The U.S. solar industry is in an uproar after the Trump administration slapped a tariff of up to 30 percent on solar cells and panels made outside the United States.
Tesla Inc., which is slowly building production with its partner, Panasonic, at a massive solar panel factory in South Buffalo, largely shrugged its shoulders at the new tariff.
"Tesla is committed to expanding its domestic manufacturing, including Gigafactory 2 in Buffalo, New York, regardless of the solar tariff decision," the company said in a statement.
Tesla had remained largely quiet in the solar panel tariff debate, although it did indicate its opposition to the duties last summer. Its Buffalo factory gives it a hedge against the new tariff because the company is building a source of domestic panel production that will allow it to avoid the new duties.
But the factory is only now beginning to make solar panels, and while the Buffalo gigafactory eventually should be able to meet much of Tesla's solar panel needs, it still will need to use imported panels as production ramps up, which will expose the company to the higher panel costs the rest of the industry now faces.
Even the solar panels that Panasonic has been making at the Buffalo factory would be subject to the tariff. That's because Panasonic currently is relying on solar cells that are made at its factories in the Far East to produce the solar panels it is making in Buffalo.
The company plans to start making solar cells – each solar panel contains dozens of solar cells – in Buffalo beginning in February. That will shield Tesla and Panasonic from the tariff on solar cells as production ramps up, but for now, the additional duties will be a factor for as long as Panasonic uses imported cells.
Other U.S. solar installers warned that the tariffs could deliver a serious blow to one of the nation's fast-growing sources of renewable energy. They warned that the tariffs, because they will make the solar panels that most installers use more expensive, could lead to fewer systems being put into service, leading to the loss of tens of thousands of jobs among solar panel installers.
"It's basic economics," said Abigail Ross Hopper, the president and CEO of the Solar Energy Industries Association, during a conference call Tuesday. "If you raise the price of a product, it's going to reduce the demand for that product."
The tariffs, targeted mainly toward manufacturers in China and the Far East that currently supply the bulk of the panels used in the United States, will start at 30 percent and decline to 15 percent over a four-year period. The first 2.5 gigawatts of imported solar cells are excluded from the tariff each year.
The tariffs could increase the cost of residential rooftop systems by about 4 percent, and much bigger utility-scale installations by around 10 percent, according to ClearView Energy Partners.
The SEIA warned that the tariff would lead to the loss of roughly 23,000 jobs within the U.S. solar industry, mainly among installers, as the higher prices lead to the delay or cancellation of billions of dollars in solar energy projects. More than 260,000 U.S. workers are employed within the solar energy industry, the group said.
"We are not happy with this decision. We think this is not the right move for the U.S. economy," Hopper said. "It is not even the right move for U.S. manufacturing."
The solar energy trade group also predicted that the tariffs would lead to a nearly 20 percent drop in solar installations across the country during 2018 in what already was expected to be a softening market for the industry. Over the next three years, the group said the tariffs could cause solar installations to drop by 6.7 gigawatts, or enough to provide power to 1.2 million homes.
While analysts expect utility-scale solar installations to be impacted the most by the tariffs, higher panel prices also are likely to reduce demand for solar energy among businesses and homeowners looking to install solar panels on their roofs. That will be especially true in markets where conventional electricity prices are lower, making it more difficult for consumers and businesses to save money by going solar.
"Most consumers are purchasing solar because it makes economic sense," Hopper said. "They're doing it because they're saving money on their energy bills."
Those higher costs, in turn, could reduce sales for Tesla's residential rooftop solar business, which already is grappling with falling installations as the company has focused on reducing costs within the former SolarCity unit it acquired in November 2016.
The tariffs are mainly targeted at Far Eastern nations, such as China, Malaysia, Thailand and Korea, which have become powerful players in the solar industry by supplying low-priced panels that have become the dominant source for U.S. installers.
China now makes 60 percent of the world's solar cells and 71 percent of its solar panels, according to the U.S. Trade Representative. In 2005, China's share of the global solar cell market was 7 percent.
There also was one nugget of good news in the tariff announcement. The 30 percent tariff is less than the 35 percent duty that the U.S. International Trade Commission recommended in October when it found that panel imports were hurting U.S. panel manufacturers.
"Given that some of the proposals had featured tariffs as high as 35 percent … we see this announcement as a positive for module importers given the quick scale to 15 percent over four years, " Jeffrey Osborne, an analyst at Cowen & Co., said in a research note.