solar panels

Solar Panel Manufacturing

Industry Insight

TARIFF ALERT

Date April 2020

Current Trends

  • As a result of the coronavirus pandemic, the U.S. solar industry stands to lose half of its jobs
  • Recovery values for solar panels may be impacted by imposed tariffs
  • Key federal tax credits should bolster the industry’s favorable economics but are set to expire at the end of 2020

 

Approximate Net Recovery on Cost

Synopsis

COVID-19 Impacts Industry: The U.S. solar industry stands to suffer significant declines resulting from state-level mandates across the country to close all non-essential businesses and for consumers and construction workers to shelter in place. To shore up U.S. businesses in the aftermath of the economic shutdown, the Trump Administration signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020. Following the bill’s passage, the president and CEO of the Solar Energy Industries Association Abigail Ross Hopper issued a statement noting, “as a result of this pandemic, the solar industry stands to lose half of our jobs — that’s 125,000 families who will no longer receive a paycheck.” She added further, “as Congress continues to address the ongoing COVID-19 crisis, we appreciate that they are prioritizing relief for families and small businesses. There are several elements in this legislation that can help solar businesses and solar workers, including long-term unemployment insurance, business loans, and provisions that support employee retention and other employee protections.”
 

Despite requests from the co-chairs of the House Sustainable Energy and Environment Coalition, the CARES Act did not include any provisions to provide relief directly to the renewable energy industry. Congress members had called for including seven wind, solar, electric vehicle, energy storage, and energy efficiency provisions that had been included in the 2019 House-proposed Growing Renewable Energy and Efficiency Now (GREEN) Act.
 

Questions still remain as to whether Congress will take steps in future legislation to extend renewable energy tax credit programs and as to how renewable energy facilities under development can continue construction given stay-at-home orders and other COVID-19 protection measures.
 

emerging trends: Newer technologies in solar panels are starting to take hold in the industry. The most prominent of these is bifacial solar panels, which have photovoltaic cells on both sides of each individual panel, meaning that both sides can collect energy from the sun and transform it into electricity. These are primarily used for large ground-mounted systems, as they have the ability to capture the light that bounces off the ground. Installations of bifacial solar panel systems doubled in 2019 compared to the previous year. Bifacial solar panels are exempt from the current tariff. Another trend in the industry is the growing popularity of energy storage deployments as a component of residential solar installations. In the fourth quarter of 2019, storage deployments rose 160 percent quarter over quarter, in terms of megawatts.
 

tax credit extension: The alternative investment tax credit (ITC) applies to both residential and commercial systems, and there is no cap on its value. The ITC provides a credit for 12 to 30 percent of investment costs at the start of a project and is especially significant for the offshore and distributed wind sectors, as such projects are more capital-intensive and benefit from the up-front tax benefits. The renewable electricity production tax credit (PTC) is a per-kilowatt-hour tax credit for electricity generated using qualified energy resources. It provides a tax credit of one to two cents per kilowatt-hour for the first 10 years of electricity generation for utility-scale wind.
 

In December 2019, Congress passed extensions for both tax credits through December 31, 2020. Nevertheless, the renewable energy industry faces uncertainty as the credits approach their end dates amid the ongoing pandemic. The current PTC expires on January 1, 2021, and the tax credit is phasing down from 30 percent in 2019, to 26 percent for 2020, and 22 percent for 2021. The CARES Act does not include further extensions for either tax credit. Per information published by law firm Shearman & Sterling, while these provisions were not included in the CARES Act, they could reemerge in subsequent legislation, as Congress intends to continue to work on legislation in response to the COVID-19 pandemic. In the interim, clean energy groups have proposed changes to the current law that would allow for limited transferability of the PTC and ITC tax credits to other forms of payment, such as a direct pay approach outlined in the GREEN Act proposal. This change could allow investors to receive a limited portion of those credits that exceeds their tax liability in the form of payments from the federal government, according to information published by Green Tech Media.
 

pricing on downward trend: The price of solar photovoltaic modules in the United States has seen a consistent decrease over the last few years. In the fourth quarter of 2019, module prices averaged $0.22 per watt, in comparison to $0.63 per watt in the first quarter of 2016. Solar system pricing has fallen in all markets, including residential, non-residential, and utility markets. The decline is largely due to declining hardware costs, primarily from lower module prices, driven by decreasing demand from China.
 

Brand doesn’t impact value, wattage does: Solar modules from top-tier manufacturers are largely of a generic nature, with the specific manufacturer not necessarily being of importance. Solar module cost and pricing is typically referred to in terms of panel wattage. Due to their generic nature, a difference of a few pennies per watt can often alter purchasing decisions. Current photovoltaic modules range from about 300 to 450 watts. Older photovoltaic modules with lower wattages are salable at liquidation, but at a lower value.
 

Tariff may lower inventory values: In January 2018, the Trump Administration imposed tariffs on imports of solar cells and panels under Section 201 of the Trade Act of 1974, which allows the President to grant temporary import relief if domestic industries are threatened. The tariffs currently stand at 20 percent and will drop to 15 percent in 2021 before ending in 2022. When lending against imported solar modules, potential tariffs need to be considered on product from foreign manufacturers.
 

Solar Panels and Inverters Carry Majority of Inventory Cost and Value: Most solar panels are constructed using specially processed silicon, which when exposed to sunlight results in the generation of direct current. Inverters are used in solar installations to convert electricity from direct current into alternating current and tie into the public utility grid. Solar panels and inverters are utilized in both residential and commercial/utility applications. These two product categories typically carry the majority of the inventory cost and value as the same type of solar panels and inverters are used by, and are salable to, a wide variety of residential and commercial/utility installation companies.
 



Note: This publication is provided for informational marketing purposes only. The material contained herein should not be regarded as advice, nor relied upon to make financial, operational or other decisions; nor should it be used as a substitute for an asset appraisal. Actual recovery values may vary from transaction to transaction and the recovery values referenced herein are for representative transactions without regard to specific key factors. This material may be redistributed only in its entirety, including notice of copyright. All rights reserved. ©2020 Gordon Brothers, LLC.
 

Reference sources: pvinsights, pv magazine, solar reviews, statista, cleantechnica, solar energy industries association, forbes, green tech media, shearman and sterling