The pending U.S. solar trade case is about to hit a major crossroad.

On Friday, September 22, the U.S. International Trade Commission will determine whether or not the few remaining domestic solar manufacturers have sustained “serious injury” from imported solar products. If the answer is no, the case brought by petitioners Suniva and SolarWorld will be dismissed. If the answer is yes, the governing body will work on a proposed remedy. Ultimately, President Donald Trump will have the ability to accept, reject or reform the ITC’s recommended solution.

The Solar Energy Industries Association (SEIA), in partnership with utilities, solar supply-chain companies and free-market advocates, has been urging commissioners to oppose new trade barriers. Earlier this week, SEIA filed a letter with the ITC criticizing Sunvia and SolarWorld for not submitting a plan for how they'll function as viable U.S. solar cell and panel manufacturers in the event they are granted trade relief.

Meanwhile, companies outside of the U.S. have been quietly making their own arrangements.

Several foreign solar cell and module makers said they’re exploring options to avoid potential trade restrictions by opening new solar manufacturing facilities in the U.S. -- something President Trump would very likely want to see.

“It makes sense, right?” said Tom Zhao, managing director for global sales in BYD’s solar and energy storage division, in an interview last week at Solar Power International (SPI). “We follow Mr. Trump's requirement about 'Made in U.S.' Win the jobs back for the U.S. Because the demand is here, our customer is here, our friend is here.”

According to Gagan Pal, chief marketing officer of Adani Solar, a fast-growing solar PV manufacturing business based in Ahmedabad, India, new tariffs aren’t necessarily a bad thing. While trade cases don’t align with free market principles, a policy that “puts everyone at par … is helpful,” he said. For Adani and others, the Suniva/SolarWorld trade case could help justify opening a new U.S.-based solar manufacturing facility. 

"If [new tariffs] come into effect, I think the clear direction that will emerge from this is that manufacturing in the U.S. will be incentivized, or supported by direct or indirect means," Pal said.

UPDATE: Pal underscored that his comments are not an endorsement of U.S. duties or tariffs on imported solar products. They are only in reference to a potentially severe outcome of the trade case. All sources noted that timing constraints make investments in the U.S. high risk and potentially infeasible. 

The smartest or the dumbest guy in the room?

Adani Solar, a subsidiary of the Indian conglomerate Adani Group, could be well positioned to take advantage of tariffs on imported solar cells and a floor price on modules -- should they be approved.

Two years ago, Adani Solar established an office in Florida and hired a small team to study the potential for expanding into the U.S. solar market. The effort initially focused on co-development, joint ventures and other opportunities, said Pal. Now, Adani is looking at whether or not to launch a full-fledged production facility for solar cells and modules.

The decision isn’t only tied to the Suniva/SolarWorld petition, "but truly related to the overall perspective within the Adani group to expand in global markets," Pal said.

Expanding to the U.S. would fit into Adani’s broader business plan. The company recently built a 1.2 gigawatt solar cell and module factory in India and is in the process of expanding that plant to 1.5 gigawatts over the next three months. Pal noted that Adani was interested in expanding operations in the U.S. before the trade case emerged.

Still, Pal said his company is waiting for the final outcome of the ITC case to see if a U.S. factory would make commercial sense.

GTM spoke with several solar manufacturers and their partners at SPI who gave similar responses: they’re waiting on Friday’s ITC decision before making any big decisions. One major solar project developer indicated that a supply deal is already the works. Separately, a solar panel manufacturer said plans to open a U.S. factory are already underway. But in both cases, details could not be confirmed.

Companies were hesitant to address their plans on the record due to the sensitivity of the pending case. The overwhelming response among panel suppliers that did comment is that they’re keeping all options on the table.

“We’re being a prudent business and evaluating all options,” said a representative from Canadian Solar on the sidelines of SPI.

"We’re preparing for the contingencies and we will react, but you can’t take the first step because you don’t know what the tariff is going to be,” echoed John Dallapiazza, senior sales manager for the Rocky Mountain Region at Trina Solar, in an interview. “You would either be the smartest guy in the room for having reacted before the announcement or the dumbest guy in the room, but it’s a coin toss to know which one it would be."

If the ITC finds injury, the next step is to hold a hearing on trade remedies on October 3. Suniva has requested a four-year tariff of 40 cents per watt on imported solar cells and 78 cents per watt floor price on imported modules. The ITC may come up with a different solution, which could also include quotas on solar products from other countries. Free trade countries may or may not receive favorable treatment.

While companies won't know what the proposed remedies are until October, an injury finding on Friday may be enough of a signal for some players to publicize their U.S. manufacturing plans.

“Different companies and different management styles will definitely show themselves," said Rhone Resch, former president and CEO of SEIA.

Trump campaigned on prioritizing U.S. manufacturing, and signed an executive order on the topic in April. (Image credit: The White House)

BYD: “Made in the U.S. may be a good solution”

China-headquartered BYD is among the companies considering a U.S. solar manufacturing plant -- depending on the remedy. 

The industry might be able to absorb a small tariff without huge disruption, but Suniva’s proposed 78-cent floor price would be “real crazy,” said Zhao.

“Then the solar developers have no modules in the next two years in the U.S.,” he said.

Some clients have said they would have to suspend projects until the local supply chain is ready, should that level of obstacle arise, he added.

BYD, though, wouldn’t stand on the sidelines waiting for prices to come down.

“We are also thinking about putting a factory in the U.S. if the 201 case comes into place,” Zhao said. “'Made in U.S.' may be a good solution to try to help our customers here. They have a very long pipeline of solar projects for the next few years, and they cannot really afford to pay the higher cost of modules.”

Exact locations are still in discussion, but the company already has a 1,000-person electric bus factory in Lancaster, California, so it could try to expand operations in that area.

Building a module factory would take about one year, Zhao said, whereas a cell factory, which requires more extensive environmental impact compliance, might take two years.

Recent statements from at least one major solar project developer show that there’s demand for a domestic manufacturing solution, even if it takes some time to set up. On NextEra Energy Partners’ most recent earnings call, management said they don’t see manufacturers giving up on the U.S. market.

“We'll see what happens,” said James Robo, CEO, president and chairman of NextEra’s parent company Florida Power & Light Company. “Obviously, we're following closely.”

“My own view on this is that markets adjust,” he continued. “This is a very competitive market out there for manufacturing panels that the panel manufacturers are not going to abandon .… They'll figure out a way to compete. And it may take a little bit but, fundamentally, I'm not worried about the long term implications of whatever happens with the ITC.”

Robo’s comments suggest there could be a deal in the works. Could NextEra’s major module suppliers JinkoSolar or Hanwha Q CELLS -- neither of which would comment on the record at SPI -- be considering a new U.S. facility to avoid trade restrictions? Could Adani’s Florida-based team be positioning the company to meet the needs of Florida-based NextEra?

The “5D calculus”

If injury is determined, there's a “5D calculus” that foreign manufacturers will have to work through, said GTM Research solar analyst MJ Shiao. The variables are the type of remedy (i.e. tariff, quota, etc.), the geographic scope (e.g., will free trade agreement countries be exempt?), the severity of the remedy (e.g., how high will a tariff be?), the length of the remedy (e.g., how many years?) and what other suppliers might do.

The type of remedy will determine a lot. For instance, if there are strict caps on how many solar modules can come from other countries, it could bolster the case for U.S. manufacturing. The tariff design will also affect where potential new U.S. factories get built. If a tariff makes importing modules untenable, but doesn’t address cells, then suppliers may quickly erect module assembly factories with easy access to international ports.

If the remedy addresses cells and modules, or specifies a certain amount of the finished product that needs to be made in the U.S., foreign manufacturers instead may need to invest in cell production, which is much more resource intensive.

The power and water requirements of such a facility would drive companies to build somewhere that has those resources in relatively cheap and abundant quantities. The Pacific Northwest fits the bill, and parts of the northeast.

The status of free trade partners in the tariffs would dictate other choices. If NAFTA partners escape a tariff, solar producers could flock to Mexico for cheaper labor, easy access to the eastern and western U.S. and proximity to the growing Latin American market.

The challenge doesn’t end when construction wraps up. It takes more work to ramp up to efficient, profitable production.

“Operational is one thing; scale and efficiency is another,” said Trina’s Dallapiazza. “The first modules out will be pricier than what scale can produce.”

Delays at Tesla’s highly anticipated solar cell and module manufacturing facility in Buffalo, New York are a testament to how difficult it is to launch such an operation in the U.S. SolarCity officially began construction of the plant in 2014 and anticipated starting production in early 2016. The facility finally produced it first PV cells at the end of August. Production is now expected to begin ramping by the end of the year.

Since the Buffalo plant broke ground, Tesla completed the acquisition of SolarCity, and the company decided to shift from Silevo’s “Triex” heterojunction cell technology to partner Panasonic’s Heterojunction Intrinsic Thin Film (HIT) solar cell solution. These developments likely caused some of the delay.

An established company that is already planning a to scale up production somewhere else in the world, and could pivot to the U.S. market, might have an easier time.

Meanwhile, at least one foreign manufacturer is already in the midst of setting up U.S. manufacturing facility. In February, China Sunergy, or CSUN, announced plans to build a 400-megawatt high efficiency PV module factory near Sacramento in response to earlier trade measures. While the plant features fully automatic production lines, it’s still expected to create more than 200 local job opportunities.

The timeline issue

For any company looking at U.S. manufacturing as a way to avoid trade penalties, understanding the timeline is key.

“At best, suppliers can speed through the manufacturing setup process within 18-24 months -- but by then, you're halfway through the four-year remedy period,” said Shiao, referring to the typical four-year duration of a Section 201 trade case. The president has the authority to extend the remedy for up to eight years, however.

“Worst case is that the supplier makes the investment and a World Trade Organization challenge or a change within the administration pulls the tariffs back before the end of the period,” he added.

If President Trump approves a new trade remedy for “injury” from imported solar products, it will likely take effect in January 2018. The solar industry is then expected to file a complaint with the WTO -- which is what opponents did when the American steel industry brought a Section 201 nearly 17 years ago. The WTO could take another two years to rule on the case. And if the Suniva/SolarWorld 201 petition is found to be in conflict with the WTO -- like in the steel case  -- the WTO will reject it. 

The problem is, this two-and-a-half-year period probably doesn’t provide enough runway to make a U.S. facility feasible. A company that invests considerable capital in a U.S. factory, only to find the country re-opened to imports by the time it's finished, would be at a disadvantage compared to others that don't bother.

And then there’s the possibility that the Trump administration will choose to reject the WTO decision and keep the trade remedies in place. If that happens, it could spark an all-out trade war as countries start implementing tariffs on U.S. products in retaliation.

“It's difficult to imagine that any supplier makes the plunge [in the U.S. market] until there's a clear recommendation from the ITC and even more importantly, clear guidance from the Trump administration on what it wants," said Shiao.

Thin-film solar manufacturers like Stion and First Solar were not included in Suniva's request for tariffs.

“Buy American” could also be a factor

Despite the risks, the first mover to launch U.S. manufacturing would likely receive an enormous amount of publicity -- and possibly win favor with the Trump administration.

Once the first mover acts, it’s likely to validate the tariffs in the eyes of the Trump team -- to the dismay of tens of thousands of U.S. solar workers who would like to see the trade drama simply go away. The problem for solar panel manufacturers is that a PR boost doesn’t make opening a factory a wise long-term decision. No doubt some CEOs are going to want more market certainty than the first mover boost can provide.

One way the Trump team might seek to ensure that new tariffs are effective at bringing international manufacturers to the U.S. is to tie the 30 percent solar investment tax credit to the Buy America Act.

“You could easily see in a tax bill an effort to attach the ITC to the Buy American Act to make it more strict," said Resch. In this hypothetical scenario, only panels made in the U.S. would benefit from the federal incentive -- which offers tax breaks for solar projects placed in service before 2023.

“If you’re a Chinese manufacturer, between Solar One and Solar Two (nicknames for anti-dumping tariffs the U.S. previously put in place against China), Section 201, and a Buy American Act provision, it’s pretty difficult to see how you can fit into the U.S.," Resch said. The combination of these forces and potentially other protectionist measures the Trump administration puts in place could be sufficient to justify an investment in U.S. manufacturing.

Trump talked a lot about the Buy American Act on the campaign trail and it continues to be a focus of his presidency. He signed the “Buy American, Hire American” executive order in April. Whether or not the administration can get a domestic product requirement for solar panels passed through Congress, though, is another matter.

Another solution: sell thin-film

Suniva claimed it was suffering from cheap solar imports from all over the world, but, curiously, it only requested protection against crystalline silicon products. That means the ITC could set back mainstream silicon pricing by a few years, but leave alternative solar technologies like thin-film untouched.

“Suniva and SolarWorld don't really compete with thin-film, since their bread and butter is mostly commercial and residential, while thin-film is largely procured for utility scale,” said Jade Jones, an upstream solar analyst at GTM Research.

This is one of the ironies of this saga: two small-time producers could destabilize the market for the largest utility-scale projects, which they couldn't compete for in the first place. It’s no surprise that several utilities with robust solar pipelines have come out against the trade case

If that happens, thin-film manufacturers who already produce at scale stand to benefit: theoretically, they could sell up to whatever the new minimum price is and keep that margin for themselves. Market leader First Solar is in the best position to expand market share in this scenario, as could Solar Frontier and (American made) Stion.

“Suppliers that have had a presence in the U.S. market will find it easier to access a potential uptick in thin-film demand,” Jones said.

As for the silicon manufacturers, they almost certainly wouldn not be able to pivot to thin-film production as a profitable workaround. Doing so would probably require buying a company that has developed the technology.

“Those are completely different technologies,” Jones said. “Most manufacturers want to focus on their core manufacturing business. To invest in a unique technology just for the U.S. market seems like pretty expensive gesture.”