I recently took a brief tour of a NC Solar farm under construction, and got into a conversation with one of the supervisors about Trump's 30% tariffs on imported Solar panels. I was not surprised when he spoke favorably about the resulting increase in manufacturing jobs here in the U.S. as a result of said tariffs, because it is a very common misconception by those who support renewable energy. If you raised your eyebrows at that, you definitely need to continue reading. But before I get into the explanation, here's an article from 2009 to chew on:
Wacker Chemie AG will build a $1 billion plant in southeastern Tennessee that is estimated to create 500 green collar jobs in the region to manufacture hyperpure polycrystalline silicon, primary material used in the manufacture of solar panels...With the right policies and leadership from the government this sector is poised to take off and experience a long period of very rapid growth, becoming an important contributor to our nation’s electric energy mix and providing many tens of thousands of green collar jobs across the country.
Sounds promising, doesn't it? Unfortunately, it's a heck of a lot more complicated than it sounds. Follow me below the fold to find out why.
The wildly successful growth of Solar energy, particularly in North Carolina, was not a "natural" progression from fossil fuel generation to cleaner methods. Economic models were produced and analyzed, and as I tried to explain in this podcast several years ago, specific policies were enacted to drive costs down to make renewable energy competitive with coal and other dangerous and dirty methods. Create a demand via minimum renewable energy generation percentages companies like Duke Energy will need to achieve, that demand increases production of Solar panels and wind turbines, and that increased production and the competition between manufacturers moves the unit cost down. And as a result, coal is no longer vastly cheaper to use, and may even cost more, when cleanup of the toxic residue (coal ash) is factored in.
And it worked, very well. We are actually in what you might call a "sweet spot," wherein some really heavy hitters in the financial investment sector have gone into the Solar energy production business. They might be headquartered in California or New York, but they are partnering with Solar developers and landowners here in North Carolina to build multiple megawatt projects, in some of the most economically depressed areas of the state. Understand, these aren't "Angel Investors," who often gamble on tech startups in the hopes they will be in on the ground floor of the new Apple or Google. It isn't ideology or "thrill" investing, these folks are looking at a return on investment of x years, followed by mostly profits after that. And as long as we can maintain that formulaic sweet spot, it will continue.
We've been talking about installation, the actual production of power that we desperately need to wean ourselves off of coal. As far as the manufacturing side, things start to come apart pretty quickly. Here's an update on that Tennessee operation a few years later:
Hemlock decided in 2013 to abandon a $343 million plant built in Clarksville, Tenn., after the United States and China were unable to resolve trade differences over solar panels and their ingredients. When China imposed a 57 percent tariff on U.S. polysilicon, Hemlock laid off roughly 500 workers before any product had even been produced.
In response to the Chinese tariffs, President Trump announced in January a 30 percent import tariff would be assessed on all imported cells and modules in 2018, with the tariff declining to 25 percent in 2019, 20 percent in 2020, and 15 percent in 2021.
The escalating trade war over solar panels presents a major challenge for the new Wacker plant here since the facility targeted China as one of its main markets to sell its polysilicon to where most solar panels are produced in China and other Asian countries. But even with the tariffs in place, Wacker moved ahead with its U.S. plant, the first ever outside of Germany for Wacker.
There's manufacturing of the polysilicon, and there's manufacturing of the Solar panels themselves, both of which American companies have struggled with as far as the bottom line. In his usual half-ass approach to economic issues, Trump believes he can force the installation sector to choose more expensive American-made panels instead of importing them, giving a boost to those struggling manufacturers here. And it just might work that way for a little while. But there's one thing most American manufacturers have in common: Their production costs rise, the price of their products soon follow, and their sales begin to drop. It's a cycle that has played out countless times over the last half-century, and it will not abate just because we want it to.
And in the meantime, that "sweet spot" I mentioned previously begins to sour. The return on investment for these Solar energy generation projects is extended out for several years, due to the increase in the prices of Solar panels, cutting directly into their projected profits. And when other (more viable) investment opportunities are available, NC's Solar revolution will come to, if not a screeching halt, a lingering 1-2 year death spiral.
The moral of this story is, you *can't* have your cake and eat it, too. You can't have a wildly successful Solar manufacturing sector, and a continued success in the growth of actual power generation installed. I don't expect Solar farm developers to agree with this outloud, because they are currently whistling past the graveyard. They don't want to precipitate the loss of investment dollars any sooner than it would happen naturally, and I can't say that I blame them. But those of us who advocate for renewable energy must not fall into the trap of buying into the "bright side" to these tariffs. Because there isn't a bright side.