The U.S. Department of Commerce’s tariff investigation into solar cells imported from Southeast Asia has been causing turmoil in the American renewable energy space for the last two months. The announcement of this investigation, spurred on by a petition filed in February by Auxin Solar, a small San Jose-based panel manufacturer alleging that Chinese companies have been avoiding U.S. tariffs by building solar cells and modules in Cambodia, Malaysia, Thailand and Vietnam while using Chinese materials and intellectual property, has already caused major waves in U.S. solar supply and customer chains. Utility-scale projects are being delayed and, in some cases, canceled altogether.
Prior to the filing of Auxin’s petition and the announcement of the Commerce Department’s investigation, solar power was expected to account for nearly half of new U.S. electric generating capacity in 2022, according to the U.S. Energy Information Administration. But if the Commerce Department elects to levy tariffs on solar modules imported from Southeast Asia, the amount of solar capacity deployed in the U.S. over the next two years could be drastically reduced – by as much as half, or even two-thirds, according to the Solar Energy Industries Association and Rystad Energy, respectively. Given that domestic production of these materials is not yet prepared to fill the gap which would inevitably be caused by a dramatic increase in costs associated with imported solar modules, such a market disruption could jeopardize America’s ability to meet the greenhouse gas reduction targets set by the Biden Administration.
California’s ability to achieve its ambitious climate goals are also put at risk. The impacts of Auxin Solar’s tariff petition are already being felt by load serving entities (LSEs) here in the state, but things could get much more complicated given that hybrid solar + storage projects are anticipated to add much needed new generating capacity. The California Public Utilities Commission's (CPUC) Resource Adequacy (RA) policy framework imposes penalties when an LSE fails to meet its RA obligation. California’s Renewables Portfolio Standard (RPS) program maintains stringent requirements for the procurement of renewable resources, and mandates that at least 65% of LSEs’ RPS procurement during a compliance period be derived from long-term contracts of 10 or more years. So, the delay and potential loss of anticipated new solar + storage projects could mean potential penalties associated with failing to achieve the procurement requirements of these programs. Furthermore, canceled or delayed projects will likely also lead to the replacement of energy coming from valuable fixed-cost resources like solar + storage with higher cost, GHG-emitting resources powered by fossil fuels. Considering the recent dramatic spike in natural gas prices, the consequences of relying longer on those resources could be quite costly – to California LSEs, their customers, and to the climate.
The CPUC’s waiver request processes for LSEs that are unable to meet their RA capacity or RPS procurement requirements do not account for this unique set of circumstances – the inability to procure adequate capacity coupled with renewable generation due to new solar projects being delayed or canceled in light of the disturbance associated with the Commerce Department’s review. The existing waiver pathways may not have contemplated this exact situation impacting LSE procurement. But even if they had, requesting a waiver for failure to meet RA or RPS obligations due to international supply chain factors entirely outside of the LSEs’ control will not accelerate low-carbon capacity deployment in California in time to address urgent capacity needs.
The U.S. Department of Commerce must resolve this issue quickly and efficiently to end the negative impacts to the energy system transition. If the investigation remains ongoing, or if tariffs are levied on solar modules imported from the specified countries, the CPUC and other statewide regulatory agencies will need to take these unique and unfortunate circumstances into account in both planning and enforcement processes.
Contact: Andy Brown or Brian Biering
