US President Donald Trump announced Tuesday a 30 percent tariff on imported solar equipment in a move likely to hurt the growing solar industry but one widely expected within the sector.
The tariff – aimed at breaking China’s stronghold on the industry – will start at 30 percent in year one and drop 5 percent per year in the following three years. The first 2.5GW of imported solar cells will be excluded from the tariff, which will expire after four years.
While the tariffs may be a boon for domestic solar manufacturers, they are likely to drive up costs for developers and others in the US renewables space. The American Council on Renewable Energy called the move “a needless drag on an important source of domestic investment and job creation”.
But for asset managers, the tariffs come as no surprise and are in fact lower than many investors feared. In October, the US International Trade Commission recommended a 35 percent tariff on the panels, leading to expectations that a higher tariff was possible.
“It has a negative impact on the economy and the solar market in general, but that impact has already been priced into current module prices and growth expectations,” Scott Brown, the chief executive of New Hampshire-based New Energy Capital, told Infrastructure Investor. “The market has been pricing in about a 35- to 40-percent tariff since last summer, so we don’t expect to see any material impact on the market.”
Investors noted that the decision will remove a question mark across the market.
“The silver lining in this, if there is a silver lining, is that it has taken uncertainty off the table,” Brent Canada, Deutsche Bank’s head of infrastructure and energy debt origination, told Infrastructure Investor. “Capital markets just don’t do well with uncertainty.”
Benoit Allehaut, a director of clean energy infrastructure for Capital Dynamics, said the tariff will not have too dramatic an impact. Most of a project’s costs come from construction rather than the price of the panels themselves, Allehaut noted.
“It’s an adder,” he told Infrastructure Investor of the tariff. “But it is far more muted than what people may think.”
Despite the tariff, expectations for growth in the solar industry remain high.
“While tariffs may delay investments in solar generation at first, we think the long-term impact will be limited since the tariffs expire in four years and the recent pricing of solar energy for 2023 reached record lows,” said Lesley Ritter, an analyst at Moody’s Investors Service.
Added Allehaut, “I don’t expect demand for long-term contracts to abate in any shape or form.”