- Policy Regulation
- solar PV
- Renewable Energy
- Renewable Energy
- Solar Power
Could New Trade Deals Create a Cloudy Forecast for the US Solar Market?
After a lengthy investigation, the US International Trade Commission (ITC) unanimously voted in favor of pursuing protectionist policies on imported solar equipment. The panel found that imports of crystalline silicon PV cells and modules have caused serious injury to the US solar industry, rendering some firms incapable of competing in the global market. To insulate US solar companies from the practices of foreign producers, the ITC agreed to grant President Trump the authority to implement trade protection policies.
Renewable Energy Often Needs Government Support
As cost structures do not always reflect the environmental benefits of green technology, the integration of renewable energy (RE) often requires some form of government aid such as tax incentives, customs duties, or import tariffs to support nascent industries. For instance, Germany’s feed-in tariff scheme under the German Renewable Energy Act created financial security for investors, allowing for healthy market competition within the region to thrive.
Subsidies and tax breaks can also assist solar producers and manufacturers in their efforts to vertically integrate themselves along the value chain, especially when market prices become volatile. For example, a company producing solar cells may want to vertically integrate upstream by manufacturing polysilicon, or integrate downstream by installing PV equipment.
Government support can help alleviate cost impediments associated with integration along the value chain. The spillover effects from German policies, along with other market forces, have created an economic environment suitable for solar technology innovation and deployment. This has allowed Europe to represent 80% of global demand for solar panels for much of the 2000s.
A Global Trade
However, the efficacy of protectionism for the US solar market is up for debate, as the preferential treatment of domestic manufacturers may end up doing more harm than good. Comparative advantages and market imbalances within the RE industry have led to an increasingly globalized supply chain and a growing reliance on international trade. In fact, 87% of all US solar installations use foreign-assembled panels, which means that restrictions on solar imports would increase costs for US consumers. This could severely limit the integration of solar energy and US adoption of clean energy practices as a whole.
US Solar Market
The size of the US solar market at stake within the broader RE industry is grounds for concern. A substantial tariff could lead to the loss of 88,000 US solar energy jobs out of an estimated 250,000. US-based manufacturers have even spoken out against the use of trade sanctions due to the detrimental impact it would have on the entire solar industry.
In fact, researchers at the University of Chicago found that the primary driver of solar industry growth in the United States has not been manufacturing, but rather the increase of installations caused by decreasing costs of solar products. This study highlights the fact that solar employment in the United States is not dependent on manufacturing but on several other subsectors within the market such as installation, sales and distribution, and project development. The US decision to invoke protectionist policies may end up protecting cell and module manufacturing at a great expense to these subsectors.
Policy Ripple Effects
The ripple effects from these new tariffs would be far reaching. Many US businesses depend on competitive pricing along the entire value chain, not just in manufacturing. The solar industry represents one of the fastest growing industries in the country. Consequently, the decision to implement such policies could darken what was once a bright future for a critical industry.