy is to protect and grow the entire solar energy industry, then the added cost and supply constraints have been counterproductive.

Tariffs have made solar modules artificially more expensive in the U.S.. The cost is about 79 percent higher than in major European markets, 75 percent higher than Japan, and about 85 percent higher than in China. Without the tariffs, U.S. solar system prices could be nearly 30 percent lower. Utility-scale solar panels with high-efficiency solar modules and trackers in the U.S. would cost less than $1.00/W to build in 2020, two years earlier than the current cost trajectory.

The Section 201 tariffs are currently scheduled to phase out on February 7, 2022. The U.S. federal government will determine what happens next.

If the U.S. extends the same set of tariffs for another round, by 2026 it may cost twice as much to buy solar modules in the U.S. than in Europe or Canada. In that case, installations will fall well below our current outlook.

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