Tariffs on Chinese solar panels will raise prices on utility-scale projects and in the distributed solar market.
On June 2, 2014, the U.S. Department of Commerce (DOC) made the decision to start implementing countervailing duties (“countervails”) on Chinese solar panels that will raise prices of commercial-scale and distributed solar projects. In 2013, 31% of all solar panels installed in the U.S. were Chinese modules. Within the distributed sector alone, the Chinese supplied the U.S. with more than 50% of panels installed. Seemingly, the $0.10 increase in price per Watt will have an effect on the distributed solar market, of which a large portion utilizes Chinese panels. However, utility-scale projects will experience a proportionally larger increase in price as shown by the Balance of System (BOS) model, thereby thinning profit margins.
Initially, Chinese modules were priced at $0.60-0.70 per Watt, however, according to GTM Research, duties of 19-35% will place approximately 14% of tax incidence on customers. As a result, they expect, and we have heard in the marketplace, a $0.10 increase in price to or slightly above $0.70 per Watt. This shrinks the gap between Chinese and U.S. panels, which cost about $0.90-1.00 per Watt.
Here are some estimates on how project costs will change based on the new countervails:
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Comparative Cost Per Watt for Different Project Scales Using the Balance of System Model |
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Project Scale |
System Size |
Cost Per Watt for Project Using Pre-Tariff Chinese Module Prices |
Cost Per Watt for Project Using Post-Tariff Chinese Module Prices |
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| Residential | 2 kW – 10 kW | $3.50-4.50 | $3.60-4.60 | $3.80-4.80 |
| Commercial | 50 kW – 5 MW | $1.80-2.80 | $1.90-2.90 | $2.10-3.10 |
| Utility | 5 MW+ | $1.50-1.90 | $1.60-2.00 | $1.80-2.20 |
This chart shows project costs using a “Balance of Systems” (BOS) model, which examines the cost per Watt by including those non-module, non-inverter costs that are involved in constructing an array. These include costs such as labor for installation, interconnection, permitting, inspection, and wiring. The cost per watt using these prices accounts for anywhere between 16-48% of the BOS cost. Based on our analysis, the new countervailing duties increase overall project costs by about 2.5% for residential-scale projects using Chinese modules. However, on a utility-scale project, where non-module costs are less dominant, the costs rise by approximately 6%. In the BOS model, utility-scale projects rise from $1.70 to $1.80 per watt on average, which is a larger percent increase than residential-scale projects, moving from $4.00 to $4.10 per watt on average.
Of residential-, commercial-, and utility-scale projects, utility-scale projects have the thinnest margin. As a result, these projects will be more highly impacted by the taxes on subsidies. Further, competition at utility-scale project levels means that they already tend to offer lower rates. Therefore, when the price of each module increases, the margin thins even more per panel on a utility-scale. Utility-scale projects thus make less of a profit because the costs have increased while they cannot increase their prices significantly.
Since more than 50% of distributed solar uses Chinese panels, a significant portion of this market will be directly affected by tariffs. Distributed solar generally consists of residential- and commercial-scale projects. Therefore, while utility-scale projects have the thinnest margin, both residential and commercial solar can expect price increases that will significantly impace their sector of the industry. The sheer volume of Chinese-manufactured panels within the distributed sector means that price hikes will cause overall system costs to rise, and distributed solar may need to find ways of reducing other upfront costs to balance out the rise in module costs.
Countervails also affect project developers, particularly from the perspective of Power Purchase Agreements (PPA). Developers enter into PPAs with utilities or customers that usually last about 20-25 years, as utilities seek agreements that are low cost. Therefore, those developers that have already negotiated or executed PPAs but have yet to purchase modules for these projects will incur the extra costs of the countervails. Without the capability to renegotiate PPAs and a desire to remain competitive for investors, developers will lose profit.
Using our models, we were able to look at the increase in PPA prices caused by the implementation of countervailing duties. Based on sample project sizes, we can see that PPA prices will increase at a larger percentage for those projects that are of a larger scale.
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Comparative PPA Prices for Different Project Scales |
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Project Scale |
PPA Price Using Chinese Modules Pre-Tariff |
PPA Price Using Chinese Modules Post-Tariff |
Percent Change in PPA Price |
| Residential | $0.157 | $0.161 | 2.5% |
| Commercial | $0.189 | $0.196 | 3.7% |
| Utility | $0.099 | $0.104 | 5.1% |
The DOC has yet to finalize the list of materials that will be taxed, and the International Trade Commission could change the list at the final determination on August 18. Since the final details of the tax are unknown, the uncertain pricing has led to a slowdown in investment. Investors are less willing to commit to projects until final costs have been determined. Developers are less capable of negotiating PPAs during these next couple of months, because given the uncertainty of tariffs, a $0.10 difference in a single watt could be a price increase of $500,000 on a large-scale project. Further, on July 25, the DOC will address the possibility of an anti-dumping tariff on China to supplement the countervails. This would hike up the prices of Chinese panels even more than we have seen recently.
Overall, the major challenges introduced by countervails on Chinese panels include the thinning of margins on projects of all sizes and pricing uncertainty. Given that utility-scale projects have the thinnest margins, they will be harmed significantly by these duties. Distributed solar will also experience higher system prices due to the large portion of that market made up by Chinese panels. Developers must endure pricing uncertainty in PPAs for several months, as no final determination of materials targeted by the tariff has been made, and there is potential for anti-dumping tariffs to be implemented. Therefore, along with overall price increases, uncertainty contributes to thinning margins.
Sol Systems is working to lessen the impacts of the new tariffs to determine the continued viability of projects. Developers and investors can contact our developer advisory team at 888-235-1538 or finance@solsystemscompany.com for assistance in how to proceed on those projects whose prices have increased as a result of this tariff. Further, clients can utilize our resources on ways to decrease costs in areas other than modules to reduce the upfront costs associated with projects.
About Sol Systems
Sol Systems is a renewable energy finance firm that provides secure, sustainable investment opportunities to investor clients, and sophisticated project financing solutions to developers. Founded in 2008, Sol Systems focuses on meeting the industry’s most critical solar financing needs, including tax structured investments, capital placement, debt financing, and SREC portfolio management. To date, the company has facilitated financing for thousands of distributed generation solar projects and hundreds of millions in investment on behalf of Fortune 100 corporations, utilities, banks, family offices, and individuals. For more information, please visit www.solsystemscompany.com.
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