Last week, the Biden Administration announced a two-year exemption from tariffs for solar panels imported from Cambodia, Malaysia, Thailand and Vietnam. The move is designed to address the risk the U.S. solar development industry faces from the initiation in March of an anti-circumvention investigation by the Department of Commerce (DOC) on the import of panels from these same four countries. The investigation essentially halted the shipment of panels to the U.S. from these four countries, which represents roughly 80% of the overall solar panel supply to the U.S., due to the risk of the imposition of tariffs that could have ranged from 50% to 250% and have been applied retroactively. The U.S. solar industry broadly expected the investigation to result in significant solar project delays and cancellations with some expecting a 40% to 50% decline in projects completed in 2022 and 2023 resulting from the investigation.
The executive actions by the Biden Administration also included invoking the Defense Production Act to boost domestic manufacturing of solar panels and other critical electrical infrastructure such as transformers. The Administration is targeting a rapid expansion of U.S. solar panel manufacturing to 22.5 GW by 2024 from the current level of approximately 6.0 GW. Some manufacturers have previously announced capacity expansion in the works, but significant new facilities will need to be developed to meet this goal.
While the exemption addresses the near-term tariff risk, it does not halt the Department of Commerce investigation. It is expected that the DOC will release its initial findings in Q3 of 2022 with completion of the investigation expected in late Q1/early Q2 of 2023. If tariffs are imposed because of the investigation, they will not be imposed until mid-2024 thanks to the exemption but would affect longer term development if U.S. production of solar panels does not increase dramatically in the near term.
With the risk of new tariffs removed, projects can resume development but still face logistical and supply chain challenges that were exacerbated by the investigation announcement in March. Shipments of panels from the four affected countries were largely diverted to other markets in the wake of the investigation announcement, and those supply chains will need to be re-established to the U.S. market. The industry additionally continues to face increasing costs of steel, labor, and capital due to inflation and rising interest rates. Overall, if developers can return to pricing levels seen prior to the DOC investigation, this would be a win for renewable energy buyers.