Solar stocks facing US solar policy uncertainty, but global outlook remains strong

The MAC Global Solar Energy Stock Index is down -37% year-to-date. The MAC Solar Index saw extraordinary gains of +67% in 2019 and +245% in 2020, settling back by -26% in 2021, -5% in 2022, and -26% in 2023.

Solar stocks have been under pressure over the past 1-1/2 years, mainly because of a sharp drop in polysilicon and solar module prices stemming from a surge in production capacity. That decline in solar product prices has been a negative factor for the profit margins of manufacturers of polysilicon, wafers, cells, and modules, which in turn has been a negative factor for stock prices.

However, those manufacturers constitute only about 31% of the total weight in the MAC Solar Index. The other 69% of the Index weight is in installers and operators of solar systems, or manufacturers of non-module solar components such as inverters, solar glass, and solar trackers, sectors that should benefit as lower solar module prices boost demand and unit sales.

Indeed, the sharp decline in solar module prices seen over the past two years has a silver lining since it is likely to boost unit sales over the longer term as solar energy becomes even cheaper than its competition and extends its lead as the most widely chosen source of new electricity capacity in most of the world.

The over-supply situation is slowly being resolved as Chinese solar companies are slashing production and delaying or canceling their capacity expansion plans. Companies are phasing out old production lines and are shutting down facilities for maintenance. In addition, non-competitive and low-quality solar companies are being forced out of the business altogether.

The Chinese government is hastening the adjustment process by cracking down on government approvals for companies that want to build new solar factories or expand existing factories. The government is raising capital ratios, R&D requirements, and quality and efficiency standards for companies that want to expand capacity.

Solar product pricing has recently shown some signs of stabilizing. Polysilicon prices since summer have been moving sideways, just above the record low of $4.36 seen in June and July. The price of monocrystalline silicon modules in early December fell -5% from the previous month to a record low, according to PV Infolink. However, thin-film PV module prices have been unchanged since April, according to PV Insights.

Meanwhile, the European solar sector has been under pressure from an inventory buildup of solar modules. The inventory overhang mainly involves the residential and commercial-industrial solar markets, not the utility-scale sector, where developers generally order directly from manufacturers. This inventory overhang is slowly being worked down.

In the US, the main development was Donald Trump’s victory in the November 5 election, along with Republicans winning control of both the House and Senate. The Republican sweep of Washington undercut solar stock prices due to concern that Republicans will cut the IRA clean energy stimulus bill, which provided 10 years of tax credits for solar buyers and producers.

However, the reality is that solar is now cheaper to install than natural gas, oil, or nuclear power, before even counting any subsidies or stimulus measures for clean energy. Thus, even if US government support for solar is cut, many utilities will continue to choose solar due to its cheap cost, speed of installation, and 24-7 availability when paired with storage.

In regard to the Republican policy uncertainty, Wood Mackenzie said after the November US election, “There is always the potential for policy changes to impact deployment but solar is currently the dominant form of new energy generating capacity in the US. The benefits of solar — its cost competitiveness, benefits to the environment, low water use, and continuously improving technology, to name a few — have spurred demand from utilities, independent power producers (IPPs), and corporate offtakers who see solar as the path to US energy independence” (US Solar Market Insights – Q4-2024, Executive Summary, p 6).

If Republicans slash government stimulus measures for solar, the solar industry will clearly see less growth over the next few years. Nevertheless, the solar industry will likely retain its current status as the winning source of new electricity generation due to its economic and environmental advantages for buyers.

The solar market is currently waiting to see exactly how Republicans will handle clean energy legislation and executive decisions in 2025. Legislative changes in solar policy are likely to be shoe-horned into a massive 2025 reconciliation budget bill that will mainly be designed to extend the tax cuts contained in the Republican’s 2017 Tax Cuts and Jobs Act (TCJA) that would otherwise expire at the of 2025.

Republicans will use reconciliation in 2025 to pass the extension of tax cuts since the reconciliation process requires only 51 votes in the Senate versus the 60-vote filibuster threshold required for most other legislation (Republicans will hold 53 seats in the new Senate). Both parties have used the reconciliation process in recent years to pass major laws, including the Republican’s 2017 Tax Cut and Jobs Act (TCJA), and the Democrat’s 2021 American Rescue Plan Act (ARPA) and 2022 Inflation Reduction Act (IRA). However, the Tax Foundation points out that the “Byrd rule” limits what can be included in a reconciliation bill, disallowing policy changes that don’t affect spending or revenue, and disallowing changes that increase the deficit outside the budget window. Reconciliation also specifically prohibits changes to Social Security.

The consensus among Wall Street clean-energy equity analysts is that Republicans will cut IRA benefits but are not likely to engage in a wholesale repeal since most of the law’s benefits are in Republican states. Legislators are aware that the pain from any solar cuts would fall heavily on Republican states.

In fact, US clean-tech factory investment from the 2022 IRA law has accrued more than 3-to-1 to Republican-leaning states versus Democratic-leaning states, with the remainder going to swing states, according to analysis by Bloomberg New Energy Finance.

Moreover, two Republican states are currently the leaders for installing the most solar in 2024, with Texas installing 7.8 GW of solar and Florida installing 3.1 GW of solar during Q1-Q3 2024, according to Wood Mackenzie (US Solar Market Insight – Q4-2024). Texas and Florida installed more solar than the former leader California, which is in third place this year with 2.7 GW of installed solar.

As an indication of some Republican support for clean-tech factory investment, eighteen Republican members of the House of Representatives in August sent a letter to Republican House Speaker Mike Johnson urging him not to repeal the IRA climate legislation. The letter said, “Prematurely repealing energy tax credits, particularly those which were used to justify investments that already broke ground, would undermine private investments and stop development that is already ongoing. A full repeal would create a worst-case scenario where we would have spent billions of taxpayer dollars and received next to nothing in return.”

Although the current US political uncertainty is a negative for solar firms that operate in the US, it should be noted that the US accounts for only 8% of world solar sales, meaning 92% of the world’s solar sales would not be substantially affected by the outcome of the US election. While US politics plays a substantial role in US stock investor sentiment, the fact remains that solar is a global industry where US developments are usually overshadowed by the sector’s highly favorable prospects in the rest of the world.

Turning to other factors affecting solar stock prices, the solar sector has recently seen support as the Federal Reserve has so far cut its federal funds target range by a total of one percentage point, from 5.25/5.50% in September 2024 to 4.25/4.50% in December 2024. In addition, the markets are expecting the Fed to cut interest rates further in 2025.

Solar stocks were previously under pressure in 2022-23 when the Federal Reserve beginning in spring 2022 raised its federal funds rate target range by a total of 5.25 percentage points, from the pandemic level of 0.00/0.25% to 5.25/5.50% by mid-2023. Higher interest rates make solar projects more expensive, although solar does no worse than its competitors when it comes to higher interest rates.

Regardless of the recent obstacles for solar stocks, the good news is that the demand for solar energy remains very strong as a key economic and environmental solution, and solar installation growth remains strong. As various temporary obstacles dissipate and as US legislative uncertainty is resolved, solar stocks should be able to regain their footing.

Bullish longer-term factors for solar stocks include (1) the global dash to reduce carbon emissions as many countries have adopted net zero emissions goals to add to their Paris Climate Agreement goals, (2) strong demand for solar by many global corporations that have adopted net zero emissions goals, (3) strong economic demand for solar now that solar is cheaper to build than fossil fuel or nuclear power in most of the world, (4) the pairing of solar with ever-cheaper battery systems to provide a 24/7 electricity solution, and (5) the need for many nations to improve their energy security and independence by building domestic electricity infrastructure such as solar, thus insulating themselves from the risk of importing fossil fuels from hostile countries and regions.

Global solar demand continues to surge

The global solar industry in 2023 surged by +76% yr/yr to a record 444 GW(dc)*, according to Bloomberg New Energy Finance (BNEF), the fifth consecutive year of double-digit growth.

During the 5-year period of 2018-2023, solar installs showed a compounded annual growth rate of +33%, making it one of the world’s highest sustained-growth industries.

BNEF forecasts that solar will continue to show solid growth in the coming years. BNEF is forecasting +35% growth in 2024 and a compounded annual growth rate of +12% over the 5-year period from 2023 through 2028. For 2030, BNEF is forecasting 842 GW of annual installs, which would be up by a total of +90% from the 2023 install level.

Demand for solar has soared as solar energy becomes cheaper than its competitors and nations and corporations race to meet their net zero emission targets. Many countries, especially in Europe, are also taking energy security very seriously and are focused on building domestic electricity infrastructure such as solar to reduce their reliance on foreign oil and natural gas.

The outcome of the United Nations COP28 conference in Dubai in December 2023 was very positive for renewable energy after nearly 200 nations agreed to engage in an “orderly transition” away from fossil fuels. The agreement was historic since that was the first time countries explicitly decided to move away from fossil fuels.

The COP28 agreement adopted the goals of tripling renewable energy by 2030 and reaching net zero emissions by 2050

Germany’s climate envoy commented, “Every investor should understand now that the future investments that are profitable and long-term are renewable energy — and investing in fossil fuels is a stranded asset.”

The long-term outlook for solar appears to be very bright. There will be a massive $2.8 trillion of spending on solar equipment from 2022 through 2030, according to forecasts by S&P Global. Also, BNEF forecasts that solar will account for 38% of the world’s electricity capacity by 2050.

“I see solar becoming the king of the world’s electricity markets,” Fatih Birol, executive director of the International Energy Agency (IEA), said in 2021 with the release of the IEA’s flagship World Energy Outlook report. In that report, the IEA forecasted that photovoltaic (PV) solar will easily become the largest source of electricity generation by 2040. The report goes on to say:

“Solar PV becomes the new king of electricity supply and looks set for massive expansion. From 2020 to 2030, solar PV grows by an average of 13% per year, meeting almost one-third of electricity demand growth over that period. Global solar PV deployment exceeds pre-crisis levels by 2021 and sets new records each year after 2022 thanks to widely available resources, declining costs, and policy support in over 130 countries.”

Demand for solar energy is expected to surge in the coming years as solar costs continue to decline, making solar energy even more competitive against fossil fuels and nuclear power. BNEF has determined that solar and wind are now the cheapest sources of new electricity generation in countries that account for 82% of the world’s power supply.

Solar surges in China

Solar energy is a key industry in China. China needs low-priced solar to expand its electricity capacity and support its aggressive economic growth targets. China also needs solar to build that new electricity generation in a way that reduces China’s reliance on coal, improves its air quality, and meets its carbon emission reduction targets.

China installed a massive 260 GW of solar in 2023, surging by +144% yr/yr. That was the fourth consecutive year of massive growth, following annual growth rates of +55% in 2022, +32% in 2021, and +57% in 2020, according to BNEF.

BNEF is forecasting solid solar growth in China over the next few years, with growth of +19% yr/yr in 2024 and +7% yr/yr in 2025. In 2030, BNEF is forecasting that China will install an annual 392 GW of solar, which would be up by a total of 51% from the 2023 install level.

Not only is solar energy growing rapidly in China, but it also accounts for the lion’s share of the addition of new electricity capacity. In 2022, for example, solar accounted for 44% of China’s new electricity capacity additions, according to China’s National Energy Administration (NEA). Other sources of new electricity in China lag far behind solar. Specifically, fossil fuel electricity (coal, gas, and oil) accounted for only 22% of total Chinese new electricity capacity in 2022, wind accounted for 19%, hydro accounted for 12%, and nuclear power and “other” accounted for 3%, according to the NEA.

The Chinese government is relying heavily on solar to meet its increasingly aggressive climate targets. In October 2021, the Chinese government adopted the goal for carbon emissions to peak before 2030 and for carbon neutrality by 2060 as part of its National Determination Contribution (NDC) under the Paris Climate Agreement. To meet its NDC goals, China has adopted a target of generating 18% of its electricity from renewable sources (excluding hydro) by 2025.

To help meet its aggressive renewables goals, China has been building a massive set of solar and wind projects in its desert regions. The first phase of 97 GW of solar and wind started in 2021 and ran smoothly, thus leading the government to expand the project. The Chinese government announced another 455 GW of desert solar and wind projects, with 200 GW slated to be built by 2025 and another 255 GW to be built by 2030. The electricity from those plants will primarily be delivered to the more densely populated eastern regions of the nation.

Chinese solar growth was strong in 2020-23 despite the disruptions caused by the Covid pandemic and the transition in China to a solar market without national subsidies. Developers showed strong interest in subsidy-free solar projects since they can still earn attractive internal rates of return. The Chinese government still offers benefits to subsidy-free projects, such as a guaranteed price for solar electricity output and priority on the grid. Moreover, solar projects can still qualify for subsidies at the local level.

Moving away from national subsidies should be a long-term positive factor for the Chinese solar industry since the industry should grow more predictably with stable profit margins, as opposed to the boom-bust days of the past caused by erratic national government subsidy policies.

Without subsidy volatility, the solar industry should be able to match end-user demand more closely, thus eliminating the small and less competitive players that can only compete when there are generous subsidies. The solar industry is likely to move towards increased domination by largest players that have the best technology and lowest production costs.

By contrast, the Chinese solar market in previous years was buffeted by erratic subsidy policies that caused an upheaval in the industry. For example, Chinese solar installs in 2017 soared by 76% to a then-record high of 53.0 GW as developers took advantage of generous government subsidies.

In response to that 2017 install surge, the Chinese government, on May 31, 2018, was forced to announce a sharp cut in most of its solar subsidies, with utility-scale solar capped at 40 GW and roof-top distributed generation capped at 10 GW in 2018. China’s subsidy phase-out plan was referred to in the industry as the “China-531 order” after the announcement date.

The government was forced into its China-531 action partly by the big backlog of unpaid subsidies that reached $23 billion by the end of 2018. The China-531 curtailment of subsidies caused a sharp drop in Chinese solar installs by -17% to 44.3 GW in 2018 and -25% to 33.1 GW in 2019.

IRA law supercharges US solar manufacturing, but post-election political uncertainty emerges

The US solar sector is entering a period of policy uncertainty as the markets wait to see how Republicans will treat solar policy support. The policy uncertainty will likely result in the delay of some new solar projects until the new policy landscape becomes clear.

Yet Wood Mackenzie notes that near-term growth will continue in the sector, saying, “The near-term trajectory for solar deployment is unlikely to change significantly, barring any drastic changes. Utility-scale solar projects and larger commercial solar projects slated to come online in the next 2-3 years are already well underway, likely with an interconnection agreement secured or having already started construction. For distributed solar projects, the sales and installation cycle takes at least a few quarters for residential solar and longer for commercial solar, meaning that near-term volumes are unlikely to be impacted substantially by federal policy changes” (“US Solar Sector Insight Executive Summary – Q4-2024,” pp 5-6)

Regardless of near-term political uncertainty, solar energy has already solidified into a major US industry. The value of the US solar market was $64 billion in 2023, according to the Solar Energy Industry Association’s (SEIA) Solar Data Sheet. The SEIA reports that there are now more than 10,000 solar businesses in the US employing 279,447 persons. There are now 5.3 million solar systems installed in the US, and a new solar system is installed every 39 seconds, according to the SEIA. There is enough solar in the US to power 38 million households.

US annual solar installations in 2023 soared by +58% yr/yr to a new record high of 37.4 GW from 23.6 GW in 2022, according to BNEF.

Looking ahead, BNEF forecasts that new US solar installs in 2024 will grow by another +22% to 45.5 GW. BNEF is forecasting that US solar annual installs will grow by a total of 70% to 63.7 GW by 2030.

Solar energy accounted for 53% of all new US electricity-generating capacity in 2023, marking the fifth consecutive year that solar energy took first place, according to Wood Mackenzie. Solar was far ahead of an 18% share for natural gas, a 13% share for wind, and a 15% share for “other.”

US solar growth in 2023 was led by the utility sector, with a +77% surge in installs to 22.5 GW, according to Wood Mackenzie. The utility solar sector, which accounted for about 70% of all new US solar installs in 2023, benefited from strong demand and the increased availability of modules as the markets learned to deal with module import restrictions imposed by the US government. In 2024, utility solar will show another year of strong growth of +26% yr/yr, according to Wood MacKenzie.

Utility-scale solar accounted for 4.1% of total US electricity generation in 2023, according to the US Energy Information Administration (Short-Term Energy Outlook, Table 7d). The EIA is forecasting that utility-scale solar’s share of total US electricity generation will increase to 5.6% in 2024 and 6.9% in 2025.

The relatively low penetration rate seen thus far for solar energy means that there is plenty of headroom for solar to grow rapidly in the coming years to meet new electricity demand and replace more expensive options like fossil fuels.

US residential solar installs in 2023 rose by +12% to 6.8 GW, according to Wood Mackenzie. The residential sector was boosted in 2023 by strength in California installs as homeowners tried to beat the step-down in California’s net metering rules. In 2024, Wood Mackenzie is predicting a -26% decline in solar installs for the residential sector due to California’s reduced net metering rules.

The US commercial sector showed +19% yr/yr growth in solar installs in 2023 to 1.9 GW as more corporations sought to capture the benefits from solar of lower cost and zero emissions. By contrast, community solar saw growth of only +3% to 1.1 GW in 2023, hamstrung by permitting and interconnection delays. For 2024, Wood Mackenzie forecasts strong growth of 13% yr/yr for the commercial sector and +10% for the community solar sector.

US solar is booming due in part to IRA stimulus — The US solar industry received a huge boost in August 2022 when Congress passed, and President Biden signed, a $369 billion climate bill, representing the single biggest climate investment in US history. The bill was named the “Inflation Reduction Act” since it was partly designed to reduce consumer healthcare and energy costs.

The US solar industry no longer needs any subsidy help from the US government since solar is now the cheapest form of new utility-level electricity capacity on an unsubsidized basis and is self-sustaining without any subsidies (see LCOE analysis on page 13 of this report). Nevertheless, the policy support from the US government gives the solar industry an extra stimulus boost.

The US surge in solar policy support signaled other governments that they need to boost their policy support or see the US win the lion’s share of new solar manufacturing production outside China in the coming years. Since the US passed the IRA, countries that have boosted their support for solar include EU countries, Canada, South Korea, and others.

Specifically, the energy provisions of the Inflation Reduction Act raised the solar investment tax credit (ITC) to 30% from 26% and implemented a 10-year extension of the 30% ITC tax credit through 2032, with step-downs to 26% in 2033 and 22% in 2034. The ITC also has “adders” that can boost the ITC to as much as 50%, including credits for paying “prevailing wages,” creating apprenticeship programs, using solar modules produced in the US, and building solar projects in brownfield sites traditionally linked to fossil fuels such as coal.

Also, the ITC was given a “direct pay” provision. That provision allows developers without sufficient tax liabilities to claim a direct payment from the federal government through a tax rebate, which is much more valuable to the solar industry than the old system that required equity investors with sufficient tax liabilities to claim the ITC credit. Previously, a shortage of tax equity limited the solar industry’s ability to take full advantage of ITC credits.

The Inflation Reduction Act sought to give the solar industry a decade-long period of stimulus and certainty for production and project development. Previously, the US solar market went through various booms and busts as developers tried to stay ahead of short-term ITC windows and step-downs.

Before the Inflation Reduction Act was passed, the solar industry was operating under the legislation in the pandemic aid bill passed in December 2020, whereby the ITC was set at 26% for 2020 and 2021, with a step-down to 22% in 2023. For 2024, the ITC under the previous law would have fallen to 10% indefinitely for large-scale solar projects and to zero for small-scale solar projects.

The Inflation Reduction Act also established an ITC for battery storage for the first time, giving solar-plus-storage a big boost.

The Inflation Reduction Act also provided a big boost for residential solar with a 30% tax credit for residential solar systems installed from 2022 through 2032, with a step-down to 26% in 2033 and 22% in 2034. The new credit also applies to residential battery storage systems installed in conjunction with a solar system. The previous residential tax credit was set at 26% for 2022 and 22% in 2023 before ending in 2024, and did not include battery storage systems.

To support US domestic solar production, the Inflation Reduction Act also provided $30 billion to implement a new production tax credit (PTC) for US solar manufacturers through 2035. The solar PTC seeks to help the US build a larger solar manufacturing base and reduce its reliance on imported solar modules.

Manufacturing tax credits are specified for solar products built in US-based facilities, such as modules, thin-film or crystalline PV cells, wafers, backsheets, and solar-grade polysilicon. There is also a manufacturing tax credit for DC-to-AC inverters, which has prompted some inverter companies, such as Enphase, to announce they will build new manufacturing plants in the United States.

The IRA’s ITC and production tax credits led to a surge of announcements by various global solar companies about their plans to build new factories in the United States. New solar plant announcements have come from First Solar, Canadian Solar, Hanwha Q Cells, Enel, Waaree Energies, JA Solar, Maxeon, Nextracker, SolarEdge, Enphase, and others. In total, the US renewable energy industry group American Clean Power Association reports that 95 solar PV manufacturing projects have been announced in the past two years since the IRA climate bill became law.

The 2022 IRA law has already caused US solar module manufacturing capacity to more than quintuple to 39 GW through Q3-2024 from only 7 GW in 2022 prior to the IRA law being passed, according to Wood Mackenzie (“US Solar Market Insight – Q4-2024”). The US already has enough domestic solar module manufacturing capacity to satisfy most of BNEF’s forecast of 45.5 GW of US solar installs in 2025, meaning the US going forward should be much less dependent on importing foreign solar panels.

Increased US manufacturing is boosting the supply of reasonably priced solar modules available to US buyers. The cost of US-produced modules should be less than most imported modules, which are typically subject to hefty tariffs. In recent years, US-based buyers of modules have had to pay substantially more than global buyers due to US government restrictions and tariffs on solar imports.

US government also uses solar import tariffs to help build a domestic solar manufacturing base — Over the past decade, the US government has used import tariffs to promote US solar manufacturing. However, the import tariffs have mostly just restricted the supply of modules available to US solar developers and have raised the price of US modules relative to world price levels.

US tariffs on imported solar products go back to 2012 when the Obama administration imposed Section 301 tariffs on solar modules and cells imported from China to address concerns that Chinese solar manufacturers were dumping subsidized products in the United States. In May 2024, the Biden administration then doubled the Section 301 tariffs on Chinese solar modules and cells to 50% from the original level of 25%. In December 2024, the Biden administration raised the duty to 50% from 25% on solar PV wafers and polysilicon, thus covering the entire Chinese solar supply chain with 50% tariffs.

The higher 50% Biden tariff will have little impact since the US imports virtually no solar modules or cells directly from China due to the original Obama tariff. However, the Biden administration temporarily exempted solar cell and PV wafer manufacturing equipment from the tariff so that companies building manufacturing facilities in the United States can import the factory machinery they need to build their US factories. The temporary exemptions lasts from January 1, 2024 to May 31, 2025.

Some Chinese companies responded to the original 2012 Chinese tariffs by building new factories in Southeast Asia to import solar components from China and circumvent the US tariff. To address this concern, the US Department of Commerce (DOC) in August 2023 imposed anti-dumping and countervailing duty (AD/CVD) tariffs on four companies that the DOC concluded were circumventing the Chinese tariffs. Those factories were located in Malaysia, Thailand, Vietnam, and Cambodia.

That AD/CVD investigation, which began in March 2022, sparked a flurry of order cancellations and project delays by US developers in 2022 due to uncertainty about how extensive the tariffs would be. However, the Biden administration announced in June 2022 that any tariffs from the investigation would be suspended until June 2024, thus giving US solar developers time to migrate their solar module purchases to other sources. However, that tariff suspension ended in June 2024, and the US government started to collect AD/CVD tariffs on US solar imports from those four companies.

The US Department of Commerce (DOC) in June 2024 then began a new and more extensive AD/CVD investigation against solar factories in Malaysia, Thailand, Vietnam, and Cambodia. The DOC in late 2024 then announced anti-dumping and countervailing duties on solar cells and modules produced by a range of companies in Malaysia, Thailand, Vietnam, and Cambodia.

Separately on the tariff front, the Biden administration, in February 2022, extended the Trump administration’s Section 201 tariffs on imported solar modules at 14.25% until February 2025 and 14.0% from February 2025 until February 2026. The Section 201 tariffs apply globally with limited exemptions for countries such as Canada, Mexico, Indonesia, Jordan, South Africa, and others.

However, in its 2022 extension of Section 201 tariffs, the Biden administration kept open two big loopholes. First, the Biden administration in 2022 exempted the first 5 GW of imported solar cells from the Section 201 tariff. Second, the Biden administration maintained the exemption for bifacial modules, which was first introduced by the Trump administration. The bifacial module exemption provided a big break for US solar developers and buyers since large utility-scale projects widely use those modules. Bifacial modules allow light to be absorbed by both the front and back of the module as light bounces off the ground.

In early 2024, the Biden administration tightened up the Section 201 duties by removing the exemption for bifacial panels, meaning those panels became subject to a 14.25% duty. However, the Biden administration kept in place the 5 GW of exempted cell imports to give US module factories the ability to import the solar cells they need to assemble into their solar panels. As of August 1, 2024, the Biden administration then more than doubled the solar cell exemption to 12.5 GW to ensure that US factories have enough duty-free cells to assemble their modules.

Regarding the history of the US 201 tariffs, the Trump administration, in January 2018, imposed a Section 201 tariff of 30% on imported solar cells and modules in an attempt to protect the few US solar manufacturers that existed at the time. The initial Section 201 import tariff of 30% for 2018 stepped down to 25% in February 2019, 20% in February 2020, and 15% in February 2021. The tariff was set to expire in February 2022, but as mentioned earlier, President Biden in 2022 then extended the tariff until 2026.

US solar importers deal with Xinjiang restrictions — US solar imports and installs have been disrupted over the past several years by the US government’s action to block some solar imports from the Xinjiang region of China due to allegations of forced labor at some companies located in Xinjiang. However, that situation is being resolved as solar companies meet US government documentation requirements or acquire the modules they need elsewhere.

The Xinjiang issue began for the solar industry when the US government in June 2021 imposed a “Withhold Release Order” that blocked the import of polysilicon products produced by five companies based in China’s Xinjiang province due to allegations that the companies were associated with government-run forced labor programs of the Uyghur Muslim minority. China’s government denied the forced-labor allegations and objected to what it said was US interference in its internal affairs.

The targeted companies were hamstrung in trying to defend themselves against the forced labor allegations by China’s Anti-Foreign Sanctions Law, which makes it illegal for Chinese companies to comply with US requirements to avoid sanctions. The Chinese law makes it difficult for Chinese companies to defend themselves against allegations of using forced labor without getting themselves into trouble with the Chinese government.

Going beyond the initial Withhold Release Order, the US Congress in December 2021 then passed the Uyghur Forced Labor Prevention Act (UFLPA), which was signed into law by President Biden and took effect in June 2022. That law bans importing products made in Xinjiang unless the importer can provide convincing evidence that the products were not made with forced labor. The UFLPA does not impose a total ban on importing goods from Xinjiang but rather imposes a “rebuttable presumption” of a ban that can be overcome with proper documentation.

The Xinjiang restrictions were significant for the global solar industry because factories in the Xinjiang region produced about 45% of the world’s solar-grade polysilicon as of 2020, according to Bernreuter Research. Factories in Xinjiang do not assemble any significant number of solar modules, but they do produce a significant amount of polysilicon.

However, the importance of Xinjiang polysilicon has been reduced by a sharp increase in the number of polysilicon factories built outside Xinjiang. As a result, Wood Mackenzie says that the share of the world’s polysilicon that came from Xinjiang factories dropped to less than one-quarter in 2023.

The global solar industry has also adjusted to Xinjiang labor issues by diverting supply chains away from Xinjiang and doing a better job of documenting their supply chains to satisfy US import requirements.

Also, about 175 solar companies from around the world signed a pledge sponsored by the Solar Energy Industries Association (SEIA) to ensure that their supply chains are free of any forced-labor products (see “Solar Companies Unite to Prevent Forced Labor in the Solar Supply Chain”). The SEIA also released a Supply Chain Traceability Protocol that helps companies prove that their supply chain is free of any products that are potentially connected with forced labor (see “New Traceability Protocol Allows Solar Companies to Ensure Ethical Supply Chain”).

The SEIA, in September 2024, then released a draft of “Standard 101” that establishes an industry standard for meeting the US Customs and Border Protection (CBP) traceability and duty requirements for solar imports. The SEIA’s Standard 101 is expected to be in use by early 2025. The SEIA will partner with third-party auditors so that companies can get their products certified as compliant with US trade laws. The Solar Stewardship Initiative has launched a similar standard for European countries called the “Supply Chain Traceability Standard,” in an effort sponsored by trade bodies SolarPower Europe and Solar Energy UK.

The US ban on importing undocumented solar products from Xinjiang caused supply-chain disruptions for some US solar developers who had shipments detained by US Customs until they provided the necessary documentation. However, the overall impact of the ban has been reduced by the fact that the US only buys a small portion of China’s solar module output in the first place due to the decade-long US tariffs on Chinese solar products.

Europe is also taking steps to block products that are tied to forced labor. In June 2024, the European Parliament approved a forced labor ban. That proposed legislation is now awaiting final approval by the EU Council. However, even after the legislation receives final approval, the ban will have little near-term impact because EU countries will have three years to apply the new rules.

Other US solar policy support — Elsewhere on the solar policy front, President Biden announced in June 2022 that the administration was invoking the Cold War-era Defense Production Act to gain greater powers to support US solar manufacturing.

An executive from the Solar Energy Industries Association (SEIA) noted that the Biden administration’s increased powers under the Defense Production Act “can be used to drive federal procurement, establish project labor agreements, community benefit agreements and master support agreements, develop loan programs, create partnerships and establish other programs that address the emergency need for clean energy.”

The invocation of the Defense Production Act gives the US Energy Department increased latitude to make loans to US manufacturing companies for the purpose of building domestic solar plants. Under that authority, the Energy Department has already announced a $56 million program to reduce US dependence on imported solar modules by supporting R&D for non-silicon thin-film solar and perovskite solar cells.

Under the Defense Production Act, the Biden administration also boosted the ability of the federal government to directly purchase domestically-produced solar modules by applying domestic content standards.

President Biden, early in his term that began in January 2021, took a number of executive actions on the climate front. On his first day in office, President Biden announced that the US would rejoin the Paris Climate Agreement. That confirmed that the US would resume its global leadership position in trying to meet the Paris Climate Agreement’s goal of keeping global warming to less than 2 degrees Celsius above the pre-industrial level, and preferably less than 1.5 degrees Celsius. President Biden also pledged to reach a 100% carbon-free electricity sector by 2035 and reach net-zero greenhouse gas emissions by 2050.

The Biden administration, in April 2021, announced a new “Nationally Determined Contribution” (NDC) under the Paris Climate Agreement of a reduction in US greenhouse gas emissions by 50-52% by 2030 from 2005 levels. That was nearly double the previous commitment made by the Obama administration of a 26-28% cut in greenhouse gas emissions by 2025 from 2005 levels. The Biden NDC also included the target of the US economy having net-zero carbon emissions by 2050.

In December 2021, President Biden signed an executive order to cut the federal government’s emissions by 65% by 2035 and make the government carbon neutral by 2050, the same year that carbon neutrality is targeted for the US economy as a whole. That order also directs the US government to achieve 100% carbon pollution-free electricity by 2030, which is only six years away.

The White House explained the order: “The federal government will work with utilities, developers, technology firms, financiers, and others to purchase electricity produced from resources that generate no carbon emissions, including solar and wind, for all its operations by 2030.”

European solar expected to show continued strong growth

European solar installs in 2023 grew sharply by +40% yr/yr to a record 56 GW, according to industry association SolarPower Europe in its report, “EU Market Outlook for Solar Power: 2023-2027.”

EU solar installs in 2024 will grow by +11% to 62 GW, followed by 19% growth in 2025 and +14% growth in 2026, according to forecasts from SolarPower Europe.

Demand for solar in Europe is expected to remain very strong in the coming years, although solar installs may be curbed somewhat if Europe adopts import barriers and reduces the number of solar modules available to installers.

European countries with the largest solar installs in 2023 were Germany (15.0 GW), Spain (9.2 GW), Italy (5.2 GW), Poland (4.6 GW), and the Netherlands (4.6 GW). Solar installs were widely diversified across the EU, with 14 of the 27 EU countries installing more than 1 GW of solar in 2023.

Solar energy’s share of total electricity generation in Europe rose to 9.1% in 2023, up from 7.6% in 2022 and 5.7% in 2021, according to energy thinktank Ember.

European solar growth has soared in recent years after Europe, in late 2018, scrapped its previous reliance on tariffs and a minimum import price (MIP) scheme that sought to protect domestic solar manufacturers but instead meant that developers had few reasonably-priced modules to buy. European solar install growth has soared since Europe dropped the MIP scheme, although Europe is importing about 90% of its modules to meet demand.

The end of the MIP scheme, combined with the sharp drop in solar module prices seen in recent years, allowed solar to reach grid parity in much of Europe. As a result, many solar projects in Europe are now being installed on an unsubsidized basis.

European solar growth also received a boost from the EU’s pandemic stimulus plan, approved in July 2020, which totaled 750 billion euros, since almost one-third of those funds were targeted for fighting climate change. That added to the EU’s 7-year budget, which had 1 trillion euros of funding to help EU countries meet their emission-reduction goals under the Paris Climate Agreement.

European solar growth is expected to show solid growth in the coming years to help meet the EU’s renewable energy targets. In September 2022, the European Parliament approved an increase to 45% by 2030 of the share of renewables in the EU’s energy mix, up from 40% in June 2022 and the previous target of 32%. The new 45% target was set by the European Commission as part of the REPowerEU plan to cut the EU’s dependence on imported Russian natural gas. The actual target is 42.5%, but a 2.5% “indicative top up” allows for a 45% target to be reached.

The EU is relying on its renewables target to meet its pledge under the UN Paris Climate Agreement to cut its greenhouse gas emissions by at least 55% by 2030 from 1990 levels, and for net zero emissions by 2050.

Europe was thrown into an energy emergency after Russia invaded Ukraine in February 2022, which forced Europe to slash its dependence on Russian oil and gas. Russia’s invasion of Ukraine brought the importance of domestic energy security to the forefront once again, much as it was in the 1970’s when OPEC’s oil embargo caused long gasoline lines and a global recession. Fossil fuels often come from hostile and inhospitable places, making them an expensive and unreliable source of energy for importers.

As a result of Russia’s attack on Ukraine, the EU formulated a new plan called REPowerEU to slash its dependence on Russian fossil fuels. A key strategy of REPowerEU is to rapidly build more renewable electricity to replace natural gas and coal. The REPowerEU proposal seeks to ensure that 740 GW of cumulative solar capacity is in place by 2030, which would require about 500 GW of new solar to be installed during the 7-year period of 2024 to 2030.

The REPowerEU strategy includes several key measures for accelerating the installation of solar, including larger government solar auctions, government help in identifying land sites, streamlined permitting, and streamlined solar Power Purchase Agreements (PPAs) to make them more attractive for small and medium-sized companies.

While solar is already growing rapidly in Europe and has strong policy support, the passage of the IRA law in the US caused near panic among European policymakers that the new US manufacturing incentives will make it difficult for Europe to expand its solar manufacturing base.

US passage of the IRA law galvanized European policymakers into taking more aggressive actions to build a domestic solar manufacturing base. The European Commission formulated the “Green Deal Industrial Plan,” which focuses on the four pillars of regulation, financing, skills, and trade.

As part of the Green Deal Industrial Plan, the EU’s “Net-Zero Industry Act (NZIA)” took effect in June 2024. The NZIA has a goal of using European-manufactured products for at least 40% of its clean energy deployment. The NZIA imposes domestic content requirements for European public auctions and tenders for renewable energy capacity, thus seeking to support European manufacturers. The NZIA also seeks to promote the training of workers for solar manufacturing plants and ease regulatory burdens on European solar manufacturers.

There is heavy pressure on European governments to protect what little solar manufacturing exists in Europe. In order to protect domestic producers, Germany has said it is considering tariffs to block cheap Chinese solar imports. That move is opposed by European solar installers and project developers, who account for the lion’s share of solar employment in Europe.

India’s solar demand expected to remain very strong

India’s government is pushing very hard for solar to help modernize its infrastructure, boost its global business competitiveness, expand electricity access in rural areas, and meet its climate goals.

India is pursuing national goals of 500 GW of renewable capacity by 2030 and net zero emissions by 2070. India’s government has also set an aggressive goal of roughly doubling its cumulative solar capacity to 186 GW by 2027 and nearly quadrupling its cumulative solar capacity to 364 GW by 2032 from 94 GW in 2023, according to India’s 14th National Electricity Plan (NEP14).

Solar is already the biggest source of new electricity in India, accounting for 56% of new annual electricity capacity additions in 2023, according to the Institute for Energy Economics and Financial Analysis (IEEFA). That means that solar energy in India easily beats other sources of new electricity generation, such as wind, natural gas, coal, and nuclear.

In 2023, India installed the fifth most solar of any country in the world, behind China, the US, Brazil, and Germany. In 2023, India installed 13.5 GW of solar, down -28% yr/yr, according to BNEF. That followed the banner year in 2022 of +50% growth to a record 18.9 GW.

India’s solar installs in 2023 were undercut by commissioning delays and the lack of enough modules to meet demand because of the Indian government’s restrictions on solar module imports. However, the supply situation is expected to improve in 2024 and beyond as new domestic production comes online.

As a result of the expected increased supply of domestic modules, BNEF forecasts that India’s solar install growth rate will be strong at a compounded annual rate of +25% over the next five years and will more than quadruple to an annual install rate of 56 GW by 2030.

India’s domestic solar manufacturing capacity is already growing quickly. Mercom reports that India added 20.8 GW of solar module production and 3.2 GW of solar cell production in 2023. That brought India’s cumulative solar module manufacturing capacity to 64.5 GW and solar cell capacity to 5.8 GW as of December 2023. Mercom forecasts that India will more than double its solar module manufacturing capacity to at least 150 GW by 2026.

Increased production allows Indian solar manufacturers to not only meet domestic demand but also export a significant number of modules to other countries, such as the US, where buyers are looking to avoid tariffs on Chinese-related modules.

To build a domestic solar manufacturing industry, India’s government provided a hefty $3 billion of funding for its solar PV manufacturing “Production Linked Incentive” (PLI) scheme, which offers subsidies to companies that build large PV manufacturing plants in India.

India’s government has also used tariffs to block imports of Chinese solar modules and encourage Indian solar installers to buy Indian modules. Effective April 1, 2022, India’s government imposed a basic customs duty of 40% on certain imported solar modules and a 25% duty on imported solar cells.

As another trade protection mechanism, India maintains an “Approved List of Models and Manufacturers” (ALMM) of solar modules that are approved for installation in India in government projects and projects under government programs. That list was originally designed as a minimum quality requirement, but it is actually a domestic content requirement since no non-India solar manufacturers are on the list. The ALMM currently applies only to solar modules. There are no ALMM restrictions on importing solar wafers and cells.

The Indian government, from March 2023 through March 2024, temporarily suspended the ALMM list to allow the use of foreign modules since there weren’t enough modules produced in India to meet demand. However, the government reimposed the ALMM list restrictions as of April 2024 to clamp down again on foreign imports.

Japan’s solar slows while much of the rest of Asia/Pacific is soaring

Solar installs in Japan in 2023 fell by -19% yr/yr to 5.0 GW, according to BNEF. Japan’s solar installs in 2024 will fall by -16% to 4.2 GW, but then show single-digit growth in 2025-27 and double-digit growth in 2028-30, according to forecasts by BNEF.

Japan’s annual solar installation growth is currently slowing due to reduced subsidies. Yet, the Japanese government’s subsidy support for solar will continue in the coming years with a FIT (feed-in tariff) program for residential and commercial-industrial projects.

For large-scale solar projects, the Japanese government, in April 2022, launched a new feed-in-premium (FIP) support program. The new FIP program gave solar electricity producers a premium over wholesale electricity prices as an incentive, unlike the old FIT system that specified a fixed electricity price. The new system aims to transition the Japanese solar market to unsubsidized parity.

The Japanese government is pursuing aggressive solar targets to help meet its emissions goals. In July 2021, the Japanese government almost doubled its solar target to a cumulative capacity of 108 GW by 2030. The government raised its solar target to help meet Japan’s carbon target of cutting greenhouse gas emissions by 43% by 2030 from 2013 levels and achieving net zero carbon emissions by 2050.

Solar in Japan should also see support in the coming years from Japanese corporations that want to sign solar power purchase agreements to meet their corporate renewable energy goals. Corporate demand is expected to be a key factor driving the development of subsidy-free solar in Japan in the coming years.

Elsewhere in Asia/Pacific, Taiwan is expected to see strong solar installs in the coming years as the government promotes solar to meet its climate goals. Solar installs in Taiwan in 2023 rose by +33% to 2.7 GW and showed a strong compounded annual growth rate of +22% in the five years through 2023, according to BNEF. BNEF expects Taiwan’s solar installs to fall by -26% to 2.0 GW in 2024 but then grow by +25% to 2.5 GW in 2025.

There is strong solar demand in Taiwan from corporations looking to meet their renewable energy goals. Also, there is rising demand for solar power in Taiwan to replace the coming closure of coal plants to meet the government’s goal of net zero emissions by 2050.

Taiwan’s government is aiming to obtain 25% of its total electricity from renewable sources by 2025. The government has announced an aggressive cumulative solar capacity target of 20 GW by 2025, which would be about 60% higher than the current cumulative capacity.

South Korea is another promising solar location in Asia. Solar installs in South Korea in 2020 grew sharply by +51% to a record 5.6 GW, although installs have since fallen back and in 2023 fell by -8% to 3.0 GW, according to BNEF.

Corporate demand for solar power is expected to grow sharply after South Korea’s government in January 2021 revised its electricity laws to allow clean energy developers to sell electricity directly to corporations with power purchase agreements.

The South Korean government is considering a proposal to require that 21.5% of electricity generation capacity is derived from renewable sources by 2030. The South Korean government, in 2021, raised its nationally determined contribution under the Paris Climate Agreement to a 40% cut in emissions by 2030 from 2018 levels.

In Australia, solar installs in 2023 showed strong growth of +32% yr/yr to 5.9 GW and a strong +22% compounded annual growth rate over the last ten years.

Australia’s government has pledged to reduce emissions by 43% by 2030 from the 2005 level and reach net zero emissions by 2050. Australia needs to install 1.9 terawatts of solar to meet its net-zero target by 2050, according to a report entitled “Net Zero Australia” issued by researchers at the universities of Melbourne, Queensland, and Princeton. The government is also targeting 82% renewable generation by 2030, up from the current level of 27%.

Latin America comes on strong with Brazilian dominance

Latin America has become a major player in the solar industry due to rapid growth in Brazil, Mexico, and Chile.

Annual solar installs in the fifteen largest Latin American countries in 2023 rose by +14% to 21.2 GW, adding to the growth rates of +34% seen in 2021 and +68% in 2022, according to BNEF. Solar growth in Latin America has shown a compounded annual growth rate over the last five years of +38%.

Solar growth in Latin America is heavily concentrated in Brazil, which accounted for 75% of Latin American solar installs in 2023. Also, Brazil in 2023 rose to third place in the world for annual solar installs, behind just China and the US.

Brazil’s annual solar installs in 2023 rose +12% to 16.0 GW and showed a compounded annual growth rate over the last five years of +62%.

Chile was the second largest Latin American solar player in 2023, with 2.4 GW of solar installs, accounting for 11% of total Latin American installs. Chile’s solar installs showed annual compounded growth of +39% over the last five years.

Mexico was the third largest solar player in 2023, with 1.7 GW of installs (+32% yr/yr), accounting for 8% of total Latin American installs.