Protectionism should help photovoltaic domestic manufacturing, but it could come at a cost for buyers. Our recent report leveraging our solar supply chain data explores the implications.
While the US solar manufacturing sector has expanded substantially in the last few years, the success of the industry remains precarious. With Chinese manufacturers dominating the market and driving down prices globally, there is increasing price pressure on domestic manufacturers. At the same time, many in the industry expect more protectionist measures in the future, which could impact manufacturers and buyers alike.
As part of our solar research, we recently published a report assessing what further trade actions could mean for US domestic solar manufacturing and pricing. Fill out the form to download an extract from the full insight, or read on for a summary of the key takeaways.
Expect increased protectionist sentiment in the near term
Most solar capacity in the US relies on imported equipment. In recent years, imports have been subject to a range of trade actions and global supply chain fluctuations. These have included trade tariffs and import bans, as well as two notable antidumping and countervailing duty (AD/CVD) investigations. The confluence of these events caused intense supply chain constraints that peaked in mid-2022, although fortunately they have eased considerably since then.
This is unlikely to be the end of trade actions impacting the US solar sector, however. Many in the industry expect more policies that will target an increasing number of countries and cover a wider range of upstream components. Potential actions include increasing the rate or scope of existing tariffs, applying tariffs to wafers (particularly those made in China), or placing import bans on solar equipment for geopolitical purposes. The upcoming presidential elections present further uncertainty – both parties have a track record of supporting various protectionist measures, but Trump’s threats to apply 60% tariffs on all imports from China would be particularly impactful.
Constraints on imports would mean US manufacturing expands more rapidly
An obvious outcome of constrained supply is that there will be greater demand for domestically manufactured equipment. That would put more pressure on planned domestic facilities to come online faster and ramp up quickly to serve market needs. But how much more domestic manufacturing is feasible? We carried out a bottoms-up analysis to find out.
The most notable increase would be in the production of solar cells (the non-mechanical elements of solar modules that convert light into electricity via the photovoltaic process). Current US Internal Revenue Service (IRS) guidance requires that utility-scale solar projects use domestically produced cells (but not necessarily wafers) to earn the extra domestic content tax credit. This would further incentivize cell manufacturing in a supply-constrained future.
A more robust domestic supply chain is also a costlier one
An increase in US domestic solar manufacturing beyond our base case expectations would naturally lead to changes in pricing. Costs for processing wafers into cells and cells into modules would steadily come down as producers scale and learn to become more efficient. However, prices will still be notably higher than imports from elsewhere, especially from countries in Southeast Asia that have substantial solar manufacturing scale and serve the US market. Again, you can find specific figures in the full report.
There are several reasons for the higher prices for US-made solar equipment. One is high labor costs, which are driven by apprenticeship and diversity requirements, local hiring, shorter work shifts and higher staff turnover in the US compared to other countries. Another factor is that the US is a long way from achieving the economies of scale enjoyed by the leading solar manufacturing regions. To give an idea of the gap, as of year-end 2023, China boasted over one terawatt of module manufacturing capacity –?more than fifty times US capacity of just 18.5 gigawatts.
Strong relationships with domestic suppliers will matter for buyers
In the short-term, more protectionism could result in supply constraints, making access to limited supply a critical competitive advantage. This would affect the relative importance and effectiveness of different procurement strategies for solar projects.
Currently, many developers use bidding processes and requests for proposals (RFPs) to at least a small degree. While they take more time and effort, they can achieve lower prices. Some developers are members of consortiums that agree to use the same standardised procurement processes and paperwork in exchange for favourable terms. And lastly, many buyers have direct relationships with suppliers, which can limit options but create efficiencies for both parties. Our conversations with domestic manufacturers indicate they will favour these direct relationships over other routes to market if constrained supply gives them more leverage.
Smarter policy support will be needed to facilitate a healthy transition
A more established US domestic solar supply chain would give buyers more options for equipment with lower trade risks and greater reliability in terms of delivery timelines. There are also broader benefits to the US economy such as job creation and diversification. However, our analysis shows that while limiting solar imports will boost domestic solar manufacturing, it will also cause market havoc, increase equipment prices, and potentially delay, if not jeopardise, solar projects. This would inevitably have an impact on the nation’s stated decarbonisation targets.
Removing uncertainties, such as the ongoing tariff investigations, will give businesses the confidence to make long-term investments. Meanwhile, incentives for manufacturing, such as the Section 45X Advanced Manufacturing Production Credit, 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 seen in recent years.
Learn more
Don’t forget to fill out the form at the top of the page to download your complimentary extract from the full insight, which explores this topic in detail and includes a range of charts and data.
Plus, click here to learn more about Wood Mackenzie’s extensive solar offerings.
Michelle Davis
Head of Global Solar
Michelle leads our solar research, identifying emerging industry themes and cultivating a team of solar thought leaders.
