This article is an extract from Wood Mackenzie's report The U.S. Solar Trade Barriers (Almost) Worked. But They Won't Anymore. 

In January 2018, the U.S. government implemented Section 201 solar tariffs on imported cells and modules. Although some initial successes were achieved, WoodMac's analysis shows that the effectiveness of this approach is now declining.

The trade barriers, composed of multiple layers of tariffs and import quotas, had a material impact in 2018 and early 2019. The 2.5-gigawatt solar cell import cap was enough to support domestic solar module manufacturing, and tariffs on imported modules were high enough to level the playing field.

However, the effectiveness of the trade barriers started to erode in 2019 due to strong demand in the U.S. solar market. We expect that the market will grow by 33 percent in 2020 and 48 percent in 2021 from the 2019 level. This will require domestic manufacturers to procure more solar cells from overseas suppliers than the tariff-free import quota supports. They stand to miss out on market opportunities if the quota is not increased to match demand.

Module imports from China on the rise

Module imports from China have been on the rise since January 2019. That’s despite a combination of Section 201 tariffs, anti-dumping and countervailing duties and Section 301 tariffs, also called "the China tariffs." According to U.S. customs data, China exported 314 megawatts of solar modules to the U.S. in 2019, and the trend continues in 2020. Over 490 megawatts of modules were imported from China in Q1 2020, already exceeding the full-year total of 2019 imports by 22 percent.

Three factors are responsible for this trend:

  • Heightened demand for bifacial solar modules
  • On-again, off-again Section 201 tariffs on bifacial modules
  • The cost-competitiveness of bifacial modules made in China

More than 95 percent of the Chinese module imports in 2019 came in the second half of the year, after the announcement of the bifacial module Section 201 tariff exemption. This exemption created a window of opportunity for U.S. solar developers to procure cheaper modules from China, but policy vacillations over the past 12 months have made it difficult for developers to transform their opportunistic actions into routine procurement practices.

Double-edged sword

The effectiveness of the U.S. solar trade barriers depends on one's vantage point. From the perspective of domestic solar manufacturers, the policy partially achieved its purpose: It increased U.S. production capacity and carved out a sizable market for domestic modules.

However, if the purpose of the policy is to protect and grow the entire solar industry, then the added cost and supply constraints have been counterproductive.

Tariffs have artificially made solar modules more expensive in the U.S. The cost is approximately 79 percent higher than in major European markets, 75 percent higher than Japan and 85 percent higher than in China. Without the tariffs, U.S. solar system prices could be nearly 30 percent lower. Utility-scale solar with high-efficiency modules and trackers in the U.S. would cost less than $1.00/W to build in 2020, two years earlier than the current cost trajectory will allow.

The Section 201 tariffs are currently scheduled to phase out on February 7, 2022. The U.S. federal government will determine what happens next.

If the U.S. extends the same set of tariffs for another round, by 2026 it may cost twice as much to buy solar modules in the U.S. than in Europe or Canada. In that case, installations will fall well below our current outlook.

***

Read the report to find out more about the forces influencing procurement strategy. Wood Mackenzie solar clients can access the report here.

Xiaojing Sun is a senior research analyst at Wood Mackenzie specializing in global solar PV supply chain and technology development.