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Why consumers shouldn’t worry about the new solar tariffs

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The federal government’s decision yesterday to slap fairly hefty tariffs on Chinese solar panels has prompted worries about a big rise in costs for consumers to go solar. But the impact will not likely be as significant for two reasons: any price increase will be absorbed along the way by everyone from manufacturers to installers, and the growing competition in the retail solar market will keep the cost to consumers in check.

The Department of Commerce’s decision determined that Chinese companies have indeed been selling products at below fair market prices, and the ruling addressed part of a broader trade complaint filed by SolarWorld and other manufacturers last October. To offset the impact of the below-market pricing, the commerce department reached a preliminary ruling to impose an import tariff of about 31 percent on solar cells from 61 Chinese manufacturers and nearly 250 percent for the rest.

It’s worth noting that the tariffs will affect only silicon solar cells made in China but not solar panels made in China with silicon solar cells from another country. Plus, the commerce department could modify the tariffs when it issues a final decision in October.

Paper tiger

The 250 percent tariff sounds scary, but the fact is the biggest Chinese solar companies such as Suntech Power (s STP), Trina Solar (s TSL), Yingli Green Energy (s YGE) and Canadian Solar (s CSIQ) will face the 31 percent tariff. While that 31 percent tariff will likely raise the wholesale prices, there are ways to manage it.

For months Chinese manufactures have been brainstorming around ways to lessen the impact of any tariffs. They have been talking to solar cell makers in Taiwan about buying and shipping their cells to China or elsewhere to be assembled into panels. A company like Canadian Solar, for example, could buy Taiwanese solar cells and assemble them in its Canadian factory (most of the company’s manufacturing is in China, hence it’s considered a Chinese company) or hire a manufacturer in Korea. Chinese companies also could set up solar cell production outside of China.

Shyam Mehta, a senior analyst at GTM Research, estimated that hiring Taiwanese companies to make cells will increase production costs for Chinese companies by 6 percent to 12 percent, which “is meaningful but manageable.”

Solar installers

While manufacturers figure out their strategies, solar service providers – from companies that provide consumer financing to roofers who install solar panels – need to come up with plans to cope with higher solar panel prices. People in the solar retail sector, understandably, have strongly opposed the trade complaint. They contend that the solar market growth could slow if they have to pay more for solar panels.

Certainly, profits will shrink if costs increase. But that doesn’t mean retail service providers will raise their prices or raise by a whole lot. They will likely absorb the added costs and still make good money, especially by increasing the sales volumes (the solar market is hardly saturated). We are not talking about razor-thin margins that will be rendered non-existent by the tariffs.

For a while now, investors and solar retail service providers have talked about how they could deliver or receive very good (double digit) and long-term returns. We’ve seen banks and other types of investors such as Google (s GOOG) putting up funds in hundreds of millions to finance leases and power purchase agreements, which are long-term contracts in which consumers pay a monthly fee for solar electricity instead of the high upfront cost of installing and owning solar panels. Consumers opt for these financing plans because they take away the hassles of doing research and picking equipment manufacturers, and because they are often promised lower utility bills. That promise of lower utility bills is a key selling point, and any solar retailer who took that away will lose a serious competitive edge.

Competition in the retail sector has intensified in recent years, and that, too, will make it difficult to raise prices and still compete effectively. Venture-backed startups such as Sungevity, SolarCity and Sunrun started in 2006 or 2007 and have expanded well beyond their home turf of California. Many more have shown up and some of them that first made their fortunes in a different business, such power company NRG Energy (s NRG), home security company Vivint and roof installer PetersenDean. Consumers only benefit when they have more companies to choose from.

Lastly, solar panels don’t make up the bulk of the price of a solar electric system. In fact, they take up around 20 percent, and the rest comes from the costs of other components, sales and marketing, permits and labor. A bigger worry for installers has been these non-solar panel costs, particularly in permitting and marketing and sales. The average price for a residential system by the end of last year was just over $6 per watt (and less $5 per watt if a homeowner bought a system outright rather than doing a lease), GTM said, while the wholesale price for solar panels was near $1 per watt (it was $1 per watt when I caught up with Chinese solar panel makers at PV America West in March). UPDATE: Solar panel prices fell around 50 percent in 2011 while the average price for a residential system dropped 3.6 percent during that time.

The solar industry wants to show critics that solar electricity can be affordable and compete with power from fossil fuels and it deserves government subsidies to help reduce costs. To raise prices in a big way will only give ammunition to critics that solar is far from prime time. That’s one outcome everyone in the solar industry, regardless of which side they are on in the trade dispute, would hate to see.

14 Responses to “Why consumers shouldn’t worry about the new solar tariffs”

  1. I just priced out an off-grid solar system at less than 5 $/W plus tax including storage batteries for a system just big enough to power a 12 cu. ft. fridge with 2 days ride-out capacity. Fortunately, in Canada, this has no impact.
    ‘This will only hurt a little bit’ – sure, that’s what they say. It still hurts. On the other hand, Government Motors, which wouldn’t even be in business without government handouts, is making hay in the Chinese market. You best know what your doing when you throw the first punch.

  2. DavidB

    How do you come to the conclusion that a 250% tariff on the smaller, and a 31% tariff on Big Businesses, will not hurt consumers? This is Obama’s way to get his union vote, while the rest of us pay the actual bills!!!!!
    This will not make jobs here, but simply hurt the Chinese, and benefit Mexico and Brazil. Remember Solyndra? If only they had these tariffs, they’d get rich no matter the sales.
    People pay attention- this hurts jobs-

  3. Royce Jones

    The tarrifs are long over due. Last year we lost 3 US solar manufactures to China’s currency manlipulation, dumping and subsidies. The cost of BOS, installation, etc. will be the same regardless of US or Chinese production, but the US manufacturers of cells and panels looks much brighter. The arguement that we need China is so flawed it is insane. What we need are US companies that can stay in business long enough to push new generations of cells into the market to lower cost. Programs like the DOE SunShot would be a waste of billions in research if there was no one here to take the technology to market. Besides, for every US solar job created, 3 other US jobs will be stimulated. This works the other way as well, for every job exported you lose another 3. This is how we lost 20 million jobs in 10 years. Ask Apple, 90% of every dollar spent on Apple products is exported, they are now a Chinese company. Millions of skilled people are standing in the unemployment line, living off food stamps and section 8 housing and the government has to borrow 66% of its revenues from the federal reserve because there are no longer enough taxpayers to support the government’s spending. Now I would like to see all tax incentives for solar limited to made in the USA only, there is no reason why we our tax dollars should go to China or Japan or anywhere else for that matter.

  4. @Chris: Thanks for the feedback from the installers you spoke with. I think the tariffs aren’t good news for manufacturers, and those who get the 250% tariff (and I don’t know who they are) could be forced out of the market. With rising costs by using Taiwanese cell makers, profit margins could be slimmer. And that certain suck. I’m just not convinced the tariffs, as they stand, will lead to a big shift in buying from non-Chinese manufacturers. But I think the smaller installers might feel a greater impact of a price increase and not be able to do much about it because they don’t buy in large volumes to start with. Or maybe not, if they do mostly direct sales of equipment and their customers have a greater tolerance for price fluctuations.

  5. michael kanellos

    Very good story. I think the whole tariff thing is overblown. Prices are coming down and the next two areas of price reductions–balance of systems and factory modernization–aren’t necessarily panel centric. In fact, you could argue that China’s strong suits-cheap labor, capital and land–will start to fade. There will be far less interest in some of the tactics allegedly used in the past.

    • Susan Kraemer

      I agree the balance of system is where the cost is. My own experience with going solar was instructive – it took 8 months to get our city building department to ok it – through the inspector’s sheer ignorance of solar- this delay meant lots of man hours wasted on what should be pretty easy.

  6. Bglick4

    This is a terrible piece. Manufacturers will simply absorb the cost? Um, no they will be forced to pass them along to the consumer. They aren’t in business to lose money. Or, if they can absorb these costs, they why have they been gouging consumers all these years and vacuuming up government subsidies?

    Competition does drive prices down. However, by tariffs discourage competition, they don’t encourage it. I’m not sure why you believe increasing the costs on the lowest priced solar products is going to result in a net decrease in price. If the government is truly committed to developing the solar power industry in the U.S., the money that is going to subsidies should go into research. No amount of subsidies will make current solar tech practical for most people. However, there is so much exciting research going on in this field that may someday make solar practical. Any government money that goes to solar should go into research.

    • I said manufacturers can absorb and/or increase their prices, but there are ways to minimize the impact (and I’m not saying they won’t suffer financially, but my story is looking at impact to consumers). As far as passing on the increased cost to consumers, here are some numbers to consider: solar panel prices fell by around 50% in 201, but the average price for a residential system fell 3.6% — it actually went up slightly from Q3 to Q4. Other factors have a greater impact on the overall price for consumers. I mentioned a few: the soft costs (permitting, sales/marketing); the growth of leases/PPAs (more expensive than direct equipment purchase by consumers).

      • Susan Kraemer

        Great news. What evidence did you find that the panels are only 20 %? IIRC when I briefly worked in estimates in 2008 it was more like 40 % – but I may have that wrong.

    • @bglick4 Dude.. You seriously have no idea what you are talking about.
      1) Supply is out-stripping demand (low prices) and the Chinese are accused of selling below cost to increase market share (very low prices). So customers of the solar manufacturers have certainly not been getting “gouged” in that context.
      2) Investing in research is good (see sunshot initiative), but costs are more affected by “economics of scale” and the “maturity of the supply chain”. Subsidies are needed to push the industry to it’s tipping point.
      3) I’m out of time.

  7. Christopher Williams


    Great post. I liked the analysis on what manufacturers are doing to get around the tariff.

    One question I was looking for an answer on that I did see is this. Do you have you any evidence that installers, specifically on commercial or utility projects, will start to use modules without the tarifs because they appear to be cheaper?


    • Hi Chris, I think for utility scale, there are always thin films and not just First Solar’s CdTe panels (Solar Frontier seems to be making good progress selling its CIGS panels). I haven’t heard any installers saying they’ll switch to non-Chinese suppliers for silicon solar panels because of the potential tariffs. I do know that projects that wanted to quality for 1603 got the panels they needed last year, and after meeting that initial requirement, they could wait a bit to see what prices they could get for completing the work. Without clarity on what the final tariffs will be, it’s a bigger gamble for both suppliers and buyers to lock down prices.

      • Christopher Williams


        True. I called a few installers today and they pretty much said the same thing. Either 1) they already have purchased modules or 2) they didn’t think it would matter much.

        However, they all said it was too early to tell.

        I guess the question then comes ‘what’s the point?’ If it doesn’t change any purchasing patterns it does seem silly, and I can’t image the tariff is a huge revenue windfall for the us gov.