This article was co-authored by Lauren Miller and Stephanie Sienkowski.

This is an excerpt from the November 2017 edition of The SOL SOURCE, a monthly electronic newsletter analyzing the latest trends in renewable energy based on our unique position in the solar financing space. To receive future editions of the journal, please subscribe.

On October 31, the International Trade Commission (ITC) released their much anticipated remedy recommendations. Though the recommendations’ impacts are by no means benign, they certainly could have been far worse if Suniva and SolarWorld had their way.

The ITC has suggested three possible remedies:

• Chairman Schmidtlein has suggested a 10% ad valorem tariff on the first 0.5GW of Crystalline Silicon Photovoltaic Cells (CSPV) cells increasing to 30% ad valorem after the initial quota and a 35% ad valorem tariff on CSPV modules. Each of these tariffs will incrementally decrease over 4 years and the quota will incrementally increase.
• Vice Chairman Johanson alongside Commissioner Williamson has suggested a similar four-year, tariff-rate quota on CSPV cells of 30% ad valorem for imports after the first gigawatt with percentage points for the tariff decreasing by five each year and the quota increasing by 0.2GW. For CSPV modules there will also be a 30% ad valorem tariff without a quota limitation, decreasing by the same percentage points over the four years.
• Commissioner Broadbent in her recommendation took a slightly different approach, most similar to SEIA’s recommendation, and recommended 8.9GW quotas each on CSPV cells and modules that would increase by 1.4GW annually. She then recommended that these quantitative restrictions be implemented by selling import licenses at public auction at a minimum price of one cent per watt with the revenue from these auctions to be used in a fund to assist the domestic CSPV industry.

In looking at these recommendations, the first two and their potential 30% or more tariff rate are  the most impactful for future solar development; however, they are not likely to be deadly. To give us a better sense of these findings’ impact on the industry, we assumed the 30% tariff rate and analyzed what it might to do to PPA rates in three key markets: New Jersey, Massachusetts, and Illinois.

New Jersey

The first key solar market we will look at is New Jersey. The effects of a 30% tariff in New Jersey are harder to predict because of the state's solar renewable energy credits (SRECs) are a market-based incentive with market values that are subject to change. To keep things simple and to set a baseline for the comparisons we will draw in Massachusetts and Illinois, we looked at a 30% tariff impact on New Jersey keeping SREC prices constant. A sample pre-tariff project with a PPA rate of around $.05-.06/kWh would see a projected 10% increase.

The New Jersey solar market has other drivers, however.  The recent election of Phil Murphy as governor on November 8 bodes well forpro-solar legislation. Governor-Elect Murphy has announced that he plans to complete New Jersey's Energy Master Plan by the end of 2018, and hopes to raise the state’s renewable portfolio standard to a 100% clean energy by 2050. There is also pending legislation to increase the state’s solar carve-out, which could help SREC prices rise and soften any potential tariff’s impact. Governor Murphy would be much more likely to sign this than Governor Christie has been.

Massachusetts

In Massachusetts we compared a sample pre-tariff PPA project in the managed growth market sector that qualified for a .45 SREC II factor, with a sample post-tariff PPA project receiving $60/MWh in SMART program incentives for 20 years. The $60/MWh incentive value was calculated by assuming a $.17/kWh starting SMART rate and adding in a $.01/kWh ground mount subtractor and $.10/kWh value of energy subtractor. Keeping all other factors equal, the PPA rate increased by almost 40% form around $.04-.05/kWh in the pre-tariff scenario to $.06-.07/kWh in the post-tariff, SMART scenario.*

In Massachusetts, the potential increase from the tariff may be mitigated by the changes to Massachusetts’s incentive program.  Additionally, to help ease the impacts of the tariffs in Massachusetts, it's imperative that once Massachusetts opens the initial competitive bid to help set the initial block 1 rates later this month, developers don't underbid. Pricing in a post-tariff world will be very sensitive to the clearing price of SMART and therefore honest bids will be key.

Illinois

The Illinois Power Agency released its Long-Term Renewable Resources Plan on September 29, 2017, setting up Illinois as one of the most exciting state markets to emerge in years.  The plan outlines renewable energy credit (REC) procurement programs for Ameren and ComEd utilities. REC prices have been estimated based on NREL’s CREST model, but these REC prices may be refined before approval with the IL Commerce Commission (ICC). (For a refresher on the Illinois solar program, review our summary of the Long-Term Renewable Resources Procurement plan from the October SOURCE)

With this in mind, in Illinois we compared a sample 2MW, pre-tariff PPA project, assuming a spring 2017 Distributed Generation (DG) Procurement REC value of $68.56/MWh for 5 years, with a sample 2MW, post-tariff PPA project, assuming an estimate of 2018 incentives. The 2018 incentives include a $250/kW distributed generation rebate and $25/MWh incentives for 15 years, calculated as an average of Ameren and ComEd’s 2000 kW block 1 estimates found in table D-7 here.

With these numbers in mind, a project with a $.07-.08/kWh PPA rate under the spring 2017 DG procurement would actually have a 10% lower PPA rate, closer to $.07/kWh, under the proposed 2018 Adjustable Block and DG rebate, even in a 30% post-tariff world, demonstrating the potential strength of Illinois’s new renewable energy procurement program in both its REC contracting strength and because of the DG rebate.*

One point of clarification on these rates is that the REC values are not yet final. They are likely to change in final iteration. In its plan, the Illinois Power Agency wrote that it is aware of the pending tariff case, and in addition to feedback collected during the initial comment period, it may need to make further changes depending on the final ruling by the Trump Administration. It should also be noted that while fixed price RECs are set for projects under 2000kW via the Adjustable block, anything sized over 2000kW must bid for a 15-year REC contract. As always, honestly priced bids will be key to this market flourishing

Conclusion

While the potential for a 30% tariff is tarrif-ying to some, the actual impacts of this Section 201 may not be as scary as the industry feared back in June, at least for Illinois, New Jersey, and Massachusetts. However, in tighter markets state policies will certainly play a role in helping projects continue to pencil. For example, emerging solar markets in places where solar is just beginning to become cost competitive, or markets with low electricity rates, no strong state energy policy, and low solar irradiance, will be harder hit by the trade case. Pending policy and regulatory changes in places like Maryland, Connecticut, and Virginia will be important to pay attention to in the 2018 legislative session, and strong state legislation could help soften the blow.

While 30% is most likely a worst-case scenario, the President still has the final say in what remedy will be. The recommendations landed on President Trump’s desk on November 13, and from there he has 60 days to make his decision. The industry will be watching to see which of the three solutions, combination of solutions, completely new remedy, or no remedy at all that the President will end up implementing, while keeping in mind that the ITC's recommendation has typically been a ceiling for recommended tariffs.

*Please note that all PPA rates mentioned in this article are sample rates and should not be used as indicative or average rates for specific projects or markets.  If you would like indicative pricing for your project, please email finance@solsystems.com.

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