Price increases hit solar as trade uncertainties with China cloud growth goals

Solar prices rose quarter-over-quarter and year-over-year in every U.S. market segment, according to the Q2 U.S. Solar Market Insight report released by the Solar Energy Industries Association (SEIA) and Wood Mackenzie.

The trifecta of price increases was a first since Wood Mackenzie began modeling system price data in 2014. In the latest report, prices were found to have risen the most for the utility-scale segment, about 6% year-over-year. Many solar developers have sufficient inventory for 2021, but will likely begin to see price increases in 2022, the report said.

“Price increases, supply chain disruptions, and a series of trade risks are threatening our ability to decarbonize the electric grid,” said SEIA president and CEO Abigail Ross Hopper in releasing the report.

Headwinds included recent import enforcement actions on Xinjiang metallurgical-grade silicon and two new tariff petitions that allege dumping by Chinese producers. Taken together, these actions could “significantly exacerbate supply chain constraints and increase solar system prices,” the report said.

The price increases and renewed trade uncertainty come at a critical time for the solar industry. Earlier in September, the U.S. Department of Energy released its Solar Futures Study examining solar’s role in decarbonizing the nation’s electric power grid. It said that by 2035 the U.S. would need to quadruple its yearly solar capacity additions and provide 40% of the electricity on the grid, on the order of 1,000 GW.

By mid-century, solar energy would need to provide 1,600 GW on what by then would be a zero-carbon grid, the study said. Decarbonizing the entire energy system could result in as much as 3,000 GW of solar by 2050 as result of increased electrification in the transportation, buildings, and industrial sectors.

But new forecasts from Wood Mackenzie showed that the U.S. on track to average just over 29 GW of new annual solar capacity additions through 2026. It said that pace “is far short” of what is needed to reach 2035 clean energy targets. To reach those targets, the solar industry must install more than 80 GW of solar annually from 2022 through 2035, the firm said.

Trade uncertainties

In June, a “Withhold Release Order” was issued by the U.S. Customs and Border Patrol (CBP). The order targeted a company called Hoshine Silicon Industry Co. Ltd., which is located in China’s Xinjiang Uyghur Autonomous Region. The government order instructed personnel at all U.S. ports of entry to “immediately begin to detain shipments containing silica-based products” made by Hoshine and its subsidiaries.

Price increases, supply chain disruptions, and a series of trade risks are threatening our ability to decarbonize the electric grid,” said SEIA president and CEO Abigail Ross Hopper in releasing the report. The order was issued in response to what officials said were credible reports of forced labor in the solar supply chain originating in the Xinjiang region of China.

By mid-August, reports began to surface that solar module shipments to the U.S. were already being detained by CBP agents. Reports said that JinkoSolar had around 100 MW of product detained by border agents, and that the manufacturer may not ship hundreds of megawatts of capacity to the U.S. as long as the customs inquiry is in process.

Canadian Solar also was said to have had four testing samples detained, and Trina Solar may have had six testing samples detained in July.

Sources said that while the volume of equipment that appears to have been detained is small, concern is rippling through the solar sector that the risk is potentially much larger. A problem is being able to prove to CPB agents that a solar module’s supply chain is free of forced labor input.

But obtaining that evidence is difficult because China so far is prohibiting most second- and third-tier suppliers from cooperating with the supply chain audits that are needed to prove to customs agents that no forced labor was used in the supply chain.

Semantics

To a degree, it’s a matter of semantics. Chinese officials vigorously deny that forced labor even exists in the country. Terms like worker relocation are preferred instead, and don’t suggest that any alleged coercion was involved. As a result, Chinese officials are barring companies from taking part in audits that are premised on Western allegations of forced labor.

The risk facing the solar industry is that more than 90% of the world’s silicon-based ingot and wafer manufacturing takes place in China, creating a supply chain choke point that may prove more vulnerable to customs enforcement than was first thought. Without a clear audit trail, it’s difficult to know how much product from Hoshine is included in refined polysilicon.

An even larger challenge may come from the antidumping challenge lodged with the U.S. Department of Commerce in August.

In that action, a group of companies (that declined to be named but claimed to be players in the U.S. solar industry) asked Commerce to impose antidumping (AD) and countervailing duty (CVD) orders on a handful of producers of crystalline silicon photovoltaic cells and modules imported from Malaysia, Thailand, and Vietnam.

Data from the Energy Department showed that in 2020, Vietnam was the leading exporter to the United States, followed by Malaysia, South Korea, and Thailand. The American Solar Manufacturers Against Chinese Circumvention filed three petitions requesting that Commerce investigate what it said are “unfairly traded imports” from the three countries.

The group said that circumvention of antidumping and duties on Chinese solar products has “hobbled the U.S. industry, eviscerated our supply chains, and put our clean energy future at risk.”

October milestone

The department is expected to make a preliminary determination in the case in early October. Trade experts suggest that the complaint may have merit. If Commerce does agree to take up the case, it could pose a problem for the U.S. solar sector. That’s because although it would have until next summer to issue a finding, any tariffs that result would be retroactive to when the Commerce Department investigation began. Sources said that few projects could weather the impact of what could be a sizable tariff on any affected imported components.

Michelle Davis, principal analyst at Wood Mackenzie and lead author of the second quarter market report, said that the industry is “bumping up against multiple challenges” that range from elevated equipment prices to complex interconnection processes. She said that addressing these issues “will be critical to expanding the industry’s growth and meeting clean energy targets.”

The second quarter report said that the solar industry will likely continue to set annual installation records until the solar Investment Tax Credit fully phases down in 2024. Industry growth is expected to flatline in 2025 and 2026. These forecasts do not account for additional trade actions, which represent what Wood Mackenzie call “a substantial downside risk” to its outlooks.