China’s solar subsidy cuts to improve margins of US developers

25 October 2018 (Last Updated October 25th, 2018 11:54)

Solar power developers in the US who rely on imported solar panels will now see an improvement in their profit margin. This can be attributed to the announcement made by the Chinese government to have subsidy cuts on solar panels.

China’s solar subsidy cuts to improve margins of US developers
In January 2018, the US government imposed tariffs of 30% on imports of solar products. The four-year tariff on solar modules steps down by five percentage points a year before expiring in 2022.

Solar power developers in the US who rely on imported solar panels will now see an improvement in their profit margin. This can be attributed to the announcement made by the Chinese government to have subsidy cuts on solar panels. The developers have been struggling since January 2018 when the tariff was levied on solar product imports by the US government. Hit by higher costs of imports, many developers announced cancellation of their projects. The announcement of subsidy cuts in China has resulted in reduced demand for solar products within the country. Subsequently, the global market is expected to witness an oversupply of solar panels, thereby reducing the prices. The drop in panel prices globally and in the US will help revive solar installation and boost the margins of the developers.

The US solar market has been affected twice in 2018 by two separate policy decisions announced in the US and China. These two policies have had contrasting effects on panel manufacturers and project developers in the US. In January 2018, the US government imposed tariffs of 30% on imports of solar products. The four-year tariff on solar modules steps down by five percentage points a year before expiring in 2022. This is aimed at safeguarding the interests of local manufacturers. The tariffs led to a surge in panel prices which was a boon for the manufacturers. Several overseas companies announced new investments in manufacturing facilities in order to boost their profits by making panels in the US. In January 2018, JinkoSolar Holding Co announced that it planned to construct an advanced solar manufacturing facility in the US. In May 2018, Hanwha Q CELLS Korea Corporation announced that it would start construction of a solar module production facility in Georgia, scheduled to be completed by 2019.

On the other hand, hit by the higher costs of imports the solar developers started cancelling projects. Some developers also started negotiations to restructure their power purchase agreements (PPAs) due to higher costs resulting from tariffs. Utility-scale solar developers like Cypress Creek Renewables, LLC and Southern Current announced that the higher panel prices caused by the increase in tariffs had forced them to cancel or defer projects worth more than $2.5bn.

In June, 2018, China announced that it would not issue any new approvals for solar installations in the country for the current year and subsequently announced a cut in the feed-in-tariff (FiT) subsidy, which had been a major driver for solar installations in the country. The cut in the subsidy has been made in order to reduce the surge in solar installations China, which has been struggling to build infrastructure to link these solar projects to the grid. The country, which contributes around 50% of global solar photovoltaic (PV) installations, has witnessed a reduced demand for solar panels following the announcement.

Local Chinese manufacturers will now export more panels resulting in an oversupply in the global solar PV module market, which will further reduce the prices. The increase in the global supply of panels has reduced the cost of panel purchase in the US. As a result, manufacturing of solar panels in the US has become more challenging. The falling price will force these manufacturers to operate at a lower margin. SunPower Corporation, which had earlier planned for expansion by agreeing to acquire the production facility of troubled SolarWorld Americas following the announcement of import tariffs, will run at a lower profit margin. Canada’s Heliene Inc, which was to open its Minnesota factory, has said it will focus on cost-cutting measures to compensate for the falling prices of solar components.

On the other hand, developers like Inovateus Solar have become more optimistic following the announcement made in China. The company has closed a deal to develop a 6 megawatt (MW) solar PV plant in the city of Pratt, Kansas. This has also revived the hiring plans of the firm. Pine Gate Renewables, a North Carolina-based solar installer, has welcomed the move, since the lower prices will help the economics of projects already in the pipeline.

According to the US Energy Information Administration (EIA), the US solar industry employs more than 250,000 people with about 40% in the installation sector and 20% in the manufacturing sector. Since the majority of them were employed by project developers, the industry started witnessing job cuts after the implementation of import tariffs. Following the announcement made in China, many developers will revive their hiring plans and the industry will witness an influx of jobs. So the drop in prices globally and in the US will help developers to revive projects and jobs which were put on hold after the import tariffs levied previously.