Isolationism: How to kill American solar

How NextEra Energy, America’s largest renewable energy developer, can continue to decarbonize the U.S. grid despite looming trade tariffs

Solar success story challenged by import tariffs

Solar energy has been booming in the U.S., resulting in 9.5 GW of new capacity additions to the electric generating mix in 2016, the highest of any single energy resource [1]. Because of this tremendous growth, the electricity we rely on every day is becoming more sustainable, U.S. is gaining highly desired energy independence, and economy has added over 260,000 well-paying solar jobs [2].

However, the industry is facing a tough challenge that can severely undermine this progress. The success story of solar can be largely attributed to plentiful supply of cheap solar modules, majority of which are imported from China [3]. The International Trade Commission (ITC) ruled in September 2017 in favor of two financially troubled U.S. solar manufacturers that claim they have suffered because of the imports. ITC recommended that President Trump imposes import tariffs on solar modules [4].

One of the U.S. companies that will be most impacted by solar import tariffs is NextEra Energy Inc. (NEE), one of the largest developers of solar. NextEra owns and operates over 2.2 GW of solar, enough to power more than 300,000 American homes with clean energy [5]. Due to economies of scale and improvements in solar module technology driven by large Chinese manufacturers, NEE has the advantage of dramatically low prices of these commoditized modules. Securing lower prices on key components of a solar farm enables NEE to build power projects that are more cost-competitive than fossil-fueled alternatives. Over the next three years, NEE expects to more than double their existing solar portfolio [6]. Demand for solar depends on competitive pricing, which in turn depends on access to low-price panels. Proposed import tariffs will significantly increase prices of most solar components, putting pressure on NEE’s forecasted growth.

The best defense is good offense

Since the tariff case has been introduced by the ITC, NEE has taken several actions to remain competitive in the industry and deliver on development projections communicated to the investors. Shortly after the election of President Trump in 2016, NEE pre-bought a large volume of panels from their existing suppliers to meet projected demand for 2017 and 2018 [7]. While this decision resulted in higher inventory carrying costs, it served as an insurance policy against uncertainty and enabled NEE to fulfill their signed near-term contracts. NEE was also one of the most proactive players to address this challenge, stockpiling solar modules from Tier 1 suppliers before they increased prices and later ran out of excess capacity to meet this spike in demand [8].

Because of uncertainty of the trade case and a broad range of potential outcomes, NEE hasn’t devised a concrete long-term mitigation strategy. While their focus remains on addressing supply shortages in the short term, the company is developing a few long-term scenarios to be prepared for any potential outcome. Post 2019, Executive Management expects the market to reach a new equilibrium [9].

Looking ahead for NextEra Energy

While NEE has stock-piled panels for 2017 and 2018 project needs, management has highlighted 2019 as a year of highest concern for shortage of solar modules. Since NextEra’s existing Tier 1 supplier base does not have additional capacity, NEE should consider bringing in top Tier 2 Chinese manufacturers into their approved supplier network to help close the gap in module supply for 2019. Additionally, NEE could explore building a coalition with other stakeholders negatively impacted by the trade tariffs, such as other solar developers, electric utilities, environmental advocacy organizations, and associations of solar installation workers. Together, these organizations should take an active lobbying role and articulate to the Federal agencies the value of strong American solar industry, including cleaner electricity mix, energy independence, and thousands of well-paying jobs.

To prepare for the long-term implications of the trade case, it would be prudent for NEE to start building relationships with U.S.-based solar module manufacturers, such as Tesla, Sunniva, and SolarWorld. While the current quality of modules manufactured by most U.S.-based players is subpar to their Chinese competitors, large purchasers like NEE would be well positioned to influence local industry and co-develop superior products [10]. Additionally, over time, higher demand for local solar panels will allow American manufacturers to gain economies of scale, automate processes, and ultimately progress along experience curve to drive down costs.

The crucial open question is how companies like NextEra with complex global supply chains should plan for political risk and changes in policy. Do they change their operational model to immediately accommodate major political changes or wait it out until the tides turn?

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  1. U.S. Energy Information Administration, “Today in Energy”,, accessed November 2017.
  2. The Editorial Board, “How to Kill American Solar”, Wall Street Journal, October 29, 2017, , accessed November 2017.
  3. Cassandra Profita and Grace Hood, “How Tariffs Could Help And Hurt The Solar Industry”, NPR, October 30, 2017,, accessed November 2017
  4. The Editorial Board, “How to Kill American Solar”, Wall Street Journal, October 29, 2017, , accessed November 2017.
  5. NextEra Energy, 2016 Corporate Sustainability Report, p. 5, via NextEra Energy Corporate website, accessed November 2017
  6. NextEra Energy, Third Quarter 2017 Earnings Conference Call Presentation, p. 11., via NextEra Energy Corporate website, accessed November 2017
  7. NextEra Energy, Third Quarter 2017 Earnings Conference Call Transcript, p. 13., via SNL Financial Energy, accessed November 2017
  8. Barry Cinnamon, “The Threat of Tariffs Is Already Reshaping the US Solar Market”, Greentech Media, August 18, 2017,, accessed November 2017
  9. NextEra Energy, Third Quarter 2017 Earnings Conference Call Transcript, p. 13., via SNL Financial Energy, accessed November 2017
  10. The Editorial Board, “How to Kill American Solar”, Wall Street Journal, October 29, 2017, , accessed November 2017.


Cover photo: Consumer Energy, “Solar Gardens”,, accessed November 2017

Embedded power capacity additions chart: Mike Munsell, “US Solar Market Grows 95% in 2016, Smashes Records”, Greentech Media, February 15, 2017,, accessed November 2017


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8 thoughts on “Isolationism: How to kill American solar

  1. Super interesting – it was pretty smart of NEE to purchase their panels in advance of a tariff.

    From memory, I think First Solar is supposed to be a competitive US panel manufacturer – that could be a good way to get around the tariffs and stay competitive. Another option is to simply grow overseas in places like LATAM and Europe.

  2. I believe that NEE’s reaction, of stockpiling inventory, were appropriate given the circumstances. It is prudent to begin scenario planning in instances of political uncertainty and performing a risk assessment, weighing the probability and consequences of each scenario against the other. Two examples provided where they either continue to source from China increasing the capex of a solar power plant, and the other scenario of sourcing from the US with inferior technology thereby decreasing the useful life or the max power generation of a similar cost solar power plant with no increased import duty, both have the net effect of increasing the cost of solar. The question is how much of these costs will be transferred to consumers?

    Given NEE’s diversified set of energy holdings, I assume the cost impacts for consumers will be minimal.

  3. One of my main concerns regarding the proposal of NEE building a coalition with other stakeholders negatively impacted by the trade tariffs is the fact that these kinds of coalitions have been built across America lately in various sectors and industries as an obvious outcome of the new administration’s policies. Consequently, and since isolationism is one of the administration’s robust foundations, I would be highly skeptical of the effectiveness of this strategy- it might be too little and too late.
    An interesting long term strategy for NEE might be diversify its operation by entering new markets, as Peter offers. I think that even if import tariffs had stayed unchanged, NEE would have needed to diversify its geographic presence to be well positioned for future growth (as growth in America is not endless). NEE can then try and look for local manufacturers of cheap solar modules in a new territory, such as in Latin America or Sub Saharan Africa, where potential is high and costs are relatively low. This can boost sales in the new region of operation, as shipment cost is lower than importing the panels from China, reduce NEE’s dependency, and risk, on China and, if the new tariff is specifically applied for importing solar modules from China (as the new administration prioritize barriers on trade with China), might also mitigate the affect on importing solar panels to America.

  4. One of the main things that came to mind is why the US-based module manufacturers are so far behind their Chinese counterparts? If the answer is that these companies are mostly focused on other alternative energy innovations then that’s fine, but if there are actual tactical things Chinese companies are doing better then this could be an opportunity. Not to jump to the defense of an isolationist agenda, but if NEE is such a large player then co-development could be a viable option to push forward the US solar module industry. If we really believe that solar energy is the future then it might behoove us (if economically viable) to build the full value chain at home and allow Chinese manufacuterers to supply parts of developing Asia where I imagine solar is also becoming a vital energy source.

  5. This is a very interesting problem. In a lot of ways it is a catch 22 because there is a large push for alternative energies to combat climate change and protect the US’s energy independence yet as companies begin doing this, typically the less expensive way includes outsourcing to other countries. One of your recommendations is for NEE to beging to build relationships with US solar panel manufacturers. While I agree this is a good idea, especially when looking long-term, I also tend to prefer your previous recommendation of forming a coalition. While it may not have the immediate affects they would like, in the long-run I think it is an important step in making the business of alternative energy affordable.

  6. Thank you for bringing this issue to light–it’s frustrating that in the midst of an administration trying to promote internal business and job creation, we end up compromising our ability to generate clean energy. I like your two-sided approach of building relationships with local corporations such as Tesla, while also preparing for future demand by pre-purchasing inventory. However, one challenge associated with this current structure is that as new innovations occur in the solar cell industry, they penetrate the market later and later because the stockpile of older designs are still waiting to be used. So not only does this situation cause financial problems, but it stagnates innovation by forcing companies to hold onto older, less efficient, and likely less cost effective designs. I wonder if perhaps a solution to this would be through pre-purchases without actually receiving the goods–a payment in advance wherein as new models come out, the company receives them. In the meantime, the American market can become more mature and cost effective, while also allowing innovation to prosper. Thanks for sharing your article!

  7. Thank you for a great article, Alona. I have no experience in this subject matter, so it’s great learning. It’s hard to imagine a company more negatively impacted by Trump’s policies than NextEra – doubly-impacted by new support for traditional fossil fuel companies and inflated raw materials costs related to the isolationism you discussed here. Despite that, NextEra’s stock is up 39% in the last year. I wonder what the explanation is? Is it that the bottom line impact of the tariffs is marginal? Is it that demand growth continues to outpace forecasts? As per Seeking Alpha contributor Michael Fitzsimmons, it is primarily the latter as well as a series of quality acquisitions made by NextEra over the last year [1].

    I am not a fan of Trump or generally of isolationist policies, but I wonder if in this particular case, the overall benefit will be a positive one. Will tariffs force the big renewable energy players to turn toward domestic suppliers, and more rapidly close the quality gap while also increasing jobs in the US? It’s an interesting example of how the isolationist moral conundrum becomes blurry when those being “negatively impacted” have a lot excess profits to spare. It reminds me of the changes to tax treatment of stock options proposed in the next tax bill. Yes, silicon valley will take a hit. But no one cries for the young and rich.

    [1] Seeking Alpha, 2017 “NextEra Energy Partners: Green Energy Will Succeed Despite Trump’s Withdrawal From Paris Accord”

  8. This was an excellent article, Alona! Given the volatility and combativeness of the current administration toward clean energy, I think NEE made the right move in stockpiling for 2017-18 project needs and should immediately take steps to protect against major political changes. As Christina noted above, I didn’t realize America was so far behind China in solar development. With such a mature technology, why can’t NEE partner with U.S. based solar companies to reverse engineer Chinese solar panels and gradually build up production capabilities to fill its potential fulfillment gap? It seems they have no choice but to engage tier two Chinese manufacturers while simultaneously building relationships with U.S. suppliers.

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