Tariffs, Trends Juice Florida’s Solar Industry

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MIAMI — Frank Cestero is in the sweet spot. The Puerto Rican husband and father enjoys the warm, tropical weather of Palm Beach County, Florida while the small company he works for is booming thanks to secular trends underway within renewable energy markets globally.

Cestero is the chief financial officer of Solartech Universal headquartered in the coastal city of Riviera Beach. Solartech is the Sunshine State’s only homegrown manufacturer of highly efficient, high quality solar modules, or panels. Founded in 2012, the young company has become a local bright spot within one of the fastest growing industries in the United States, just as the value of Florida’s economy has climbed above $1 trillion.

Solartech’s panels are made using the most advanced robotics and solar cell technology designed by the company’s European partner, Meyer Burger, a Swiss firm operating in Germany and Singapore. The cutting edge equipment enables Solartech to focus on the premium end of the market to differentiate itself from its American competitors.

“Demand is robust demand,” said Cestero, meaning Solartech will be adding a second, fully integrated production line by the end of the year, or another 70 new jobs. “We expect to be running six, eight-hour shifts, 24/7 in 2019.

“We’re very bullish over the next 24 months,” he said, explaining that Solartech decided to keep its second manufacturing plant in Riviera Beach due to local incentives and higher costs associated with shifting production to another state like Tennessee or nearby Puerto Rico, where it became challenging after devastation from Hurricane Maria and because federal tax law changes treat products from the U.S. territory as foreign imports.

“As a Puerto Rican it upsets me a little bit, but as a Floridian, I like it,” said Cestero. He added that solar installations on the island are slowly increasing.

Favorable Business Climate

Since the turn of the century, the global solar industry has been expanding due to a perfect storm of market trends that reinforce sourcing modern energy from the sun: technological improvements that have led to a decrease in production costs on the supply side, making solar more accessible to commercial and residential customers; a higher demand curve as more people see the benefits of shifting to clean energy and decentralized power distribution; government policy changes in response to the threat from climate change that have produced incentives and mandates at the local, state and national levels; and finally, energy consumption across every sector of the U.S. economy continues to climb given the insatiable appetite for information technology, consumer electronics and electric cars.

Here are some recent examples government policy changes. In May, California, the largest solar market in the U.S., mandated that all new homes have solar panels starting in 2020 to reduce carbon emissions 40 percent by 2030. In June, the U.S. Internal Revenue Service extended a 30 percent federal tax credit for utility-scale solar developers by four years if new projects begin construction by the end of 2019. It drops to 26 percent after Jan. 1.

In Florida, market momentum has propelled action by government and voters. In 2016, Floridians rejected a ballot amendment backed by the state’s largest utility that sought to limit the free market and rooftop solar expansion. On the other hand, that loss came a few months after Floridians overwhelmingly approved a different ballot amendment. It authorized the Florida legislature to exempt residential and commercial solar projects from property and real estate taxes.

The law was implemented in 2017. And then earlier this year, Florida regulators removed a roadblock for equipment leases to rooftop customers. It enables big residential solar installers like San Francisco-based Sunrun Inc. to expand in the state. Previously, utilities were able to fend off competition as the only legal entities sell electricity in the state. Sunrun’s 20-year solar panel leases, which allow consumers to obtain rooftop panels with little or no upfront financing costs, did not constitute a retail sale of electricity.

Middle market players like CED Greentech, a large U.S. solar panel distributor and Solartech customer, have been pouring into Florida since the summer.

“The market is pretty dynamic,” said Tristan Tedford, a CED Greentech account manager setting up shop in Pompano Beach. “Module prices have dropped. You have an emerging electric vehicle market coming. And from an energy standpoint, solar-powered batteries make sense with hurricanes.”

The Trump Tariffs

In fact, it is a testament to the industry’s growth and increasingly strategic importance, married with complaints from American solar makers about unfair trade competition, that encouraged U.S. President Donald Trump to sign an executive order imposing a four-year, 30 percent tariff on all imported solar cells and panels, most of which come from low-cost China.

Known as Section 201, the tariff came into effect during the first quarter of this year and tapers down to 15 percent year four. It was Trump’s first economic security decision as commander-in-chief.

“The tariff narrowed the price gap between Chinese product and American, and by highlighting American product, it increased awareness about American-made products among end users and middle-market buyers,” said Cestero, who claims that Solartech will be the only domestic manufacturer of truly American-made panels later this year when more than 70 percent of its inputs are sourced domestically. The designation is significant because it gives a niche player like Solartech access to the lucrative public sector as state and local governments like nearby Orlando to green to meet climate change targets for carbon emissions.

But the American president did not stop there. On top of the 201 tariff, Trump announced a new 10 percent duty on solar power inverters in September. This latest tariff, known as Section 301, will rise to 25 percent on Jan. 1. Inverters enable residential or commercial solar producers to plug private systems into traditional power grids maintained by big utility companies.

“The 201 probably depressed the overall market by about 5 percent for manufacturers, distributors and installers,” said Cestero. “In anticipation of 201, distributors loaded up on supply that contributed to a net decrease in pricing, made panels more accessible but squeezed our margins. I wouldn’t be surprised if 301 has a similar effect. But inverters are a smaller market.”

Solar Industry Backlash

The U.S. solar industry has aggressively pushed back against Trump’s tariffs.

For example, SunPower, based in San Jose, California and majority owned by French oil giant Total, earlier this year agreed to buy Oregon-based solar panel maker SolarWorld Americas from its bankrupt German parent SolarWorld in order to expand its operations at home. (SolarWorld Americas was one of the original petitioners for duties on cells and panels along with Suniva, Inc.) The deal is expected to close before the end of October.

But SunPower threatened to curtail its new capital investments and slash jobs without an exemption from the 201 tariff. The company builds most of its solar products in Mexico and the Philippines and argued that the millions of dollars it was paying in import duties threatened its growth plans.

After months of lobbying the Trump administration, SunPower received an exemption from the 201 tariff for certain solar cells and panels it produces overseas, goosing the company’s stock in September.

According to the latest figures, the U.S. solar industry is valued at $28 billion and currently employs more than 250,000 Americans, with about 40 percent of those people in installation and 20 percent in manufacturing. It relies on foreign imports for 80 percent of its supply.

Five years ago, the industry was installing 3,000 megawatts of solar capacity annually. In 2017 alone, the market grew by 10,000 megawatts. Experts fear that kind of growth is gone.

Dan Whitten, a spokesman for the Solar Energy Industries Association, said that since January, more than $2.5 billion in solar projects have been cancelled and roughly 9,000 American jobs have either been lost or have not been created as a direct result of the 201 tariff.

“If demand drops because products are artificially made too expensive for consumers, nobody wins. It’s unlikely that U.S. manufacturing will expand enough to satisfy burgeoning demand,” said Whitten. “While we support new U.S. manufacturing, companies are still going to have a hard time competing with products from overseas in the years ahead.”

Whitten admits, however, that solar will remain a growing industry despite an uncertain business environment created by the tariffs. According to the industry’s own numbers, solar installations fell by only nine percent, year over year, during the first half of this year.

Also, large scale utilities signed procurement deals worth more than 8.5 gigawatts for projects that will be completed before 2020. The net effect is that U.S. solar installment growth in 2018 and 2019 will likely remain flat compared to 2017.

To be sure, the global market for solar panels morphed in June after China, the world’s top solar market, cutback installed solar capacity this year by reducing state subsidies. Surging solar capacity has left China struggling to build sufficient electrical infrastructure nationally.

The subsidy reductions forced Chinese panel makers to find new export buyers. This spurred U.S. distributors to stock up, driving down the cost of solar panels in the United States. Prices could eventually slump to below where they were in 2017, before any tariffs.

Made In Jacksonville

Despite falling prices, Chinese solar manufacturers are increasing production capacity, betting higher output will help them grab a bigger slice of the global solar market, which is reportedly set for its first, year-over-year contraction.

Notably, the solar-related tariffs are only a fraction of U.S. import duties being imposed on billions of dollars worth of Chinese goods. A contentious trade spat between the two countries has Wall Street caught in the middle after decades of globalization, when jobs and production shifted overseas.

As a result, many of those low-cost countries during the 20th Century — Japan, South Korea and China — enjoy middle-class standards of living. Now some of that momentum has begun to swing other way.

The largest and most dominant utility in Florida is NextEra Energy, parent of Florida Power & Light (FPL). FPL enjoys popular support among residents and businesses throughout the state for keeping a lid on energy bills. While critics contend that its secret relies on dirty sources of power, NextEra has also made huge progress beefing up its portfolio of wind and solar assets.

In March, NextEra announced a major deal with one of China’s leading solar panel manufacturers, JinkoSolar Holding Co. NextEra agreed to buy 7 million panels from JinkoSolar over four years.

“FPL currently operates 14 solar power plants,” said Eric Silagy, president and CEO of FPL in a statement. “Over the next decade, we will quadruple our current solar capacity (from 930 megawatts) to more than 4,000 megawatts.”

Alongside the agreement with FPL, JinkoSolar is building its first U.S. solar panel factory in Jacksonville, Florida’s largest city by population. Once the factory reaches full production after November, JinkoSolar expects it to eventually churn out more than 1 million panels a year for the U.S. market. While JinkoSolar’s new plant will boost overall U.S. production, modern solar panel factories are increasingly automated, and profits will flow offshore.

Still, city officials in Jacksonville see the new Chinese investment as a major win for local businesses in services and logistics. The adjacent seaport expects to handle cargo shipments of raw materials, solar panel components and the other inputs needed to sustain the new plant’s operation.

“In addition to creating 250 new jobs, we expect that JinkoSolar will expand its economic impact in the Jacksonville area as the demand for solar panels in the U.S. grows ,” said Tia Ford, a city spokeswoman for Jacksonville.

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