Protectionist Measures Could Boost U.S. Solar Manufacturing But Increase Costs – Report

A recent report from Wood Mackenzie highlights the potential impacts of increased protectionist measures in the U.S. solar market. While these actions could boost domestic manufacturing, they may also lead to higher costs, slowing the growth of the solar industry. The report, titled “The U.S. Solar Supply Chain under More Protectionism,” explores how new trade tariffs and tighter import restrictions could reshape the market.

The U.S. solar manufacturing industry has grown significantly in recent years. Since the Inflation Reduction Act (IRA) was passed in 2022, domestic solar module manufacturing capacity has quadrupled, reaching over 30 GW by Q2 2024. Additionally, more than 70 GW of new cell manufacturing facilities have been announced. However, despite this progress, falling prices for solar components have put domestic manufacturers in a difficult position. This may prompt further protectionist policies to safeguard local businesses.

Michelle Davis, director and head of global solar at Wood Mackenzie, notes that many in the solar industry expect more trade actions in the future. Domestic manufacturers are likely to lobby for stronger protectionist measures to defend their market share. The increasing anti-China sentiment in U.S. politics adds to the complexity, as most of the world’s solar equipment is produced by Chinese-owned companies. The upcoming presidential election also introduces uncertainty, as both political parties have supported protectionist trade actions in the past. Davis mentioned that a Trump administration could propose tariffs as high as 60% on imports from China, which would further complicate the market.

In the short term, tighter supply would lead to increased domestic manufacturing. By 2027, the report predicts that wafer manufacturing could grow by 5 GW (152%), cell manufacturing by 12 GW (53%), and module manufacturing by 19.2 GW (28%). However, this expansion would come with higher costs for U.S. buyers. Domestic modules with U.S.-made cells are projected to cost around $0.41 per watt in 2025, declining to $0.35 per watt by 2032, compared to current imported modules priced in the mid-$0.20 range.

While a stronger domestic supply chain offers benefits like reduced trade risks and more reliable delivery timelines, buyers will need to adjust their strategies to account for higher costs. The transition to a fully domestic supply chain will require smart policy decisions. Removing market and regulatory uncertainties, such as ongoing tariff investigations, will encourage long-term investments. Additionally, timely incentives like the 45x tax credits will be crucial for supporting the buildout of new manufacturing facilities. With the right policies in place, the U.S. can expand its solar manufacturing sector without disrupting current market growth.