A U.S. Commerce Department investigation into whether solar manufacturers used factories in Southeast Asia to circumvent American tariffs on imports from China could exert a heavy drag on the project plans of some utility-scale developers and installers.

Crystalline silicon solar cells and modules assembled in Cambodia, Malaysia, Thailand and Vietnam could be subject to the same tariffs that the agency has imposed on Chinese-made components to enforce antidumping and countervailing duties. Those four countries accounted for more than 85% of U.S. solar panel imports during the fourth quarter of 2021.

Broadening the tariffs could exacerbate inflation and the supply chain disruptions already plaguing the U.S. solar sector, analysts said.

"All else being equal, it would be detrimental for all kinds of solar demand," Raymond James analyst Pavel Molchanov said in an interview about the inquiry, which was requested by California manufacturer Auxin Solar Inc. "It would harm the size of the market."

Some of the biggest planned solar installations in the U.S. could ultimately be canceled because expanded tariffs would reduce solar panel availability, the developers told S&P Global Commodity Insights. Large developers such as Apex Clean Energy Inc. are "working diligently to forge a path forward," President and CEO Mark Goodwin said in an email.

Companies involved in the utility-scale development value chain would be hit hardest, according to Molchanov — an assessment shared by analysts at Cowen and J.P. Morgan. The Solar Energy Industries Association trade group estimated that just initiating an investigation could jeopardize 14 GW of planned deployments since the proposed tariffs may be applied retroactively.

"Product companies [Array Technologies Inc.] and [Shoals Technologies Group Inc.] as well as downstream developers [Brookfield Renewable Partners LP, Atlantica Sustainable Infrastructure PLC and Hannon Armstrong Sustainable Infrastructure Capital Inc.] could face further project delays," J.P. Morgan analysts wrote March 28. "The residential installation companies have nearly 100% exposure to the U.S. but also have strategically elevated inventory levels which likely provides some buffer (into 3Q, we believe) from needing to procure additional panels."

Developers of utility-scale solar projects have already canceled at least 5% of their planned capacity for 2022 and postponed at least another 8% until 2023 or later, the Solar Energy Industries Association and Wood Mackenzie said in a March 10 report.

Cowen agreed that Array and Shoals, whose stock prices fell 6.3% and 4.2%, respectively, when the investigation was announced March 28, will experience "second-order effects," while rooftop solar inverter providers Enphase Energy Inc. and SolarEdge Technologies Inc. may see increased backlogs and delays "until panels can be acquired."

Solar panel manufacturers including China's JinkoSolar Holding Co. Ltd., Canadian Solar Inc. and Silicon Valley-based home energy solutions provider SunPower Corp., however, saw shares rise slightly following the announcement. Still, UBS told clients March 30 that the "uncertainty ... is an incremental negative" for JinkoSolar and Canadian Solar.

When it comes to domestic producers, Cowen and J.P. Morgan agreed that First Solar Inc. would benefit enormously from additional Commerce Department enforcement because it does not have exposure to the tariffs.

"Its thin-film panels are not subject to the [anti-dumping/countervailing duties] rules applied to its silicon-based peers," J.P. Morgan told clients March 28, opening up more market share for the company. But, the analysts continued, First Solar is "nearly sold out of manufacturing capacity through 2023, so potential benefits would likely be future-dated."

If the Commerce Department does impose countervailing dumping duties, the Biden administration can look for ways to work around that, similar to an exclusion for bifacial solar panels included in recent solar tariff extensions.

"When they have been given opportunities like on Section 201 [of the Trade Act of 1974] to choose between manufacturers and installers, they have sided with installers of projects," Guggenheim Securities' Joseph Osha said in an interview. "I firmly believe the administration is already looking for ways to ensure it doesn't disrupt solar installations."

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