Solar Tariffs Bring Cloudy Skies in The Short Term, But Set to Clear In the Not-So-Distant Future

Last week, the Trump administration issued its long-awaited decision on a high-profile trade case, imposing 30% tariffs on imported crystalline silicon photovoltaic modules and cells.  Importantly, the first 2.5 GW of cell imports of every year are excluded, and the tariffs will decline in 5% increments over a four-year span, ending at 15% by 2022. While not ideal, the decision produced a sigh of relief for many in the solar industry, as the tariffs’ impact on the solar industry is not expected to result in long-term damage. 

In fact, Jigar Shah, co-founder of investor Generate Capital Inc. and an outspoken advocate for the solar industry, actually described the decision as “good news” in a recent remarks to Bloomberg. The tariffs are “exactly what the solar industry asked for behind closed doors” to prevent a negative impact on companies, he said.

The 30% amount was far less than the relief requested by the petitioners who initially brought the trade case, Suniva and SolarWorld (which, in what some may call an example of instant karma, are not expected to survive given the Trump Administration’s final decision), and even less than the 35% rate the U.S. International Trade Commission recommended in October 2017.  According to GTM Research, a 30% tariff will increase solar panel costs approximately $0.10-$0.15/watt, which could reduce utility-scale solar installations by 9%.  Further, the Solar Energy Industries Association estimates that the tariffs will cost approximately 23,000 jobs.

The duties will remain in place for the full four years, but will likely be challenged at the World Trade Organization, meaning they may not remain in effect for the full four years.  Moreover, countries targeted by the tariffs, most notably China,  could also levy retaliatory tariffs on U.S. exports in response.  Accordingly, while trade issues surrounding solar are far from over, the uncertainty created by the pending Trump Administration decision is, and the solar industry can now move to adapt to life under the tariffs. 

Nation’s Grid Withstands Blast of Recent Bomb Cyclone

Last week, many of the nation’s electric industry leaders, including FERC Chairman Kevin McIntyre, PJM CEO Andrew Ott and ISO-NE CEO Gordan van Welie, testified before the Senate Committee on Energy and Natural Resources to assess the electric grid's performance during the recent “Bomb Cyclone”, which gripped most of the eastern United States with frigid temperatures. The witnesses noted that wholesale electric market performance improved significantly since the last notable cold weather event — the polar vortex of 2014, but lawmakers peppered the panelists with questions related to better compensating baseload resources and natural gas constraints in the Northeast.

In one notable exchange, Committee Chair Lisa Murkowski (R-AK) asked Chairman McIntyre’s personal opinion of the risks posed to resilience by the impending nuclear and coal retirements on "a scale of 1 to 10."

"We're probably clearly at a five," McIntyre told her, underscoring the more optimistic tone about the grid's performance this winter. 

Overall, while the power system performed well, many panelists emphasized the need for ongoing reforms.  Notably, PJM CEO Ott reiterated PJM’s stance that “online” generation needs to be better priced in the energy markets, a clear nod to PJM’s proposed price formation reforms that it put forth in November 2017. 

Further, New England faced capacity challenges during the Bomb Cyclone when the Pilgrim nuclear facility went offline after the loss of a power lines feeding into the plant, forcing the region to rely heavily on oil-fired plants and imports from New York to compensate for the loss of power.  ISO-NE van Welie stated that as the region shifts to cleaner resources and potentially energy storage, it needs to address how to make that transition without losing reliability or relying heavily on natural gas as a main resource.

As discussions related to grid resilience and wholesale market performance continue, a host of challenges and opportunities are expected present themselves for renewable energy and energy storage proponents, which while clean and declining in costs, are often derided as being less reliable than traditional generation resources such as fossil fuel and nuclear-powered resources.   

Texas Lassos AEP Proposed Battery Project, Suggests Instituting Broader Rulemaking Proceeding Examining Battery Storage

On January 26, 2018, Texas regulators at the PUC voted to dismiss a proceeding through which AEP hoped to install several grid-scale batteries, including a 500-kilowatt battery to supplement a distribution substation and a 1-MW battery that could help if a key distribution line is out.  AEP sought confirmation that its proposal complied with Texas law and that the assets would be eligible for being part of the company's distribution cost of service, and while their petition was dismissed without prejudice, the Texas PUC voted to create a rulemaking proceeding to look more generally at the role of battery storage.

In the short term, this means that AEP cannot move forward with its proposed battery system, which at a cost of approximately $2.3 million, was substantially less than AEP’s $11.3 million to $22.5 million estimate of what it would cost for traditional upgrades.  And while Texas PUC members applauded AEP for making the proposal, the PUC stated that it did not have sufficient information to approve AEP’s application.  However, full discussion of issues related to battery storage will be encouraged in a future rulemaking proceeding, including how to treat the energy consumed by a storage technologies under current market rules, and whether a utility needs to obtain approval for the use of non-traditional storage technologies, even on the distribution grid. 

These issues highlight the difficulty with fitting energy storage, which is a potentially game changing technology for the electric industry with multiple uses, into a regulatory paradigm which generally has strict boundaries classifying how different resources are used.  Breaking down these boundaries while protecting consumers and ensuring fair market outcomes will be an important task for regulators to tackle as they consider energy storage’s role going forward.