There’s never a good time for import tariffs when it comes to keeping costs down for renewables projects. But for the U.S. wind market, the timing of newly proposed tariffs on imported turbine towers could not be much worse.
Earlier this month, a group of domestic tower manufacturers asked the U.S. International Trade Commission to impose stiff tariffs on several major tower-exporting countries — Canada, Indonesia, South Korea and Vietnam. They would come on top of existing tariffs on towers and other wind-related equipment from China, as well as the Trump administration’s multicountry steel tariffs already putting upward price pressure on U.S. wind projects.
2019 and 2020 are expected to be record years for U.S. wind installations, as developers race to take advantage of the fading federal Production Tax Credit (PTC).
But if new tariffs do go into effect, “the risk of canceled projects is real given [that] power-purchase agreement pricing is already at historic lows,” Dan Shreve, head of global wind energy research at Wood Mackenzie, wrote in a research note.
Turbine suppliers in the U.S. market stand to feel the sharpest pinch, Shreve said, since their developer clients may be unable to absorb higher equipment prices.
The group pushing for the tariffs, known as the Wind Tower Trade Coalition, includes U.S. producers such as Arcosa Wind Towers (formerly Trinity) and Broadwind Towers, according to the news agency Canadian Press.
The group claims foreign manufacturers are dumping towers into the U.S. and receiving improper subsidies at home, resulting in job losses and depressed profits among American producers.
Domestically manufactured towers are more expensive than imported equipment, and the homemade supply is insufficient to cover the near-term boom, WoodMac’s Shreve noted.
The International Trade Commission is expected to make its preliminary determination on anti-dumping and countervailing duties within a month, while the Department of Commerce is due to wrap up its preliminary investigation by December.
Similarities with the solar landscape
After tariffs were put in place on Chinese solar equipment, PV production quickly shifted to other countries — a strategy that has also played out for wind towers.
The shift in solar manufacturing to countries like Malaysia led the Trump administration to impose tariffs on most types of imported modules.
The solar tariffs have not undercut the U.S. market as much as many originally feared, thanks to ongoing cost reduction. The problem for the wind market, however, is the urgency of getting projects built in time for the declining PTC.
All projects qualified for the full PTC must be finished by the end of 2020, stretching the supply chain to its limits. Wood Mackenzie has forecast 25 gigawatts' worth of new U.S. wind installations in 2019 and 2020, the biggest two-year boom in the market's history.
Not all turbine suppliers or geographies would feel the pinch of tower tariffs equally, Shreve said. GE’s close relationship with Arcosa and Vestas’ in-house tower manufacturing facility in Colorado would blunt their impact, he added.
Most imported towers come into the U.S. through ports in Texas, potentially putting that market and others nearby on the front line for upward price pressure.
Unlike the solar industry, most of the world's largest wind turbine suppliers are based in Europe and the U.S. — and the U.S. maintains a thriving wind manufacturing sector, from blades to towers to nacelles.
But the rise of cheap natural gas and solar energy has resulted in intense price pressure, leading wind OEMs to source many components from other, lower-cost countries.
Learn more about WoodMac's new research note here.