This article is part of Utility Dive’s 2023 U.S. Power Sector Outlook series. A roundup of all the articles is available here.
In 2022, every segment of the solar industry but residential saw year-over-year declines in installed capacity growth as the industry struggled with the effects of various state policy decisions and ongoing global supply chain disruptions. Experts say the industry will continue to be dogged by trade barrier and supply-chain headwinds in 2023, but are optimistic about the tailwinds solar is receiving from the Inflation Reduction Act.
The tax credits in the IRA are expected to incentivize the buildout of domestic solar manufacturing as the industry prepares for the June 2024 expiration of President Joe Biden’s executive order placing a two-year moratorium on any new tariffs stemming from an ongoing U.S. Department of Commerce investigation.
The department announced Dec. 2 that it was making a preliminary affirmative determination in its investigation into whether solar panels imported from four Southeast Asian countries circumvented tariffs on Chinese-made solar components. This announcement came as a blow to the solar industry, as uncertainty over solar component supply had led to project cancelations throughout 2022.
The Uyghur Forced Labor Prevention Act, or UFLPA, has also impacted access to solar modules. Reuters reported in November that a records request revealed U.S. Customs and Border Protection seized 1,053 shipments of solar equipment imported from China between June 21, the day the law went into effect, and Oct. 25.
Wood Mackenzie senior analyst Sylvia Leyva Martinez said that the 2023 outlook for the solar industry will be “heavily determined by the total module shipments that get released” this year, but that a lack of transparency from CBP is making projections difficult.
Martinez has heard secondhand reports that some shipments have been investigated and released, but said that it is “very, very difficult to obtain primary data on the situation.”
“We’re expecting that the total module shipments are going to normalize by the end of Q2 2023,” Martinez said. “We still don't know how the entire situation is going to evolve, but according to the preliminary news that some shipments were already released, hopefully there will be more modules available through the second half of 2023.”
John Smirnow, the Solar Energy Industries Association’s general counsel and vice president of market strategy, also cited uncertainty surrounding the implementation of the UFLPA as a major source of volatility for the sector.
“We're starting to see some small volumes being cleared from detention, which is a positive development, but still large volumes detained, and uncertainty on the process,” Smirnow said. “What's it going to take for companies to establish that their imports are free of inputs from Xinjiang? We think the companies will be able to establish that, but they need clear guidance from Customs.
Smirnow believes that the UFLPA, plus the ongoing Commerce investigation and the resulting pivot to domestic manufacturing, will be “hangover effects through 2023.”
However, he thinks the market will improve from 2022.
“And then, as more domestic manufacturing comes online in 2024, 2025, we hope that many of these supply chain challenges are going to be reduced, then we certainly expect the deployment to start accelerating at that time,” he said.
The 2022 Q4 U.S. Solar Market Insight report that Wood Mackenzie and SEIA released in December said that the groups also anticipate “downside risk” next year as a result of Commerce’s preliminary determination that several companies were violating tariffs, though Commerce won’t release its final determination in the case until May 1.
Martinez said she expects that Biden’s executive order will stave off significant impacts of the tariff investigation through 2023 and 2024, but added that she has concerns about the balance of supply and demand after the moratorium ends.
Reconfigurations of companies’ strategy are imminent
Robb Jetty, the chief operating officer at Distributed Solar Development, or DSD, said that his company and the industry overall have experienced “significant headwinds with the policy volatility in the United States as it relates to the import of solar modules, which was pretty tumultuous for us.”
“Things changed rather dramatically, and caused a period of time where being able to import modules into the U.S. has a high degree of risk and uncertainty associated with it,” Jetty said, though he echoed Martinez in saying that the effects were mitigated by the White House’s moratorium on new tariffs.
“But the global supply chain generally has been a challenge since the latter part of 2020, when inventory started to dwindle globally of the various components that make up the broader products within the overall mix of equipment that we use,” Jetty said. “And that's continued.”
Jetty said that supply chain disruptions like labor shortages in shipping and trucking have led DSD and other companies to move away from a just-in-time procurement strategy and instead make bulk purchases of components “to create both price certainty and certainty of availability of supply.”
Previously, the industry had applied this strategy to solar modules specifically, in order to take advantage of a “safe harbor” investment tax credit provision for renewable energy projects and secure the tax credit of a specific year by investing enough money in materials for the project to qualify as having begun construction in that year.
“Now we've basically taken that kind of strategy and applied it to a lot of the other major system components across what's needed for solar projects generally,” Jetty said. “We’ve placed bulk purchase orders and made deposits for rooftop racking through the entirety of the mobilizations that I'll plan to mobilize on through 2023.”
Jetty said that for two hundred rooftop projects that DSD has underway, the company has already paid a deposit to secure racking for all of them in order to guarantee that those orders will be fulfilled.
“It gives me certainty of supply and locks me in at a price in that time period to protect us from the volatility in the supply chain that we've been experiencing here in the last couple of years,” he said.
Though Jetty thinks the IRA provides the solar industry with a “significant tailwind” to combat the headwinds it’s experiencing, he believes that it will take “a number of years” for the supply chain to normalize.
“This global supply chain volatility that we were impacted by isn't going to go away anytime soon,” he said. “We're dealing with the longest lead times on electrical component availability that we've ever experienced as an industry.”
Jetty also believes that the IRA will fuel demand for growth in the solar industry that will be met with a dearth of supply after the moratorium on new tariffs runs out in June 2024, and said that it is “literally impossible” for the U.S. to build out its domestic supply chain enough over the next eighteen months to meet that demand.
“There's no way that manufacturing capacity would be able to respond in that time period to meet the demands of projects that developers are going to want to bring online in that time period,” Jetty said.
He pointed out that First Solar, the largest U.S. manufacturer of photovoltaic solar modules, is already sold out of modules through 2024.
“There's just no way that there's enough capacity, or that enough capacity will come online when manufactured domestically, to meet the gigawatts of demand that are forecasted to come online as a result of the IRA,” Jetty said. “We're going to continue to rely on foreign manufacturing for years.”
Smirnow also said that time is the biggest barrier to building up the domestic supply chain, including the time it takes for manufacturers to choose a state and a specific location for a new facility. As a result of this current uncertainty, he anticipates that 2023 will see companies reconfiguring their supply chains, altering their production processes, and negotiating pricing, with the dust settling in 2024.
“It’s a timing factor,” Smirnow said. “We are going to see a robust across-the-board solar manufacturing base in the United States because of the IRA, we are certain of that. It's just a question of, how long is it going to take to get there?”
The IRA provides a 30% solar investment tax credit through 2025, while before the law it was at 26% and scheduled to drop to 22% in 2023. Projects that certify all steel, iron and manufactured product components were produced in the U.S. can qualify for an additional 10% tax credit, as can projects located in or near a community that has historically relied on the fossil fuel industry.
As a result, solar is receiving a massive boost in appeal as an industry at the same time that the supply chain for solar components is becoming more uncertain.
Marlene Motyka, a principal at Deloitte and the firm’s U.S. renewable energy leader, said that while many solar projects were delayed in 2022 she saw few being outright canceled and no real dampening of demand.
The extension of increased tax credits for both wind and solar supports growth, Motyka said. “Some of those projections now suggest that the law would spur 525 to maybe 550 GW of new utility-scale clean power by 2030. And that was up from what I believe was an originally projected number of 300 GW.”
Becca Jones-Albertus, director of the Department of Energy’s Solar Energy Technologies Office, is more optimistic about the industry’s ability to build out domestic manufacturing and expects a “very robust” domestic supply chain to be in place by 2025.
“It is an aggressive timeline to have manufacturing capacity up and ready by June of 2024,” Jones-Albertus said. “But I think it's too early to say whether or not the industry can get there.”
She added that though Commerce’s preliminary determination found evidence that four of the companies it investigated were circumventing tariffs, it did not find evidence against the other four, and the companies that were found circumventing “also have that timeframe to reconfigure their supply chains.”
Jones-Albertus believes that the passage of the IRA sets up the U.S. solar industry for successful domestic expansion, partially due to the nature of the current barriers to domestic solar manufacturing.
The U.S. has plenty of quartz, she said, which is the material used to make polysilicon, a key component of photovoltaic solar cells. The challenges for domestic expansion have been economic ones like the U.S.’s higher labor costs and more stringent environmental regulations for manufacturing facilities.
“That's why the manufacturing production tax credits in the Inflation Reduction Act can be so powerful, because they are directed at different supply chain segments, and they provide tax credits that can directly offset those higher costs of manufacturing in the U.S. and make U.S. manufacturing competitive with imported products,” she said.
Jones-Albertus said that between the passage of the IRA and December 16, when she spoke to Utility Dive, 17 new solar manufacturing facilities representing more than 75 GW of proposed capacity had been announced.
Hanwha Q Cells, the second-largest domestic solar manufacturer, announced on Jan. 11 that it will invest more than $2.5 billion building up the domestic supply chain, opening a second plant in Georgia and raising its total annual solar panel production capacity to 8.4 GW by 2024.
Martinez said that she believes the IRA provided the boost necessary to jumpstart the domestic solar supply chain, as producing solar components in the U.S. is more expensive to the point of rendering production almost entirely non-competitive without subsidies.
However, she cited outlying uncertainty about the impact of the IRA, and said that it’s too early to fully estimate the law’s impact when it comes to total energy generation or domestic manufacturing buildout.
“I think the biggest thing to look for in 2023 is what other guidance the IRS provides on the implementation of all the tax credits in the IRA, and after that, we'll have a better view of exactly how that is going to impact total renewable buildout in the U.S.,” Martinez said.