What are your near-term and long-term predictions for the U.S. solar industry in response to the Trump tariffs?
It’s not just the solar tariffs. Now we have tariffs on steel and aluminum and we also have uncertainty as to which countries these new tariffs will involve, which speaks to larger market uncertainties that could negatively affect the industry. Uncertainty is not good for any market or industry.
Concerning tariffs, market participants along the value chain will suffer because they may not be able to raise their prices and their margins will be further squeezed. It is very difficult in the solar industry to raise prices (or tender bids, or PPA bids) to the end users. Though I do not see significant shrinkage in the market for utility scale, and large commercial, there may be some due to margin squeeze for the DG residential and small commercial applications. Investment in the distributed generation of things where net metering is offered as an incentive is really driving the demand side. Factors that cause hiccups in demand are very complex. We have to wait and see what happens when all the exclusions play out for both the cell/module tariffs and the steel/aluminum tariffs. Taken together, there could be loss of some jobs.
How will international module manufacturers shift their operations to serve demand in the U.S.? Will they look to new growth markets instead?
It is difficult in a highly vulnerable industry that is incentive-mandated or subsidy-driven to ignore any market even if the market is problematic. I would say the addition of the steel and aluminum tariffs are making the U.S. market more complex to deal with, making it less inviting. China has over 50 percent of demand for PV installations as well as over 50 percent of supply capability for cells and modules. So why would they bother with the United States which is now less profitable than it used to be and more problematic?
Should China’s government decide to slow domestic PV deployment or choose to divert focus from the U.S. in terms of shipments, it would lead to a tight supply situation and higher prices. However, it is more than likely that a workaround will be found by shipping through excluded countries such as India, Turkey and others. Before the steel/aluminum tariffs were announced, Jinko Solar announced its plan to start production in Florida and we will have to wait and see how much production capacity they reach.
For U.S. manufacturing, the smart move would be to focus on module assembly as cell manufacturing takes a lot longer. Manufacturers need to look at a market and analyze if there are legs there. For budding markets in Latin America, are these vulnerable markets going to stay strong? Right now, the U.S. has 500 MW of excess module assembly above what we have in cell capacity, that means we can add 2 GW of module assembly capacity and import 2.5 GW of cells with that tariff. Will that happen? Manufacturers have to believe that demand for PV installations in the U.S. and other Americas’ markets will be consistent before committing funds to establish manufacturing operations.
What can we expect for each U.S. market segment?
It is a little early to speculate and it is always difficult to predict a vulnerable, volatile market that still relies on mandates and subsidies despite what people like to say. The government has to make a decision to do something and follow through with it. The trend in the U.S. led by utilities and states — despite the Trump administration’s dislike of solar and other renewables — is to increase the deployment of solar and other renewables. PacifiCorp developed plans to move forward integrating wind and solar together to ameliorate the variability while using storage to a certain extent. In the wake of solar-plus-storage, it is always forgotten that when it is appropriate, you can install wind and solar together with natural gas to ameliorate the variability and more toward more renewables.
We’ve seen a trend to utility ownership, which we can thank in part to the Clean Power Plan, making states and utilities start to make long term plans. Once these slow-moving entities actually start to make plans, they don’t go backwards very often. The boulder is rolling down the hill and it’s hard to pull it back whether or not the federal government wants to do so. If you take a look at the federal budget, it’s pretty frightening what they’d like to do with clean energy. Nonetheless, if you look at utility-scale market, that will be rolling forward.
International spectators don’t understand that the U.S. is a republic, and residential and small commercial markets are determined at the state-level. We have to look at things state by state to see what programs are being developed to incentivize and encourage the adoption of small-scale solar. Community solar is very popular but requires the right incentives, such as virtual net metering for example. Hawaii saw its market drop off significantly when it killed off net metering and that has always been extremely important for distributed generation solar and now Hawaii is serving as a test lab for growing the DG PV/storage market.
Before the steel/aluminum tariffs were announced I didn’t expect a slowing in U.S. demand (overall) for PV deployment into residential, commercial or multi-megawatt deployment and I still do not. With the addition of the steel/aluminum tariffs and the uncertainty this has injected into the market, developers may reconsider some investments. Time will tell as multi-megawatt PV systems are typically years in development. As long as net metering is strong on a state-to-state basis, we’ll see the distributed generation side of things continue to grow. As virtual net metering becomes part of the state landscape, we’ll see community solar start to grow where do you don’t currently see solar. There are states that have tried to start programs that couldn’t drum up demand. Pennsylvania had a rebate a couple of years ago and nobody really took to it. It is a variety of factors that make a market grow and right now I’m more concerned with margins for the middle markets, particularly in light of the steel/aluminum tariffs.
Are there any state markets that we should be watching outside of California?
I would say that we should keep our eye on small markets. Massachusetts, even though it has some problems. Maybe Pennsylvania. Some other examples include Texas, typically thought of as a great state for wind but it does seem to be discovering solar. New Jersey and New York are great markets for the community solar market and event he mid-west, for example Kansas, where BP is planning a solar farm. There isn’t one state within the U.S. without proper incentives that will be a strong market for solar going forward. Hawaii is currently a living laboratory for how to incentivize battery storage/PV systems on the residential and small commercial distributed generation side. On the mainland, in general, any state along the western grid is a good bet as a feeder to California.
How will jobs be impacted by the tariff? Are there any particular roles that will grow or decline in number as a direct response?
We are going to have to see how this plays out. The market might weather module tariffs alone using various strategies, but the addition of the steel/aluminum tariffs paired with uncertainty as to what countries are excluded and for how long adds an unpleasant wrinkle that might lead companies to rethink. This is a very low margin industry and any ripple along the value chain causes a big chain reaction.
What role does solar-plus-storage play in the future energy mix?
Hawaii provides a good test bed of incentives for energy storage and both residential and small commercial solar. On the distributed generation side of the market the cost of ownership is the most important thing to end users, but often they view it as merely as an upfront cost. In general, system owners assume that once they install solar, their system will last forever. Years ago, I talked a neighbor into installing solar and his inverter went down almost immediately within the first 10 months of ownership. He didn’t know this for another 3 months despite having monitoring equipment on his computer and his electricity bills. We’ve got to do a better job as an industry educating solar users because storage will require more sophisticated buyers. That is where I’m interested in watching Hawaii in particular to see what happens with solar-plus-storage systems because I can see the value for home owners and utilities.
Certainly, storage is part of the story of solar and wind moving forward, and it will be very interesting on the distributed generation side of thing where it is highly valuable to both utilities and to end users who really want to be independent. They don’t want their power to go out but what they’re willing to pay for that value? A utility in Vermont has a program now where they’re installing solar home systems, storage and panels for remote customers and owning it so that the customers can be disconnected from the grid and be more self-sufficient.
Are there any new technological innovations that will be making their mark in 2018?
The wonderful thing about this highly technical industry is that everyone has a dream and they want to make it come true. The change is not overnight – you can come up with a concept now and drum up the money to develop the technology, but it will be years before it’s available to the public.
New cell types, architectures and module assemblies are really exciting to me. The new tracker designs are also really interesting, especially trackers with integrated energy storage and advanced software. I know that NEXTracker has a really interesting offering with its TrueCapture product. Tracking is really important in the Americas’ markets. In the end, I can't really pick just one technology because I love all of them. I have to be objective about all of them, but I love the drive to innovate – innovation is built into the industry DNA and let’s face it, what better place to have a conference about business and technology than in San Francisco. In terms of new technologies, we need to look at these practically and see if they are or will be commercially viable. Something can be really cool in concept and even execution and fail to find a market. It is exciting, but this process takes a lot longer than we often realize.