New trade tariffs and increased import restrictions in the US solar supply chain would expand domestic manufacturing, but create a more expensive market, potentially slowing down the growing sector, according to a recent report from Wood Mackenzie.
In the last few years, the US solar manufacturing industry has expanded substantially. Since the passage of the Inflation Reduction Act (IRA) in late 2022, domestic solar module manufacturing capacity has quadrupled to more than 30 GW as of Q2 2024 and more than 70 GW of cell manufacturing facilities have been announced.
However, as solar component pricing has fallen dramatically in the last year, it has put domestic manufacturers in a precarious position. It’s possible that more protectionist measures could be enacted as a response. A new Wood Mackenzie report, “The US solar supply chain under more protectionism”, examines the future of domestic manufacturing and pricing in a future characterized by supply constraints.
“Many in the solar industry expect increasingly more trade actions in the future,” said Michelle Davis, director and head of global solar for Wood Mackenzie. “Domestic manufacturers might lobby for more protectionist measures to safeguard their businesses. Additionally, there is growing anti-China sentiment in US politics and Chinese-owned companies produce most of the world’s solar equipment and manufacturing machinery. Finally, the upcoming presidential election presents further uncertainty. It’s impossible to predict the policies that either administration would enact, and both have supported protectionist trade actions in the past, but a Trump administration would be a wildcard for the industry — proposing tariffs of 60% on all imports from China.”
Continued Davis, “In the near term, a supply-constrained future would undoubtedly increase domestic manufacturing activity to meet market needs, but this would result in a more expensive market for domestic buyers.”
According to Wood Mackenzie’s analysis, with more protectionist measures that constrain supply to the US, by 2027 wafer manufacturing would expand by an additional 5 GW (152%), cell manufacturing would expand by an additional 12 GW (53%), and module manufacturing would expand by an additional 19.2 GW (28%).
More expensive market to follow
While more manufacturing in the US would increase economies of scale and bring domestic prices down, a more expensive US labor market and constrained access to international competitors and supplies would have the effect of creating a more expensive market overall, according to the Wood Mackenzie report.
Analysis from the report shows that domestic modules with US-made cells will be about $0.41/watt in 2025 and decline to $0.35/watt by 2032 compared to typical module import pricing today in the mid-twenties.
Granted, there are numerous benefits to a stronger domestic solar supply chain that can help offset higher pricing. Buyers would have more options for equipment with lower trade risks, and correspondingly, greater reliability for delivery timelines. But in a future with greater supply constraints, buyers will need to adapt their procurement strategies to accommodate these tradeoffs.
A healthy transition to a domestic supply chain will require smart policy
The expansion of a domestic solar supply chain has certainly started, but the extent to which it continues is currently unclear. Regulatory, policy, and trade uncertainty are currently preventing more US solar manufacturing facilities from moving forward.
Concludes Davis, “Our analysis shows that if the US enacts more protectionist measures that ultimately limit solar imports, it will likely increase domestic solar supply chain growth, but it will also increase equipment prices, and potentially delay, if not jeopardize, solar project viability. This would simply further delay progress on the nation’s stated decarbonization targets.”
“Establishing a more robust domestic supply chain without disrupting current solar market growth will require smart policy solutions. Removal of market and policy uncertainties, such as the ongoing tariff investigations, will help businesses make the sorts of long-term investments that policymakers are hoping for. And incentives for manufacturing, such as the 45x tax credits, will need to be available on timelines that match facility buildout. With the right policy actions, the US can make a healthy transition to more domestic solar manufacturing while avoiding the supply chain chaos of the last several years.”
