Are Solar Tariffs a Good Idea?

solar9898Last Wednesday, the New York Times reported that companies importing solar panels to the U.S. are facing up to $70 million in unexpected tariffs.

Because solar panels have become too sophisticated to qualify for duty-free status, the U.S. Customs Agency has stated that they will be treated as electric generators – which are subject to a 2.5% duty.

Now word is, hardly anyone in the industry was even aware of the tariff until last week. I do find this hard to believe. And if they weren’t aware of it, they should’ve been. Such an oversight seems a bit questionable to me.  Nonetheless, unpaid duties and penalties have been piling up. But it’s not just foreign solar manufacturers that are unhappy with the tariff.

The fact is, as a result of an enforced tariff, other countries could impose their own tariffs on U.S. exports. This has caused concern for some domestic manufacturers, as the U.S. has already exported more than a half billion dollars in solar panel equipment this year.

Still, imports do account for nearly half of the solar panels sold in the U.S. So it is likely that we will see foreign and domestic suppliers working together in an effort to negotiate a deal with Customs.

In the meantime, it should be noted that some foreign solar manufacturers are now moving some of their operations to the U.S. Certainly this would allow them to avoid the duty, while also enabling domestic job creation. Cutting out the heavy distribution costs (both environmental and economic) also serves as a bonus.

Moving In

Back in October, 2008, German manufacturer SolarWorld AG (ETR:SWV) opened a solar cell manufacturing plant in Hillsboro, OR. That facility is expected to reach a 500 megawatt capacity by 2011.

And just this past May, Chinese manufacturer Suntech Power (NYSE:STP) announced its plans to establish manufacturing in the U.S.

CEO, Dr. Zhengrong Shi said. . .

“We believe in the outstanding long-term prospects of the solar energy market in the United States, and we will continue to invest in our ability to meet a substantial portion of that potential growth through in-market manufacturing. A number of favorable developments have led us to this decision, including the dramatic growth in utility demand for large-scale wholesale solar projects, the increasing number of states with incentive programs for customer-owned systems and the federal government’s recent stimulus package, all of which will drive steady, long-term growth in demand.”

According to Reuters, it looks like Suntech will set up shop in either Arizona or Texas.

Still, even with domestic manufacturing credits and the call for more domestic job creation, there’s no disputing the fact that China’s own tax breaks and labor costs have enabled Chinese manufacturers to cut prices nearly in half.

And while Suntech is building manufacturing in the United States, Dr. Zhengrong said in an interview that in an effort to build market share, his company is actually selling panels on the U.S. market for less than the cost of materials, assembly and shipping.

It’s hard to believe that less than a decade ago, solar was cast aside as nothing more than a pipe dream or toy for the wealthy and eccentric.  Yet here we are today, dealing with an industry that’s now so lucrative and growing so fast, our heads are spinning with costly tariffs and cut-throat competition.

So what are your thoughts on all of this?

Should a tariff be enforced?

Can the U.S. effectively compete and create jobs?

I certainly don’t have the answers to these questions.   But I look forward to your responses.

I am the co-founder and managing editor of Green Chip Stocks. We are an independent investment research service focused exclusively on "green" markets.

2 responses

  1. I haven’t looked into the details of the tariff, but not surprised that most in the industry were unaware. These sorts of policy decisions can often slip through. If you’re importing, calculate, pay, then protest to stop interest and penalties!

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