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On June 6, the Biden administration announced executive actions that directly address one of the primary causes of the current instability across the solar energy sector. The U.S. Department of Commerce (DOC) will be enacting a 24-month tariff exemption on solar modules produced in the Southeast Asian countries being investigated by the Auxin circumvention petition.
In March, the DOC kicked off an investigation into manufacturers in Cambodia, Malaysia, Thailand, and Vietnam. The investigation was prompted by Auxin Solar (Auxin), a California-based manufacturer that claimed that solar manufacturers in these countries were circumventing antidumping provisions imposed on China. If the DOC reaches an affirmative determination, solar modules from these countries would be subject to tariffs ranging from 50% to 250%. The risk of tariffs introduced significant uncertainty to importers, who in turn stopped shipping solar modules into the U.S.
The investigation prompted much anxiety across the energy sector regarding the future of solar in the U.S., as these four countries provide approximately 80% of the modules imported to the U.S. If these tariffs are applied, they are expected to raise the already surging prices of Power Purchase Agreements (PPAs) and lead to the cancelation of solar projects across the country.
President Biden’s intervention is expected to directly address the negative impacts that the investigation has already had on the solar industry. The executive action gives Commerce Secretary Gina Raimondo the authority to permit a 24-month period of duty-free imports from cells and modules shipped from the four countries under investigation. It is important to note that duty-free importation only applies to new tariffs from the Auxin petition, or any new petition filed during the 24-month period; Section 201 and 301 tariffs will not be impacted.
The DOC must now create specific regulations for this “safe harbor” period. We expect the interim final rule outlining the safe harbor regulations to be released in the coming weeks and prior to the DOC’s preliminary determination in the Auxin circumvention case, which is due at the end of August.
If the DOC reaches an affirmative finding during the 24-month safe harbor period, the new tariffs would be applied beginning on June 6, 2024, on all cells or modules imported from the four South Asian countries being investigated. It is not expected that they would apply tariffs retroactively on imports prior to the June 6 executive action. However, this is not explicitly stated in the order, but we anticipate clarification on retroactivity once the regulations are released this summer.
Trade lawyers expect that the executive action will face litigation. It is likely that Auxin and potentially other domestic manufacturers will challenge the order in one of two ways: either by claiming that President Biden’s emergency declaration does not meet the level of necessity intended in the law and that executive authority has been overstepped, or by challenging the DOC’s regulations directly.
Challenges to executive authority are traditionally difficult to win, which will work in the Biden administration’s favor. If a lower court were to rule in Auxin’s favor, it still would likely be overturned on appeal. Furthermore, it is highly unlikely that an injunction stopping the DOC’s regulation would be allowed. There is precedent against this from other trade-related cases and it is very difficult to prove the regulation would cause “irreparable harm” if not paused for the duration of any court case.
The executive action is justified by the Biden administration as a way to reduce threats to national security caused by climate change, Russia’s invasion of Ukraine, and extreme weather events. To further address these threats, President Biden has also authorized the use of the Defense Production Act (DPA) to accelerate the domestic production of solar panel parts, building insulation, heat pumps, critical grid infrastructure, and equipment for making/using clean electricity generating fuels.
Despite this, uncertainty still exists around how quickly the industry will begin to feel the positive effects of these executive actions. S&P Capital IQ recently reported that the investigation, along with other market challenges, had significantly reduced the expected 2022 capacity additions by 50% to 15 GW. This was nearly equivalent to solar capacity additions in 2016, according to the Solar Energy Industries Association (SEIA). The U.S. solar trade association currently estimates the solar market could recover 2 to 3 GW of additional capacity in 2022 as a result of President Biden’s executive action.
While this executive action is generally a positive development for the U.S. solar industry, Edison Energy is still assessing the overall impact to pricing and project availability for clean energy buyers. Developers have indicated that they are in conversations with manufacturers about available capacity, delivery schedules, and pricing. It will likely take several weeks for developers to digest this information and offer PPA pricing that reflects panels from previously impacted countries.
Buyers seeking to procure utility-scale renewable energy must be aware that there are many price pressures on projects today. For much of the past two years, developers have been facing the challenges of rising raw material costs, soaring shipping expenses, and high construction costs. Solar project developers will hopefully see some relief on pricing as a result of the executive action, but this is not guaranteed. Edison recommends that buyers request further transparency into developers’ pricing assumptions to understand the variables a given project or developer is most sensitive to.
While it remains unclear as to how long it will take for the U.S. solar industry to recover from the impact of the investigation, clean energy buyers can look forward to increased certainty overall as the solar industry begins to settle from the initial shock of the investigation. Given that this is a rapidly evolving situation, we will share more information in the coming days and weeks.
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