This echoes similar statements by Maryland-based Sun Edison founder Jigar Shah, president of the Coalition for Affordable Solar Energy, who said the tariffs ultimately will be paid for by the “paychecks of American solar workers.”
The critics could be right: Efforts to increase fairness in the solar market could do more harm than good.
Why? Import fees will raise prices for solar panels and components in order for China-based manufacturers to turn a profit. That’s likely to lead to price increases for modules in the U.S., which will dampen demand and installation growth. One of the major reasons why utility-scale solar installations have taken off is because of the panel-price plunge.
A decrease in demand could set off a chain reaction across the entire U.S. solar value chain.
High tariffs will slow demand for the polysilicon that’s used to make solar panels. U.S. companies reported nearly $2.6 billion in polysilicon exports in 2011. That includes about $700 million worth to China. Already, analysts speculate that Beijing could target U.S. exporters of the critical raw material with their own series of duties. That would directly affect companies such as Electronic Materials (NYSE:WFR), the largest publicly traded U.S. maker of polysilicon.
Likewise, sales of U.S.-produced solar inverters could take a hit. These devices are necessary to convert the direct current (DC) generated by solar panels into grid-usable alternating current (AC). U.S. companies produced about 45% of all the inverters installed in the U.S. in 2010.
Then there are the various home-solar and energy-efficiency businesses that have sprung up across the country. These mom-and-pop operations require cheap panels to succeed.
The other thing that doesn’t make much sense is that some of the companies targeted by the tariffs have factories and operations in the U.S. that employ U.S. citizens.
The duties will ultimately push back renewable energy’s place in the nation’s overall energy mix — and stoke a potential trade war with our biggest trading partner.
Where does that leave investors in the sector? With former industry leaders, such as Q-Cells, filing for bankruptcy and others, such as First Solar (NASDAQ:FSLR) announcing huge restructuring plans, the near-term outlook isn’t good, especially when you add the new headache from the tariff scheme.
Perhaps the best strategy is to just walk away for now. Solar is a long-term — perhaps decades-long — bet on rising energy prices and dwindling traditional hydrocarbon supplies. The sector will be there after this tariff mess blows over. So, investors will have a chance to bet on the winners of this multi-year shakeout. Those companies will be stronger and better-equipped.
For really bold investors who want to add the sector today, the only way to do solar is via broad-sector plays such as the Guggenheim Solar ETF (NYSE:TAN) or Market Vectors Solar Energy ETF (NYSE:KWT).
I think the leave-it-alone-and-wait strategy will bear more fruit, however.