On January 22, President Donald Trump announced that the United States would be imposing tariffs on imported solar equipment. After receiving complaints from two domestic solar panel manufacturers about the effect of cheaper imports on their businesses, President Trump decided to yield to these concerns and approve steep tariffs on solar imports. The tariff will start at 30 percent in the first year, exempting the first 2.5 gigawatts of imported solar cells (approximately 11.5 million panels). It is then scheduled to decrease by 5 percent each year, until it is completely phased out in four years' time.
Seeing as over 80 percent of the United States’ solar supply is produced abroad, this tariff could have a considerable impact on the industry. The motivation behind this tariff is that it will allow American manufacturers to expand and create more jobs. However, according to The Solar Foundation, of the 260,000 workers currently employed in the U.S. solar industry, only about 38,000 work in manufacturing, while over 137,000 work in installations. With decreased imports, many of those working in installations could be out of work. The tariff could lead to a loss of 23,000 jobs this year alone, a decrease of about 9 percent. President Trump has often emphasized that he wants to create jobs and decrease unemployment, but this decision will likely cut more jobs in installations than it creates in manufacturing, resulting in a negative net effect on the United States’ employment rates and economy.
Due to the high number of companies using imported solar cells in their products, many of them will be forced to either absorb the cost of the tariff themselves, or increase their prices. Neither of these options is ideal. If a company chooses to absorb the costs, it will remain competitive in the market, but will likely experience slower growth and decreased profits, which would discourage investment. If a company chooses to boost its prices, it will not face higher costs but might lost market share.
Currently, a typical residential solar system costs about $15,000, and would pay for itself in six to nine years; with the tariff however, the payback could take eight to ten years, discouraging some buyers. Early analysis has shown that the price increase for residential customers would be about 3 percent, while the costs for solar farms and major utility projects would increase by about 10 percent. Although these numbers seem low, over the four years of the tariffs' lifespan, the tariffs could result in 1.2 million homes that would otherwise have switched to solar to remain powered by conventional electricity. Overall, there is expected to be an 11 percent reduction in solar installations, with 65 percent of that reduction being attributed to utility-scale solar.
Clearly, utility-scale solar projects will be hit the hardest by the tariff. For homeowners, the tariff will raise the costs of solar but most families will still be able to afford them as the cost of the panels represents a minor share of the total installation cost. Large projects, however, will have much higher costs due to the much greater amount of solar panels they need to install, and it may not be worth the investment. Duke Energy, for example, planned to almost quadruple its solar power capacity over the next five years, but it must now reevaluate this decision. Many projects similar to Duke Energy’s will have to be modified, if not cancelled, which is unfortunate since in recent years these utility-scale solar projects have been on the rise. Matthew McGovern, the chief executive of Cypress Creek Renewables, says “Every percentage point of tariff is going to mean projects which will no longer be built, because they are no longer economically viable … We’ll lose projects, no question.”
Solar power isn’t going anywhere. It is a $28 billion industry, and although the tariff affects more than three quarters of solar products installed in the United States, solar will continue to expand, albeit in a slower manner. Individuals and companies, however, stand to see their costs increase and their profits cut. This policy will inadvertently hurt American businesses and slow down our efforts to convert to renewable energy.
Author: Joanne Zulinski
- "Powering American Jobs - SOLAR," The Solar Foundation infographics
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- "Trump's Solar Tariff Is Bad, But Not a Huge Deal," Bloomberg Opinion Piece