Solar Panel Manufacturing
Date March 2018
Approximate Net Recovery on Cost
- Recovery values for solar panels may be impacted by recently imposed tariffs
- Extension of key federal subsidy maintains industry’s favorable economics
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 (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 inventory cost, as well as value since the same type of solar panels and inverters are used by, and are saleable to, a wide variety of residential and commercial/utility installation companies.
Utility vs. 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 photovoltaic (PV) modules (or solar panels) range from about 280 to 340 watts. Older PV modules with lower wattages are saleable at liquidation, but at a lower value.
Tariff may lower inventory values: The U.S. took action in two pending trade disputes in January 2018, imposing a tariff on imported solar panels from all foreign manufacturers. The imposed tariff totals 30 percent in the first year, which will gradually fall to half that figure over the next four years. 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 and the associated cost of goods increase, need to be considered on product from all foreign manufacturers.
Far East leads in panel manufacturing: The large majority of solar manufacturers import solar panels from countries such as China, Taiwan, Vietnam, and Thailand. Of the ten largest PV Module manufacturers, seven are based in China and none are based in the U.S. Domestic solar panel manufacturing can provide only about 20 percent of U.S. demand, which translates to ongoing demand for imported product subject to the tariff imposed in early 2018. It remains to be seen if U.S. production will rise to meet domestic demand in the wake of the new tariff.
Tax credit extension: In December 2015, Congress approved the five-year extension of the federal solar panel tax credit, also known as the Solar Investment Tax Credit (“ITC”). The ITC applies to both residential and commercial systems, and there is no cap on its value. Separately, ten states have a state tax credit for solar, including Arizona, Hawaii, Maryland, Massachusetts, Montana, New York, Oregon, South Carolina, Utah, and Vermont.
Until 2019, the ITC will remain at 30 percent the cost of the purchaser’s system. In 2020, that percentage will decrease to 26 percent and in 2021 it will decrease to 22 percent. By 2022 owners of new commercial solar energy systems will be allowed to deduct 10 percent of the cost of the system 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 extended legislation allows for a claim as soon as the construction of the system begins, as long as it is operational by December 31, 2023.
Pricing continues to fall and ITC extension will fuel demand: 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 under 50 cents per watt in 2017. Market pricing for inverters is much more stable than it is for solar panels. As noted above, legislation extending the Solar Investment Tax Credit was signed into law in December 2015. This bill extends the 30 percent ITC for both residential and commercial projects through the end of 2019. The extension of the ITC will lead to sustained growth in the U.S. solar industry, and by 2020, the industry is forecasted to deploy more than 20 gigawatts of solar electric capacity annually.