Congress needs to support solar manufacturing capability

Solar energy is the nation’s fastest growing fuel source and is projected by the U.S. Energy Information Administration to account for almost half of all new electricity production this year. It is a key component to the Biden administration’s climate goal of 100 percent carbon pollution-free electricity by 2035. 

Additionally, solar power is not affected by global fossil fuel costs. Gas and oil prices are up by 30 percent in the last year, placing a heavy burden on all sectors of the economy. Increasing the use of solar energy to power our homes, cars and factories will reduce our dependence on fossil fuels, and increase the stability of our nation’s economy. What’s more, solar energy provides both the price certainty and climate resiliency that low-income households need; these families are least able to afford energy price fluctuations and are least able to adapt when the power goes out during a storm.

That is why I am so concerned about an investigation opened in late March by the U.S. Department of Commerce that threatens the growth of solar energy. The investigation is to determine if Cambodia, Malaysia, Thailand and Vietnam are using components made in China that should be subject to U.S. tariffs, thereby undercutting the competitiveness of U.S. manufacturing companies. The Commerce case was initiated after a complaint by a U.S. solar manufacturer, Auxin Solar, that the solar panels made by these four countries were being sold in the U.S. below fair market value. If the Commerce Department finds in favor of Auxin, these solar panels could be subject to tariffs of between 50 percent and 250 percent. 

The investigation essentially halted the flow of solar panels that make up more than half of U.S. supplies and 80 percent of imports. As a result of the investigation and the threat of retroactive tariffs, solar developers in the U.S. put projects on hold until the Commerce Department issues a final determination. 

The White House issued an executive order on Monday designed to take some of the pressure off the industry by waiving tariffs on solar imports for two years, which should allow projects to go forward without fearing the risk of retroactive tariffs and subsequent higher costs. It will not end the investigation, however, and new tariffs could be imposed after the end of the two year waiver. 

While in the short run the president’s order will increase imports of low-cost solar components, it will not be sufficient in the long term to strengthen a domestic manufacturing capability that can compete with lower cost imports.

The president’s order also invoked the Defence Production Act to accelerate domestic production of solar panel components, but it is not clear if it will be sufficient to encourage companies to make major investments in solar panel manufacturing capabilities, or how those actions will help to offset the price advantage enjoyed by asian imports.

The nation needs to develop a more competitive solar manufacturing industry and reduce its dependence on foreign sources by ramping up domestic production. The Commerce Department ruling in favor of Auxin would be a good first step, but that alone will not be sufficient to grow the domestic manufacturing capacity to meet the nation’s solar energy demand. We also need incentives for companies to invest in the production of solar energy. 

Democrats in Congress are already moving in this direction. The House-passed Build Back Better bill would extend and expand the Investment Tax Credit and the Production Tax Credit to encourage the production of solar panels along every step of the manufacturing supply chain, from production of polysilicon to solar cells to fully assembled solar modules. Incentives could also be used to support the deployment of solar energy transmission and storage facilities, further driving supply.

The importance of the tax credits cannot be understated. A recent application for a guaranteed loan from the U.S. Department of Energy’s Title 17 loan program submitted by Maxeon Solar Technologies LTD to build a solar cell and module factory is contingent on the passage of tax credit legislation in order to increase the viability of its investment in solar panel production. Title 17 is the same program that provided a guaranteed loan to Tesla during its early days of operation. While the Build Back Better bill has little chance of passage in its current version, Sen. Joe Manchin (D-W.Va.) has floated a scaled-back version of the the bill that includes many of it’s predecessor’s important climate provisions. 

The combination of tax credits and loan guarantees is important because it will signal a long-term commitment to the development of solar energy in the U.S. and to American manufacturing. In the long-run, combining a package of tax credits with the existing DOE loan programs will give solar investors the confidence they need to finance manufacturing facilities.  In the short-run, the administration must act quickly to resolve the Commerce investigation in a manner that continues to support the rapid growth of solar power in the U.S. and reduce the use of fossil fuels.

Mark Wolfe is an energy economist and serves as the executive director of the National Energy Assistance Directors’ Association (NEADA), representing the state directors of the Low Income Home Energy Assistance Program. He specializes in energy and housing affordability and related finance issues.