30 January 2018 US imposes new 30% tariff on certain imported solar panel modules On January 22, 2018, the Trump Administration announced the imposition of a new tariff on imported crystalline-silicon photovoltaic (CSPV) solar panel modules. The tariff, which will be in effect for four years, is initially 30%, then drops by five percentage points each year, ending at 15%. The tariff applies after 2.5 gigawatts of solar cells have been imported each year, whether or not fully assembled into other products. For context, in 2016, nearly 13 gigawatts of solar panels were imported.1 While much discussion has been made of modules imported from China, all other countries that export modules to the United States will be subject to the tariff, including Mexico, Malaysia, Korea, Vietnam and Thailand. The announcement ends months of uncertainty for the solar industry following a petition filed with the International Trade Commission (ITC) by Suniva, Inc. In its original petition filed on April 26, 2017, Suniva requested a price floor for modules of $0.78,2 which is substantially above the Q1 2017 average module selling price of $0.35-$0.40.3 The petition was filed under Section 201 of the Trade Act of 1974, which allows the President to decide on remedies in the event that the ITC finds injury. Following the ITC announcement on September 22, 2017, that it had found injury to US module manufacturers, the solar industry has been collectively waiting for an announcement of the terms of the tariff, if any. The 30% level announced by the White House actually falls short of the recommendation from Chairman Schmidtlein, which was for a 35% tariff on modules, decreasing over a four-year remedy period.4 The Trump Administration's announcement was not the first time in recent years that the United States had taken protectionist measures against imported solar modules. Beginning in 2012 under the Obama Administration, the Commerce Department imposed duties on Chinese imports. When many manufacturers shifted operations to Taiwan, the Commerce Department updated the duties in 2014 to include Taiwan. The announcement from the Trump Administration references those previous actions taken by the Commerce Department: "The U.S. Trade Representative will engage in discussions among interested parties that could lead to positive resolution of the separate antidumping and countervailing duty measures currently imposed on Chinese solar products and [US] polysilicon. The goal of those discussions must be fair and sustainable trade throughout the whole solar energy value chain, which would benefit [US] producers, workers, and consumers." The new tariff of 30% on CSPV modules would not result in a direct 30% increase in project costs as the cost of modules typically represents less than 50% of the total cost of a solar project. In fact, modules may only account for 20-30% of total project costs, depending on the design and engineering of the specific project. The average selling price of modules in Q4 2017 was $0.45/watt5 (up as a result of increased demand in advance of the tariff announcement). Because many project developers purchased substantial volumes of modules ahead of the tariff announcement, many projects in 2018 will use modules that are not affected by the tariffs. The effect of the tariff may be mitigated through continued advancements in module efficiency and further price decreases, areas in which the solar industry has proven to be adept. The tariff is likely capitalized into Section 48 Investment Tax Credit basis given that Treas. Reg. 1.164-2(f) provides that a tariff is not a tax, but can be treated under Section 162 as an ordinary and necessary business expense, which is capitalizable into asset basis under Section 263A. The tariff will have widespread effects on the solar industry from manufacturing to financing. As previously mentioned, however, the 30% level is significantly lower than the original petition from Suniva, Inc. as well as the 35% recommended by Chairman Schmidtlein. Certain projects will become uneconomical with higher equipment costs, but not to the same extent as if the tariff levels had been higher. Document ID: 2018-0217 |
