Contributed by Christian Roselund, Clean Energy Associates

The anti-circumvention investigation launched by the U.S. Department of Commerce has thrown the U.S. solar market into chaos and this is unlikely to change any time soon. Despite some marginal clarity provided by Commerce on May 2, developers and contractors are still scrambling to find sources of supply.

A main problem is the inherent uncertainty. Under anti-dumping and anti-circumvention orders, final duty rates are set retroactively two years later in administrative reviews. This makes it impossible to know how much importers will have to pay, which is highly damaging to the U.S. solar market. And as manufacturers are often unwilling to take this risk, they are passing it on to developers, some of whom are signing contracts that put them at substantial financial risk in a desperate bid to try to complete their projects and stay in business.

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Due to the investigation, Solar Energy Industries Association (SEIA) estimates that 318 projects representing 51 GW of solar capacity and 6 GWh of attached battery storage are either being canceled or delayed. In aggregate, the organization expects 46% less solar to be installed in the United States over the next two years versus the levels from previous forecasts.

But these big-picture forecasts rest on small details; particularly under what circumstances modules are contracted and delivered. In this article, we’ll look at the state of the solar supply chain, and what we can expect, under a few different scenarios of how the anti-circumvention investigation may play out.

To have the necessary context to understand the current state of the solar supply chain, it is helpful to look at the recent past.

The United States has been an import-dependent solar market; domestic panel manufacturers only produce enough modules to meet between one-quarter and one-third of 2021 demand. And in 2021, 85% of modules came from the four countries named in Auxin Solar’s petition (Cambodia, Malaysia, Thailand, and Vietnam). Critically, 45% of the cells that U.S. manufacturers imported to make “made in the USA” modules also came from the named countries.

Going deeper up the supply chain, wafers have come almost exclusively from China, which is the source of 97% of the wafers sold and used in solar cell factories across the world. And in many cases, the polysilicon that was cast into ingots to make those wafers also comes from China, which produces 74% of the polysilicon used by the solar industry. Despite what may be inferred from the investigation, it isn’t just Southeast Asia – nearly every PV maker globally is dependent upon China for wafers and/or polysilicon.

The supply of PV modules had already been interrupted in late 2021. During the summer and fall, U.S. Customs agents seized more than 100 MW of modules under a ban on imports that contain silicon made by one Chinese company: Hoshine Silicon. In order to avoid this fate, many suppliers slowed or stopped shipping to the U.S. market, and import data shows a decline in overall solar imports in late 2021.

But it is possible that an even greater interruption has come as a result of the anti-circumvention petition. We won’t have definitive export figures for some time, but CEA has spoken to multiple module suppliers in Southeast Asia who stopped shipping modules after the investigation was launched in late March, and in some cases stopped manufacturing product as well. Our discussions with module buyers confirm the same.

Many of those suppliers that are still taking new orders and shipping to the U.S. market are requiring that their buyers take 100% of the duty risk. As these duties have been as high as 95.5% on the anti-dumping side, this is a considerable risk. Some buyers are so desperate for modules that they are complying with this request.

Buyers are trying to find modules wherever they can – including many sourcing from India and other Asian nations. However, options are limited, particularly for the less expensive modules used in utility-scale solar installations. Notably, First Solar, which is not subject to this investigation, is sold out for the next few years. This has led buyers to look to new, smaller suppliers outside the named countries, and these can carry quality and performance risks.

Prices have also gone through the roof, with prices for PV modules increasing 15% – 30% from the investigation. This adds to the price increases already seen due to rising polysilicon costs, with average prices rising to $0.49 per watt during the second quarter of 2022 for modules based on 182mm and 210mm wafers at the port in the United States. This is a total increase of 33% from the second quarter of 2021. In some cases, pricing as high as $0.55 per watt is not unheard of. CEA expects these price increases from the anti-circumvention investigation to last through 2025.

There are two main potential outcomes of the anti-circumvention investigation. The first path is that Commerce does not find circumvention and that this case is thrown out. This would be a huge relief for the industry and would return module prices and international shipments largely to the status quo.

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However, this will take time to play out. Despite the efforts of the American Clean Power Association and other industry associations to push the timeline for this case up, the Department of Commerce has given no indication that it will issue a preliminary determination before August 30, its deadline under federal statute. And even if Commerce does not find circumvention in its preliminary determination, the danger will still be there, and Commerce will still proceed to a final determination, with a potentially different result.

This means that the industry won’t really be in the clear until January 2023 at the earliest, and potentially until April 2023 – assuming Commerce takes advantage of a 65-day extension. And because it will take so long for this case to resolve, even with a finding of no circumvention the investigation will continue to cause delays, cancellations, higher prices, and shifting supply chains.

The second path is that Commerce does find circumvention and applies duties. These will be based on the AD/CVD orders against Chinese cells and we can expect duties in the range of 19% – 107% each year for those companies that source wafers from top-tier cell makers. These duties are set every year via administrative reviews, and the level has swung wildly from year to year in the past.

Because of these dynamics, we should expect an affirmative finding of circumvention to effectively stop large-scale imports from the named countries, just as Chinese imports collapsed after two successive waves of AD/CVD orders in 2012 and 2014.

The other outcome we should expect from an affirmative final circumvention ruling is for wafer, cell, and module production to shift to other countries, as also happened after duties were imposed. In 2012, after the first set of duties on Chinese cells, Chinese module makers began importing cells from Taiwan in large volumes; after duties were applied to Taiwanese cells and Chinese modules in 2014 companies like Jinko, Trina, and JA Solar built factories in Southeast Asia.

Duties imposed under this investigation will likely accelerate the growth of India’s solar manufacturing industry, but also spur new factories and expansions of existing factories in Turkey, Mexico, and other nations. Without incentives, it is unlikely that any substantial new manufacturing capacity will be built in the United States, given higher U.S. manufacturing costs. These costs range from being around 15% higher than Southeast Asia for a module factory but could be as much as 40% to 50% more costly for a U.S. cell or ingot/wafer facility.

There is a third option, which is that even if Commerce finds circumvention, it may provide exemptions for some suppliers with non-China supply chains, such as JA Solar. This could spur additional manufacturing of polysilicon, solar glass, and aluminum frames in Southeast Asia and other regions as suppliers attempt to secure exemptions. This option would also increase the limited supply of modules exempt from tariffs and provide some price relief for the U.S. market faster than waiting for wafer factories in other countries to come online.

There is no way around it. The anti-circumvention investigation has already disrupted solar supply chains and the U.S. solar market and will continue to do so even with a finding of no circumvention. Modules are hard to find, projects are being canceled or delayed, and prices have gone up. Installation volumes will already be lower this year, and likely next year as well. This is particularly true for the utility-scale market, as it was more dependent on modules from Southeast Asia and has fewer options elsewhere.

However, this also puts new pressure on manufacturers to relocate supply chains outside of China. The combination of the anti-circumvention investigation, the Uyghur Forced Labor Prevention Act and the Hoshine WRO send a clear message from the U.S. federal government that there will be ongoing trade barriers against the solar supply chain in China. Thus, even with a finding of no circumvention, we could see portions of the value chain diversify beyond China, particularly for polysilicon, ingots, and wafers. Already Hanwha has announced plans to expand its U.S. module and Korean cell capacities.

A positive finding of circumvention will mean new factories in other regions and greater diversification of the global solar supply chain. Low cost-locations such as India, Turkey, and Mexico are particularly poised to benefit. And while this has already slowed the U.S. market, the global solar industry will continue to evolve in response to this challenge, as it has before. There is no going back.

About the author

Christian Roselund is an expert in solar and energy storage policy and is the senior policy director for Clean Energy Associates, which provides produces market intelligence reports on solar and energy storage and is the leading global technical advisory and engineering services firm on solar and energy storage for buyers and long-term asset owners.