Average U.S. installation costs for solar photovoltaic (PV) cells have decreased by more than 70% since 2010, driven largely by lower solar panel prices (see Figure 1).
Figure 1: U.S. Solar PV Installations and Prices, 2009-2016
Source: Solar Energy Industries Association, “Solar Industry Data,” https://www.seia.org/solar-industry-data, accessed November 2017.
SPV Market Research estimates that approximately 95% of cells and panels sold in the U.S. in 2016 were made abroad, mostly in China, Malaysia, and the Philippines.  Sunrun, a San Francisco-based residential rooftop solar company, has benefitted immensely from these reduced input prices, which have helped make rooftop solar a worthwhile investment for homeowners in many parts of the country. However, in September 2017, the United States International Trade Commission (ITC) issued a unanimous ruling that U.S. solar panel manufacturers Suniva and SolarWorld are being injured by increased solar panel imports.  The Trump Administration must decide by January 2018 whether to impose some combination of tariffs, import licensing fees, minimum prices, and quotas on foreign solar panels entering the U.S. to grant domestic manufacturers relief under Section 201 of the 1974 Trade Act. 
Sunrun, which purchases most of its solar panels from Singapore, South Korea, and Canada, is rightly concerned about the implications of potential import tariffs on its core business.  Because U.S. solar panel manufacturing capacity is so limited, these trade remedies are likely to result in much higher input costs for Sunrun, ultimately yielding lower residential consumer demand as well as downward margin pressure. Although Greentech Media Research believes that residential PV projects are less sensitive to import tariffs than utility-scale PV projects,  investors are clearly concerned about the effect of protectionist trade policies on the bottom lines of residential solar companies: share prices for Sunrun (RUN) and competitors Vivint Solar (VSLR) and SunPower (SPWR) were all down more than 10% from their pre-ITC ruling prices as of November 14, 2017 (see Figure 2).
Figure 2: Share Prices for Sunrun and Selected Competitors vs. S&P 500, Aug. 15-Nov. 14, 2017
Source: Google Finance, https://finance.google.com/finance?q=NASDAQ%3ARUN&ei=OHILWtn6E5K2e7uuh_gD, accessed November 14, 2017.
Sunrun has responded by advance-purchasing some panels at current tariff-free rates.  Chris Ummerle, a member of the Sunrun strategic sourcing team addressing this threat, explained that Sunrun has also discussed guaranteed supply arrangements with some manufacturers.  Indeed, CEO Lynn Jurich recently confirmed that Sunrun has insulated “a good portion of next year” from a potential tariff or other trade action.  There are clear costs to this strategy, however: Reuters found that feverish buying activity has caused solar panel spot prices to increase by as much as 20% recently,  and carrying costs for this inventory could be significant for companies accustomed to managing their stockpiles judiciously. More generally, because the final form of any potential trade remedy is unknown, it is difficult for Sunrun and others to forecast their post-2017 cost structures. This pricing uncertainty makes forecasting customer demand – and thus determining how much inventory to pre-purchase – problematic.
In the medium term, Ummerle explained that Sunrun is exploring deeper strategic partnerships with some of its solar panel suppliers.  However, Sunrun’s competitors are likely pursuing similar arrangements, and many panel manufacturers have been understandably reluctant to make commitments in advance of the Trump Administration’s ruling.  Sunrun could also give its panel suppliers fixed volume commitments in exchange for unit cost savings, but the risks of being saddled with excess inventory loom large. Ummerle’s group is also conducting sensitivity analyses based on various tariff durations, looking to past steel and solar trade cases for guidance. 
Moving forward, Sunrun should take additional measures to prepare for an adverse trade ruling. First, management must rigorously consider the full cost of capital in determining whether to stockpile inventory – and if it does, where and how much. One industry analyst noted that depending on where its warehouses are located, a company might have to take ownership of pre-purchased inventory and pay taxes in California even if the panels are eventually used on an East Coast project.  Given that a ruling is now less than sixty days away, though, additional stockpiling efforts must be carefully considered.
Sunrun should also consider actively supporting (or perhaps even backing financially) the development of online marketplaces that increase transparency between manufacturers and developers/installers. If properly constructed and sufficiently inclusive, such marketplaces could give Sunrun real-time indications of market trends and enable their purchasing department to make more informed decisions. Finally, Sunrun should conduct further comprehensive risk assessments of its solar panel supply chain. By modeling its current vulnerability to a range of potential worst-case scenarios (additional trade disputes, key manufacturer bankruptcies, shipping strikes, etc.), Sunrun will likely identify more opportunities to improve its supply chain’s long-term robustness.
Of course, with so much uncertainty, many questions remain. Some foreign solar panel manufacturers are considering opening (or purchasing existing) manufacturing operations in the U.S. to circumvent possible trade restrictions.  Does it make sense for Sunrun to incentivize one or more manufacturers to move production to the U.S. to ensure surety of supply, either through long-term contracts or a formal partnership? What are the most important tradeoffs for Sunrun to consider?
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 Nichola Groom, “Prospect of Trump tariff casts pall over U.S. solar industry,” Reuters, July 25, 2017, https://www.reuters.com/article/us-usa-trade-solar-insight/prospect-of-trump-tariff-casts-pall-over-u-s-solar-industry-idUSKBN1AA0BI, accessed November 2017.
 Krysti Shallenberger, “Updated: ITC finds injury to US solar manufacturers, sending tariff decision to Trump,” Utility Dive, September 22, 2017, https://www.utilitydive.com/news/updated-itc-finds-injury-to-us-solar-manufacturers-sending-tariff-decisio/505602/, accessed November 2017.
 Christian Roselund, “The clock ticks: ITC turns Section 201 over to President Trump,” PV Magazine, November 13, 2017, https://pv-magazine-usa.com/2017/11/13/the-clock-ticks-itc-turns-section-201-over-to-president-trump/, accessed November 2017.
 Josh Siegel, “Thriving solar industry braces for Trump’s decision on tariffs,” Washington Examiner, September 20, 2017, http://www.washingtonexaminer.com/thriving-solar-industry-braces-for-trumps-decision-on-tariffs/article/2634976, accessed November 2017.
 Cory Honeyman, “Suniva and SolarWorld Trade Dispute Could Halt Two-Thirds of US Solar Installations Through 2022,” Greentech Media, June 26, 2017, https://www.greentechmedia.com/articles/read/suniva-dispute-could-halt-two-thirds-of-us-solar-installations#gs.=5jdthg, accessed November 2017.
 Julian Spector, “Sunrun Aims to Prove Solar Installers Can Grow and Make a Profit at the Same Time,” Greentech Media, November 13, 2017, https://www.greentechmedia.com/articles/read/sunrun-aims-to-prove-solar-installers-can-grow-and-make-a-profit-at-the-sam#gs.4UyBkCs, accessed November 2017.
 Chris Ummerle, interview by author, San Francisco, CA, November 13, 2017.
 Spector, “Sunrun Aims to Prove Solar Installers Can Grow and Make a Profit at the Same Time,” Greentech Media, https://www.greentechmedia.com/articles/read/sunrun-aims-to-prove-solar-installers-can-grow-and-make-a-profit-at-the-sam#gs.4UyBkCs.
 Groom, “Prospect of Trump tariff casts pall over U.S. solar industry,” Reuters, https://www.reuters.com/article/us-usa-trade-solar-insight/prospect-of-trump-tariff-casts-pall-over-u-s-solar-industry-idUSKBN1AA0BI.
 Ummerle, interview by author.
 Julia Pyper and Julian Spector, “Foreign Solar Manufacturers Weigh Opening US Facilities as Tariff Decision Looms,” Greentech Media, September 20, 2017, https://www.greentechmedia.com/articles/read/foreign-solar-manufacturers-weigh-opening-us-facilities-trade-tariff-looms#gs.LfJ3pBA, accessed November 2017.
 Ummerle, interview by author.
 Katherine Tweed, “Marketplaces Are the Key to Managing Volatility in Solar,” Greentech Media, November 13, 2017, https://www.greentechmedia.com/articles/read/marketplaces-are-the-key-to-managing-volatility-in-solar#gs.MMT6UtQ, accessed November 2017.
 Pyper and Spector, “Foreign Solar Manufacturers Weigh Opening US Facilities as Tariff Decision Looms,” Greentech Media, https://www.greentechmedia.com/articles/read/foreign-solar-manufacturers-weigh-opening-us-facilities-trade-tariff-looms#gs.LfJ3pBA.