Despite Solar Tariffs and Tax Cuts We Still Have PPAs

Halfway through 2018 the solar tariffs that were expected to kill PPAs have brought surprise.


With the Tax Cuts and Jobs Act passed at the end of last year the 201 tariffs had the potential to mess up the economy, but they have allowed both progression of the  industry and placement of solar energy in the hands of America. 

According to Dan Sinaiko & John Marciano III, “the 21 percent tax rate (and, in some cases, the base erosion tax) imposed by the Tax Cuts and Jobs Act were supposed to constrain the supply of tax benefits, and for each individual investor it seems to have had that impact. Indeed, tax equity yields have ticked up modestly in 2018, reducing the tax-equity that can be raised for each project. 

Some tax investors had been able to make their participation directly with sponsors. This has offset the expectation of tax failures, leading to tax credits that will assist in the cost of construction projects that will start after 2019. While some of them will reduce for projects that don’t begin until after 2021, they will still receive credits without the plan for credits to fully expire. Basically, investors keep continued motivation to participate in renewable sources for new construction given continued tax equity. 

Solar matchmakers, like Open Energy Group Inc., pair commercial solar developers with lenders looking to finance projects, also helping to battle the solar tariff. “It’s already matched $35 million of deals ahead of its formal opening Thursday, and has a goal of $250 million this year,” according to a statement by Brian Eckhouse. 

Despite the potential challenge for solar tariffs in financing current solar projects, “Open Energy compares the service to popular online tools that help consumers line up financing. The forum is intended to help financiers find potential investments, aiding developers in need of funding,” stated Chief Executive Officer Graham Smith in Renewable Energy June 22, 2018. 

Demand remains for solar assets, and the finance of these commercial projects, even though the 201 trade tariff initially covered 100% of silicon cells and modules imported to the US. In the end it was 30%, while it will continue to drop by 5% annually through 2021 and end in 2022. Therefore, this is not likely to break up solar project financing completely, especially because not all technologies were covered under the Suniva case. 

As early as 2019 international solar suppliers plan manufacturing relocation to the US as soon as 2019, which would then minimize the tariffs imposed. In some cases, the World Trade Organization will fight back, possibly stating the tariff is against international law. Added potential for a worldwide trade war will arise, making this is another reason that investors and sponsors are not completely walking away from upcoming projects as of yet. 

Timing along with international communication can play a large role in what may eventually turn out to be a negative role on the solar industry. While we originally found that worldwide manufacturers had set the plan to send production to the United States, it was just recently announced that China has planned potential return tariffs on solar panels imported from US manufacturers. While they aren’t that many, it could add an additional negative effect when American projects have to face tariff expenses on construction projects as well as potentially lose international business for home production. 

Taking the longer view, projects that are negotiating offtake agreements now for construction in 2019 or 2020, may be largely unaffected by the tax and tariff double-ding. Those projects will have the opportunity to factor in the new impacts of these policies. Consequently, the price of procuring solar power could generally increase, though as long as there is demand for solar energy (whether due to carbon regulation or corporate social impetus) the solar industry should continue to survive, if not thrive. 





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