When it comes to the global shift to low-carbon energy sources, Europe has traditionally been viewed as the world leader. Meanwhile, the United States has frequently been regarded as an important—albeit grudging—participant. Over the past half-decade, China has also improved its stock in the fast-growing market through a plethora of heavy investments, especially in solar and wind.
And the country’s standing in the energy transition became even murkier after former president Donald Trump fulfilled a key campaign pledge by withdrawing the United States from the Paris climate agreement, joining the likes of Syria and Nicaragua as the only countries not a party to the agreement.
But the United States’ clean energy landscape is about to get a complete makeover under Biden.
The United States has claimed the top spot on the latest IHS Markit Global Renewables Markets Attractiveness Rankings mainly on account of sound market fundamentals and the availability of an attractive—though phasing down—support scheme. The survey tracks attractiveness for investment for non-hydro renewables such as solar PV, offshore wind, and onshore wind. The ranking evaluates each country based on seven subcategories that include market fundamentals, current policy framework, infrastructure readiness, investor friendliness, revenue risks, and return expectations, easiness to compete, and the overall opportunity size for each market.
As expected, Europe dominates the top echelons, with Germany coming in at #2, France #4, Spain #5, and the Netherlands at #9. China has been ranked the third-best market for renewable energy investors, while India is #6, Australia #7, Japan #8, and Brazil #10.
Moment in the sun
After decades of disappointment, the U.S. solar sector has been having its moment in the sun, with solar stocks enjoying the best run in the energy sector last year. The Invesco Solar Portfolio ETF (NYSEARCA:TAN), the only pure-play solar fund in the U.S. market, more than tripled in 2020 as the renewable energy sector proved its resilience during the pandemic.
But, alas, the good times were not to last: TAN ETF is experiencing a sharp reversal, with the fund down 22.8% in the year-to-date.
A quadrupling in the cost of polysilicon has pushed solar module prices up 18% YTD and threatens to lay to waste years of falling solar material costs. Solar photovoltaics (PV) has seen the sharpest cost decline of any electricity technology over the last decade, with the International Renewable Energy Agency (IRENA) finding that between 2010-2019, the cost of solar PV globally dropped by 82%.
Unfortunately, polysilicon makers have lately been struggling to keep up with high demand, lifting prices to as high as $25.88/kg, up from $6.19/kg less than a year ago.
Still, the long-term outlook for the solar and wind industries remains good. As IHS Markit puts it:
“Onshore wind, offshore wind and solar PV are set to account for over 80% of all new power generation capacity additions globally to 2030. While the lion’s share of 2020 capacity additions came from just two markets–China and the United States–close to 50 markets recorded double digit growth in the past year.”
Here in the United States, two key tailwinds remain in favor of the solar sector.
#1. Eliminating solar tariffs In January 2018, the Trump administration implemented Section 201 solar tariffs on imported cells and modules at the height of the trade war with China. A presidential proclamation released back in October seeks to increase those tariffs and eliminate an exemption for two-sided solar panels.
Though the evidence is mixed regarding their effectiveness, the cons seem to outweigh the pros. On the one hand, the 2.5-gigawatt solar cell import cap did provide some support for the domestic solar module manufacturing industry and also helped to level the playing field.
But the harm done is by no means negligible. According to The Hill, the 2018 solar tariffs have significantly harmed the U.S. solar sector by destroying more than 62,000 jobs and nearly $19 billion in new private sector investments. The tariffs, which began at 30% in 2018, made some imported panels more expensive, with the price of high-efficiency PERC (Passivated Emitter Rear Cell) modules nearly doubling in the United States compared to prices in other markets as the modules leave factories in China and Southeast Asia. Indeed, Greentech Media estimates that when purchased in multi-megawatt quantities, such modules now cost 32 cents to 35 cents per watt in the United States compared to only 17 to 19 cents per watt when manufactured. The lion’s share of those extra costs can be directly chalked up to the Trump tariffs since shipping costs clock in at a much lower 1.5 cents to 2 cents per watt.
That the U.S. solar sector has continued to thrive despite–not because of–the tariffs is a true testament of how strong the solar momentum has grown. Indeed, module imports from China have been on a growth path since January 2019. That’s despite a combination of Section 201 tariffs, countervailing duties, and anti-dumping laws.
Wall Street expects Biden to order the International Trade Commission to evaluate these tariffs and possibly repeal them, considering the damage they have wrought to the downstream solar industry in this country. Even partly eliminating those punitive tariffs on solar modules and inverters is expected to have tremendous positive effects on solar development.