Solar Panel Manufacturing
Date April 2019
- Recovery values for solar panels may be impacted by imposed tariffs
- Extension of key federal subsidy maintains the industry’s favorable economics
Approximate Net Recovery on Cost
Pricing expected to stabilize in 2019: Although solar panel pricing began to stabilize in 2013 after a few years of significant price drops due primarily to the influx of Chinese imports, solar panel pricing has continued to fall in recent years from approximately 75 cents per watt in 2013 to close to 30 cents per watt by the end of 2018. As a result of China cutting solar installation subsidies in mid-2018, manufacturers experienced a glut of inventory and pushed prices down 30 percent. Prices stabilized in early 2019 and are expected to increase 10 to 15 percent in the next two years.
Solar panels and inverters carry majority of inventory cost and value : Most solar panels are constructed using specially processed silicon. When exposed to sunlight processed silicon results in the generation of direct current (DC). Inverters are used in solar installations to convert electricity from DC into alternating current (AC) 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 solar inventory cost, as well as value since 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.
Utility versus residential solar panels: Most solar panels are composed of either 60 or 72 cells, intended for residential and utility/ commercial grade applications, respectively. Inventories of solar module manufacturers will likely consist mostly of 72-cell solar panels, though both have value.
Brand doesn’t impact value, wattage does: Solar modules from top-tier manufacturers are largely of a generic nature, with the specific manufacturer being irrelevant for the most part. 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 PV modules range from about 280 to 400 watts. Older PV modules with lower wattages are salable at liquidation, but at a lower value.
Tariff may lower inventory values: The United States took action in two pending trade disputes in January 2018, imposing a 30 percent tariff on imported solar panels from all foreign manufacturers. The imposed tariff lasts through 2021 and will fall by 5 percent annually, dropping to a 15 percent tariff in 2021. Prior to the most recent action, which affects all imported solar cells/modules, a tariff was in place on solar cells/modules manufactured in China and Taiwan. Suppliers of solar cells/modules intended for the U.S. market averted the previous tariff by moving manufacturing to tariff-free countries such as Vietnam and Malaysia. When lending against imported solar modules, potential tariffs need to be considered on product from all foreign manufacturers.
Far East leads in panel manufacturing: The large majority of solar manufacturers import PV modules (solar panels) from countries such as China, Taiwan, Vietnam, and Thailand. Of the ten largest PV module manufacturers, six are based in China and one is based in the United States. Many U.S. solar panel manufacturers assemble some or all of their panels domestically but import the key components from other countries. These components also fall under the solar tariff, but there is an exception for the first 2.5 gigawatts of solar cells imported each year.
Solar panel tax credit extension: In December 2015, Congress approved the five-year extension of the federal solar panel tax credit, also known as the investment tax credit (ITC). The ITC applies to both residential and commercial systems, and there is no cap on its value. Through 2019, the federal tax credit will remain at 30 percent of the cost of the purchaser’s system. In 2020, the rate will decrease to 26 percent; in 2021 it will decrease to 22 percent. Beginning in 2022, owners of new commercial solar energy systems can deduct 10 percent of the cost of the systems from their taxes, but no federal credit for residential systems will remain.
Additionally, in previous years, owners of new solar energy systems could not claim the federal tax credit unless their system was operational. The legislation now allows owners to claim it as soon as the construction of the system begins as long as it is operational by the end of 2023. Because of the ITC, the average solar end user can save approximately $5,000 by going solar in 2019.