Could the Cost of Solar Panels Go Up Following New Tariffs?

The White House became a beacon for solar panels in early May and in doing so showed a commitment to supporting the business of clean energy in the United States.

Clean energy is a $250 billion component of the worldwide market for power, according to Pew report, Who's Winning the Clean Engergy Race?. In an attempt to gain more of that market share, the U.S. Department of Commerce decided to impose tariffs on imports of Chinese-made solar panels of up to 35%, which would allow American-made panels to be price competitive.

A previous decision in 2012 by the Commerce Department imposed tariffs of about 24% to 36% on Chinese-made solar panels. The Chinese had been undercutting American-made solar panel sales likely due to lower labor costs. The tariffs effectively evened the playing field.

Obama and Biden examining the playing field. So to speak. (Official White House Photo by Pete Souza)

The old rules were flawed

Chinese companies had been exploiting a loophole in the 2012 DoC decision by having their products assembled in third-party countries such as Taiwan and then shipped to the United States. Because the law initially only covered solar cells sent from China, this change in assembly location kept their cost structure largely in place.

As a result, solar prices have steadily decreased over the last few years, leading to more consumers buying and installing solar panels on homes and businesses.

Why impose tariffs now?

Lawmakers determined that allowing the Chinese solar panel manufacturers to continue to circumvent the duties was damaging to the American solar panel industry. Manufacturers continue to be squeezed out by low-priced Chinese goods while developers, installers, and consumers are pleased with the ready availability of low-cost products.

Solar energy outpaced all other clean energy technology in regards to new products installed in 2013, according to the Pew report. It said, "Although overall clean energy investment declined 6% in 2013, China solidified its leadership position in the global clean energy race by attracting $54.2 billion.... In terms of investment, China led in the wind category with $28 billion and was second in the solar sector with $22.6 billion."

The new tariff comes on the heels of a press release with privately held SolarResevere titled Reliable Electricity and Energy Independence: Exporting Game Changing U.S. Developed Solar Energy Storage Technology to West Africa. In it, SolarReserve stated its interest in setting up U.S.-patented solar technologies in West African countries "to provide both Ghana and Nigera a cost-effective, reliable, on-demand, zero-emission supply of electricity. Clearly the U.S. sees a market for its solar panels outside the States, as American consumers are patronizing the cheaper Chinese companies at a higher rate.

Who will this benefit?

The U.S. is ranked at second in the world in clean energy production. Should these tariffs -- which will go into effect on or around August 18 if approved by the department-- prove successful, it may give American manufacturers the chance to compete in their own country's solar market.

Clean energy is a $36.7 billion industry in the U.S. according to the Pew Trust report. From 2010 to 2013 the solar industry grew by 227% alone. While 2013 saw a 9% decrease in U.S. solar investor relations due to uncertain clean energy futures, this DoC decision has the ability to spur investors to action.

Despite the downturn in investment, Solar Energy Industries Association (SEIA) reports over 140,000 new solar installations in the U.S. for 2013, and their figures show a continued upward trend. This is a market with the potential for great growth as costs decrease and production increases. Should U.S. companies continue to produce high-quality products, there are tremendous opportunities for growth starting at home.

SunPower Corporation , for example, was selected to build a 19-megawatt solar installation at Nellis Air Force Base in Nevada. First Solar, Inc holds the title of manufacturing the world's largest solar pipeline and recently developed a power plant-specific solar panel module, which is to debut in Munich, Germany in early June.

There are hundreds, if not thousands, of military bases and power plants in the United States alone that might be interested in investing in this technology. The imposition of these tariffs could spell great news for American solar companies.

Who will this hit?

Currently these tariffs focus on Chinese companies alone. Tariffs range from 18.6% to 35.2%, but will vary from company to company. Suntech Power will be charged 35.2%, Trina Solar Limited will encounter tariffs of 18.6%, and all other Chinese manufacturers and exporters will be charged 26.9%, according to the Financial Times.  Should the tariffs be approved in August, this will likely mean reduced U.S. sales for these companies and bigger market share for U.S. companies.

The Chinese aren't pleased with the new tariffs, and stated on its department of commerce website that the tariffs would not solve the problems with the U.S. solar companies. China is no stranger to tariffs, though -- its government imposed tariffs in January on imported American and South Korean polysilicon, an ingredient used to make photovoltaic solar panels. The Chinese government recently also passed conditional tariffs on some European countries in May.

How will this affect the solar panel market?

And it might not be great news for individual consumers.

SEIA President and CEO Rhone Resch released a statement in the wake of the DoC's decision, saying, "These damaging tariffs will increase costs for U.S. solar consumers and, in turn, slow the adoption of solar within the United States."

At a time when solar panels are just becoming affordable to middle-class buyers in the U.S., and becoming competitive with fossil fuels, a price increase in basic equipment may damage the market, forcing customers who were interested in the product to put their plans for "going solar" on hold.

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Kate Cimini has no position in any stocks mentioned but she does think solar panels are pretty cool. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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