Back in June Rethink Energy pointed out that while bifacial technology represented only 1% of existing solar installs, that the trigger for that increasing was President Trump’s infamous tariffs, which specifically excluded bifacial solar panels.
Now we understand how this came about, those developers working at the bleeding edge said they needed access to bifacials and the US Trade Representative saw no reason to quarrel over what looked like 1% of the market – but it has changed since then.
It was obvious to anyone who knew the market that it would change – if you did not consider using a bifacial panel, at least you had a trial, and pretty soon you could see that all those projects still in development and not already completed, would benefit financially from a) Having around 25% more electrical capacity as output, and b) not having a 25% tariff placed on panel imports.
Bifacial modules absorb light on both sides and improve energy conversion by as much as 25%. Most new projects bid in the last 6 months have focused on introducing Bifacial as it is more profitable, but installs were low. The solar industry already gets a 30% US tax incentive and given that as far as we can see the US has next to zero bifacial manufacturing capacity, what was supposed to be a penalty for Chinese importers, was in actual fact a special way of getting developers to move from cheaper Mono panels, to the more expensive, and more efficient bifacials.
The US Trade Representative explained its change of heart this week in the following terms, saying that in January the President imposed a safeguard measure on imports of certain solar products pursuant to a section 201 investigation. The trade group Solar Energy Industries Association fought the tariff on bifacial technology because it held “great promise for creating jobs, right here in America,” and in June an exemption was started.
But since that decision the US Trade Representative can see the decision “will undermine the objectives of the safeguard measure,” so it has decided to withdraw the exemption as of October 28th.
The problem is that the damage is already done. Solar panels come down in price at the rate of around 10% to 15% per annum, and the average cost of the panel, as a percentage of the entire systems capex for a utility installation, is around 35%. So you are seeing a 25% premium added to a systems component which makes up 35% of the system value. This is a net adjustment to your pipeline cost of around 8.5%. Given that panel values have fallen by 8% to 9% already during 2019, driven as much by the surplus of solar panels in China as anywhere else, this differential is really now about 7%. If you are genuinely getting 375 Wp from a bifacial, where the equivalent Mono panel was 280 Wp, then you have plenty of room to maneuver. The tax incentive of 30% in the US means no-one will change an installation planned for this year, or next at the very least, and by then the US-Sino trade war may be nothing more than a pet subject the previous President used to talk about.
So does this give an advantage to firms which make solar panels in the US? Ostensibly yes, but materials for making solar panels may also suffer from import tariffs, such as Silicon. So Hanwha Q Cells may operate in 40 countries and make panels in the US, and while First Solar could provide all US panels for a while, not everyone likes the technology, and it already has an international pipeline of around $4 billion. For what will turn out to be a maximum 7% slow-down in early project profit, few are going to kill the project or change their supplier. So we may have to get used to the idea that solar panels offer inelastic demand, and very little will change as a result of this tariff, except that onshore US manufacturers will have a slightly healthier sales pipeline.
The US Trade Representative said that newly available information demonstrated that global production of bifacial solar panels is increasing, that the exclusion will likely result in significant increases in imports of bifacial solar panels, and that such panels likely will compete with domestically produced monofacial and bifacial solar products from the US.
The change therefore is not a surprise – in that publicly many have said that excluding bifacial was a little like excluding solar panels generically and that it was bound to change.
Once again President Trump’s policies have shot the US economy in the foot. The deals that this change in policy affects will mean fewer solar jobs in the US and more elsewhere, and energy companies there will simply have less experience with bifacial solar, and be even further behind their international counterparts. Some projects will switch back from bifacial panels to Mono panels in order to get a price cut, but that is likely to undermine the long term profitability of those projects. In another 6 months the price of bifacials panels will fall so far, they will undermine the tariffs anyway.
Meanwhile jobs in coal and gas, markets which Trump promised to protect, have thankfully not materialized and instead are down significantly today and are due to be down more in the neat future, with a whole host of early coal plant retirements broad forward in the past quarter.