Our customers have to delay project financing in order to determine how this is going to affect their goals for 2022 and beyond.
In late March 2022, the U.S. Department of Commerce initiated an anti-circumvention investigation into Chinese solar cell and module companies with manufacturing capacity across Malaysia, Vietnam, Thailand, and Cambodia. The uncertainty created by this investigation is already having a significant negative impact on the viability of 2022 and 2023 projects, and is creating additional headwinds within a solar market already grappling with recent challenges in module pricing and supply. Ten years ago, the Department of Commerce implemented antidumping and countervailing duties on solar cells imported from China to the U.S. Over time, manufacturers diversified and built out manufacturing capacity in countries outside of China, which is, in part, why Southeast Asia makes up the majority of U.S. crystalline silicon module supply today. Roughly 80% of U.S. crystalline silicon modules come from Malaysia, Thailand, Cambodia, and Vietnam for U.S. projects, according to market research presented in a PV Magazine article. The remaining 2021 module supply did come from the U.S., but existing domestic manufacturing relies on parts from China and does not currently have the production capacity necessary to support the U.S. market needs.
Recently, Auxin Solar, a PV module manufacturer based in California, filed a petition to launch an anti-circumvention investigation into four major countries in Southeast Asia. The claim is that manufacturers are avoiding existing tariffs on Chinese products by producing PV cells and modules in Southeast Asia and shipping them to the U.S. If the investigation results in the implementation of new tariffs, this will increase the cost of solar significantly, particularly for the utility-scale segment where the cost of modules can account for as much as 50% of project costs. The tariff rate in question is yet undetermined, but the Department of Commerce would consider a rate anywhere between 50% - 250%. Additionally, these tariffs could be applied retroactively, affecting safe harbored module supplies and operating projects alike. This retroactive date will not be known until either the preliminary or final determination by the Department of Commerce. Considering the current planned length of 300 days for the final determination of this investigation process, with a preliminary determination to be made 150 days into the investigation, having nearly a year of uncertainty around module supply chain and prices is stalling the U.S. solar industry at a time that it should be thriving.
Given the extreme uncertainty, SEIA has reported within a week of the tariff investigation announcement solar development companies have reported over 70% of module orders have been canceled or delayed—thus putting over half of the substantial 2022 solar project pipeline at risk. Developers are looking for alternative sources of modules from countries across the Americas, India, or Europe but are finding that the additional costs, unknown suppliers, unproven quality, and limited supply are challenging to navigate. The announcement by the Department of Commerce has begun to amplify challenges in an already constrained module supply chain that will devastate the downstream market and solar jobs, limit the U.S.’s ability to produce renewable electricity, and slow progress toward local and federal climate goals. It is a seller’s market, and these Southeast Asian manufacturers are expected to pivot their shipments away from the U.S. Those manufacturers not impacted will not be able to make up the shortfall of supply to the fill the U.S. market growth. As a result, modules may be either not available or prices may become prohibitive, further jeopardizing even the projects that do manage to obtain modules.
“Our team has already seen the impact of the tariff investigation on our customers who are having to delay project financing in order to determine how this is going to affect their goals for 2022 and beyond,” says Anat Razon, Head of Solar Independent Engineering and Technology. “The solar supply chain was already constrained and difficult to navigate. Given how connected the solar & storage markets have become, this will also impact the rate at which storage projects come online.” DNV continues to update our annual Energy Transition Outlook, with recent analysis showing we are not on track to meet global climate targets but giving insights on paths to succeed. With the recent report from the Intergovernmental Panel on Climate Change (IPCC) bringing further urgency to act now, it is time to enable a faster energy transition, with all stakeholders working together, globally, to tackle what is a fundamentally global climate crisis. Governments should all be doing more to support clean energy manufacturing and a diversification of these supply chains; however, these should be through incentives for clean energy technologies, manufacturing, and infrastructure, not through retroactive tariffs that increase the cost and slow progress toward the energy transition.
The renewables industry has faced challenges before. However, this disruption comes at a time when there is immense pressure to decarbonize and address climate change as outlined in the latest IPCC report. We must find solutions in the immediate term, and DNV is committed to being part of the solution.
DNV is here to support its customers through this challenging time in a variety of ways.
- Our subject matter experts can help evaluate new module entrants to the U.S. market through factory audits, Bill-of-Material reviews, and module technology and test result assessments.
- Our owners engineering, design, and energy assessment teams can help support project re-designs and update energy assessments.
- Our experts can help review contracts to determine which project deadlines are going to be on the critical path and possibly impacted by module delays. We have experience with challenging project financing scenarios and are able to guide projects through non-standard and partial completion milestones.
- DNV can also observe and verify safe harbored equipment or start of construction for projects that are up against the ITC step down at the end of the year.
- For those companies who cannot wait for the final decision at the end of year and may be looking to sell or purchase solar projects or pipelines, our mergers and acquisitions team is prepared to assist them in determining feasibility and value.
Contact us to learn more about these services as well as how we are supporting the solar industry to build safe, reliable assets that are performing as expected to have a positive impact and help mitigate climate change.