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Tariffs and bankruptcies: Curb your solar enthusiasm?

February 9, 2018

It’s a weird time for solar energy in the U.S. While technological advancements and rapid adoption of those technologies has led to year-on-year, double digit increases in production, the business and political-policy side of the sector is more unsettled than just a few years ago.

 

 

 

 

The current U.S. president placed a 30 percent tariff on imported solar cells in January 2018, a move that ostensibly is to support domestic manufacturing. This comes less than a month after would be powerhouse developer SunEdison emerged from Chapter 11 bankruptcy a much smaller company than it once was.

 

The precursors to these two events, trade-blocking tariffs and a corporate reorganization, are murky at best. There is a strong argument for skepticism about the Trump administration’s reasons for solar cell imports. Domestic companies in many electronics industries – think televisions and cell phones – gave up American manufacturing a long time ago. The same can be said for a majority of products sold in Walmart or on Amazon.com. And a simple study of the history of tariffs shows they can backfire on consumers and an economy in so many ways (see: Smoot-Hawley Act of 1930). Because solar developments tend to be concentrated in states that didn’t vote for this president – Massachusetts and New Jersey each produces more electricity from solar than Florida, “the Sunshine State” – the projected loss of 23,000 installer jobs appear to be a punishment of political opponents as much as an intended industry stimulus.

 

What unfolded at SunEdison, unrelated to the presidential election, might be a story of corporate overreach and investor discontent. The solar development company, once valued at $10 billion, entered the bankruptcy process in early 2016. It paid $2.4 billion for FirstWind in 2014, a utility scale wind and solar developer. But it subsequently had to trim its sails, laying off more than 1,000 employees at FirstWind. The company made other missteps in striving to be a leader in renewable development; the investor community points its fingers at several executives and their decisions.

 

I was sorry to see this happen to a company that I’d written about just a few months prior. My article 
was about SunEdison’s chief tax officer and how it sometimes sold such things as polysilicon solar ingots made at its Portland, Oregon plant to its own solar wafer producing division in Malaysia. Tax regulations exist in all 35 countries where SunEdison had operations, and esoteric-but-important issues such as transfer pricing (fair, market-rate pricing when a company is buying something from itself so the tax revenues to each producer country are fair) were what the tax department at the company did.

 

What impressed me in the research of this piece was how globally interconnected the components of photovoltaic (PV) cell manufacturing are. Other complicating, tax-related matters are the state-level incentives and utility net metering policies that further influence where the PVs are installed.

 

Add to that the doubts about the Trump administration’s tariffs, expressed by Abigail Ross Hopper, president and CEO of Solar Energy Industries Association, the key trade group representing the breadth of manufacturers, installers and developers in the U.S.

 

Hopper says that encouraging domestic manufacturing is a good thing. But she cites the low production capacity currently in the U.S. The timetable to ramp up production presents an unrealistic scenario for meeting demand. Further, because the tariff only lasts four years and steps down in years two, three and four – and the fact the World Trade Organization can challenge and overturn it altogether – strongly suggests the incentive for domestic producers to invest in U.S. plants might not happen, at least not with gusto. And of those that do, the work is largely automated – probably not the job creator the president envisions.

 

“I think tariffs can work,” Hopper told Green Tech Media. “I just don’t think in this scenario they are likely to work.”

 

I assume the 23,000 installers who will lose their jobs don’t think it will work either. The question I ask is: Will manufacturers, developers and their investors curb their enthusiasm for solar businesses, given so much volatility – forestalling CO2 reductions by a yet a few more critical years?

 

 

 

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Russ Klettke

Business Writer