As U.S. Customs and Border Protection (CBP) detainments continue to make headlines and as the potential for more supply chain policies increases, it is now more important than ever to have a sound strategy to reduce solar supply chain risks during the procurement process.
The good news is there are ways to understand and mitigate the risks – and we can help so you don’t have to manage it on your own. Let’s take a look at a recap of what policies to be aware of and what may be coming around the corner so you can avoid unwelcome surprises negatively affecting your project schedules or profits.
Understanding UFLPA and AD/CVD and the Solar Market
The solar supply chain is heavily reliant on China for the manufacturing of raw materials such as polysilicon. In June 2022, the Uyghur Forced Labor Prevention Act (UFLPA) went into effect as a way to prohibit goods manufactured using forced labor in the Xinjiang region of China from entering the United States.
To be compliant with UFLPA, companies must supply documentation proving that their materials are not linked to forced labor. This can be challenging when materials are sourced from multiple locations – a practice common in the solar industry. Clear documentation mapping the production process and the original material source is necessary to comply with the UFLPA. Noncompliance can result in the seizure and prevention of solar module importation into the U.S., causing costly delays to project schedules and valuable time spent finding alternative options, which may also cost more given the immediate replacement needs.
Monitoring suppliers’ UFLPA compliance is a time-consuming process that must be done on an ongoing basis. Conditions are constantly changing, with new detentions occurring for companies not meeting UFLPA requirements. There’s no guarantee that solar panels successfully detained and released in the past will be quickly released again in the future, making it vital to keep a close eye on the latest developments and which companies are proceeding without import seizures or are getting through detentions consistently fast.
Additionally, the U.S. Department of Commerce (DOC) applies import tariffs on solar PV manufacturers that exhibit specific criteria, commonly referred to as Anti-Dumping and Countervailing Duties (AD/CVD). AD/CVD tariffs were established to help create an equal playing field for U.S. manufacturers by collecting duties on imported materials sold below fair market value.
Back in 2012, the U.S. DOC levied tariffs on Chinese solar companies after determining that they had an unfair competitive advantage from selling products for less than normal value. Since these tariffs went into effect, there have been attempts made to circumvent them, leading to high profile AD/CVD violation cases with major impacts on the solar industry.
After a final DOC determination on the Auxin trade case ruled that Chinese solar manufacturers are working in nearby countries to avoid paying duties, this law effectively operates as an application of duties for solar module components originating from China, Cambodia, Malaysia, Thailand or Vietnam. However, due to executive action from President Biden in 2022 while the investigation was taking place, these AD/CVD tariffs on modules from Cambodia, Malaysia, Thailand or Vietnam will not go into effect until June 6, 2024.
With these considerations in mind, there’s been an influx of imports from non-U.S. manufacturers as the industry hurries to try to avoid AD/CVD tariffs. However, with the temporary tariff waiver ending in June, time is running out.
Tips to Mitigate Current Solar Supply Chain Risk for UFLPA and AD/CVD
As we mentioned earlier, in order to comply with UFLPA requirements, it’s critical for solar supply chains to be traceable and well documented. One way to verify this is to select suppliers with available third-party traceability audits. These audits, sometimes called Supply Chain Mapping, track the solar supply chain from raw materials to finished goods, allowing for proof of compliance with UFLPA. Knowing that a vendor has completed this independent verification within the last 2 years can help alleviate uncertainty around UFLPA before proceeding with a purchase. If a manufacturer can prove a vertically integrated supply chain from raw materials to PV modules this is another good way to see a clean supply chain.
At Anza, we track multiple risk factors, including whether products contain Chinese-made polysilicon and whether companies have been detained or pass through U.S. Customs during importation. Based on this and other first party and third party documentation, we determine the risk level of different manufacturers in regards to UFLPA.
When it comes to AD/CVD risk, your best bet is to diversify your supplier base to reduce reliance on countries with duties. To avoid AD/CVD tariff risk, you need to have non-Chinese wafers or four of six non-Chinese components (i.e. silver paste, aluminum frames, glass, back sheets, ethylene vinyl acetate sheets (EVA), and junction boxes). By expanding your options to consider alternative panel technology, you’ll likely be able to find additional low-risk options you may not have previously considered. Ultimately, once domestic manufacturing is readily available, shifting to these U.S. made products will allow you to avoid these tariffs and risk altogether.
Another way to mitigate risk is to verify a supplier’s history and add contract stipulations that explicitly contain buyer protections. By outlining in your contract that the vendor is responsible for any duties or fees associated with AD/CVD, you can rest assured that your project financials won’t be impacted if there are trade issues down the road.
Overall, keeping tabs on ongoing trade cases and market insights can help you pivot your purchasing decisions accordingly so your project finances aren’t impacted by tariffs or delays.
What Risks May Lie Ahead in 2024 and Beyond
Currently, there is speculation that a new AD/CVD case may be coming later in 2024 that could affect additional countries beyond those impacted by the Auxin ruling. The present market conditions of over-supply from non-U.S. suppliers are causing massive price declines. This, along with general negative sentiment toward foreign module manufacturers, indicates conditions are ripe for another AD/CVD case.
Additionally, we think it’s important to keep an eye on the current Section 201 tariff exemption for imported bifacial panels. The last five years have been turbulent when it comes to tariffs on bifacial solar panels, with these panels gaining and losing tariff exemption several times. The latest update was in 2022, with President Biden extending Section 201 tariffs for four years while keeping an exemption in place for bifacial panels.
However, this doesn’t mean you should consider this exemption a sure thing through 2026. Domestic panel manufacturers continue to take issue with the bifacial exclusion from these tariffs and recently restated these concerns at a midterm hearing held by the U.S. International Trade Commission (ITC).
Additionally, a ruling in late 2023 confirmed that the President does have the authority to implement modifications to restrict trade as part of Section 201 safeguards – such as removing a tariff exemption or increasing a tariff rate. With the 2024 presidential election right around the corner, there’s a chance a change in administration could lead to another change in bifacial tariff exemption. Our experts are staying on top of any new developments that could affect project deliveries ensuring our clients are ready to make informed procurement decisions.
How Anza Can Help
At Anza, we have collected and organized first party and third party supply chain data and made this information instantly available within our platform. Based on our two decades of solar module procurement experience, we developed our Anza Risk RatingTM scoring of UFLPA and AD/CVD risks. We keep tabs on evolving policy details and build this into a structured assessment based on established criteria that helps our clients objectively assess these risks.
Now, you don’t have to settle for buying modules at a higher price from one of the few top Tier-1 suppliers with bulletproof risk. With this industry-leading supply chain data, you get a broader view of the market and can consider suppliers with low-risk options you may have previously missed. Often, these options have lower pricing, lower installation costs or higher production benefit, leading to higher project profits for your company. Alternatively, if you want to continue buying from one of the top Tier-1 suppliers, you now have many competitive options available to help drive down the price of your Tier-1 choice.
While we may not know for certain what is to come in 2024, staying a step ahead when it comes to understanding and reducing current risks is a crucial first step. Find out more about how Anza can be a valuable partner in your proactive supply chain risk management and provide insights to benefit your company’s profit and productivity.
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