Renewables pros see latest commerce hurdle as manageable

Data InsightInside Infra 10 December

Renewables pros see latest commerce hurdle as manageable

Some in the renewables industry view the latest determination as a playbook for firms facing circumvention risk. The ongoing moratorium and the ramping of domestic US manufacturing of solar components should help.

Renewables industry groups sounded the alarm last week when the US Department of Commerce issued a preliminary determination that firms operating in four Southeast Asian countries had circumvented antidumping and countervailing tariffs. The CEO of the American Council on Renewable Energy warned that the decision could chill the industry, while groups like American Clean Power and the Solar Energy Industries Association warned it could undermine President Joe Biden’s clean energy goals. 

Privately, however, some in the industry were breathing a sigh of relief. One renewables-focused investor says the preliminary ruling “wasn't as bad as it could have been.” A policy analyst for an engineering services firm called it “much better than I expected.” 

“This is the best bad decision we could get,” the policy analyst, whose firm works closely with suppliers and developers, adds. 

In June, President Biden announced a two-year freeze on circumvention duties on solar cell and module imports from Thailand, Malaysia, Vietnam and Cambodia, from where some 80% of US solar imports come. Before the moratorium, the prospect of tariffs up to nearly 250%, possibly retroactive, hung over the industry and led many solar developers to put plans on hold. 

The investigation was initiated at the request of Auxin Solar, a San Jose-based manufacturer, which claimed that most of the value of the cells and modules from the four Southeast Asian countries accrues to China. China itself is subject to country-wide rates of 238.95% in anti-dumping duties and 15.87% in countervailing duties, though actual company rates vary. Because of these high duties, very few solar cell and module imports come directly from China.   

In its 2 December announcement, the US Department of Commerce announced that Vina Solar, Trina, Canadian Solar and BYD Hong Kong were all found to be bypassing US duties against imports from China by doing minor processing in Cambodia, Malaysia, Thailand, or Vietnam before shipping to the US, setting the table for possible sky-high tariffs once the moratorium expires. A final determination is expected to come in May. 

Time to prepare 

The threat, however, is not as acute as it was this spring. Assuming Biden’s moratorium is not successfully challenged in court, the prospect of immediate or retroactive tariffs seems off the table. (Auxin’s CEO said in a statement that the Commerce decision “largely validated” the firm’s allegations but did not respond to inquiries into whether the company plans to challenge the pause.) 

That gives the industry another 18 months to prepare for the end of the moratorium. Over that time, domestic manufacturing of these solar components may ramp up or manufacturers in Southeast Asia may rework their supply chains to avoid the anti-circumvention tariffs – or some combination of both, according to Keith Martin, US co-head of projects at Norton Rose Fulbright. 

The Biden administration would like to see more of the former. The administration has made efforts to promote domestic solar manufacturing; for example, the 24-month tariff pause was announced alongside authorization of the Defense Production Act (DPA) to accelerate solar panel production stateside, and the Inflation Reduction Act (IRA) created the 45X production tax credits for solar components. 

“We have been getting lots of inquiries from manufacturers on tapping into these credits,” says Martin. “One possibility is that the market is on the way to adjusting enough to make this manageable.” 

Realistic blueprint 

The Commerce determination has left several people spoken to for this article fairly optimistic regarding the ability of firms operating through Southeast Asia to rework their supply chain. Commerce noted, in the same announcement, that four firms – New East Solar, Hanwha, Jinko and Boviet – were not circumventing the tariffs. The renewables-focused investor says that the Commerce Department’s findings largely mirror his firm’s own work validating supply chains. 

“With that grace period we have, by the time this would kick in, that should be enough time to spool up the wafering in places other than China to comply with the latest guidance,” the investor adds. “I don't think it will have a material impact on the industry, to be honest. If it does, it would be a very brief period when the grace period ends.” 

Additionally, according to the policy analyst, the Commerce determination provides a realistic blueprint for Southeast Asian firms currently facing tariffs to adjust their supply chains by June 2024, when the tariff moratorium is set to expire. For example, there is significant wafer – a silicon material – and ingot capacity within Southeast Asia to replace the Chinese supply, he says. 

“As long as they do some of the necessary steps to localize some of their supply chain, there is no reason why any manufacturer that has its act together can't comply with what Commerce has laid down and be exempt from duties come June 2024,” the analyst explains. 

The severity of disruptions to the US solar sector from Commerce’s ongoing investigation could turn on the Biden administration’s willingness to extend the moratorium, if needed, according to Allan Marks, a partner with Milbank LLP’s global project, energy and infrastructure finance group. 

“When the Auxin investigation was launched, the resulting uncertainty around tariff applicability and imported component costs led many solar power projects to be delayed or suspended,” Marks says. “Uncertainty around the adverse impact of tariffs on solar power development may well come back with a vengeance if the temporary freeze on the application of the tariffs is not extended or the investigation is not quickly resolved.” 

Not all in the industry are sanguine regarding the Commerce determination’s impact. The potential for tariffs could have significant negative implications and drive-up costs for new solar projects, Marks says. 

Mitigating risk 

Shannon Weigel, head of policy at Edison Energy, expects developers to build the risk of tariffs into price premiums for projects from 2024 onwards “to mitigate the potential tariff headwinds and uncertainty on whether domestic manufacturing capacity can ramp up to meet existing US demand,” Weigel said via email. 

And despite the two-year reprieve, some off-takers and developers are already shunning suppliers found circumventing, according to one industry attorney who works with developers and off-takers. 

“Anyone who is on the list who was either found to have violated the law or that were non-responsive, everyone is going to have questions,” the attorney says. “Is there reputational exposure in still using them? Is there actual liability exposure in still using them?" 

The policy analyst counters that these questions have not come up in his conversations with clients. 

“Our clients are trying to get modules however they can in order to complete their projects,” he says. “They can give a damn about whether or not a company has been listed as circumventing, as long as it is able to export its products to the United States duty-free, and as long as they aren't on the hook for any of the [tariff] risk.” 

Regardless of the impact of the Commerce investigation, the solar industry does face significant headwinds. One of the biggest is the Uyghur Forced Labor Prevention Act (UFLPA), which has blocked over 1,000 solar shipments from entering the country. The Commerce determination, according to the renewables investor, is just a “rounding error” compared to the impact of the UFLPA at the moment.

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