Trump Administration Mulls More Power Sector Tariffs, Adding to Uncertainty for Renewables Developers
The Department of Commerce will investigate potential tariffs on steel components used in electrical transformers, equipment that is used in the transport of all types of electric generation.
Commerce Secretary Wilbur Ross said on Monday that the department aims to determine whether the import of those goods threatens national security because the U.S. relies on imported supply. Only one domestic manufacturer of the electrical steel used in those products still exists: Ohio-based AK Steel. The action comes just after President Trump released an executive order that may limit the import of bulk-power electrical equipment if it's produced by a "foreign adversary," a term as-yet-undefined by the administration.
Taken alone, the potential for tariffs on transformers may not have a significant impact on renewables. For solar projects, transformers account for less than $0.05 per watt of a project's costs (with total costs at about $0.83 per watt for fixed-tilt utility-scale projects in Q4 2019), said Ravi Manghani, head of solar research at Wood Mackenzie Power & Renewables. But additional tariffs would come on top of those already established by the administration on equipment like cells, modules and inverters. The accumulative effect of tariffs on the solar industry may be more painful, Manghani suggested.
"If we look at this move in light of the Section 201 and 301 tariffs, along with the more recent executive order targeting bulk power systems...the cumulative impact means that imports of almost every solar hardware could be under some form of trade restriction," said Manghani.
The administration has already instituted some trade duties on steel and aluminum products, impacting clean-energy equipment such as solar racking and wind turbines. The possibility of additional tariffs would require companies to absorb further costs that squeeze project margins. Some solar and wind developers purchased transformers to qualify projects for the federal Investment Tax Credit and the Production Tax Credit, federal incentives that are now declining.
Under existing aluminum and steel tariffs, the Trump administration exempted countries including Canada and Mexico. Proponents of further tariffs have argued those exemptions provide a loophole for processors that can ship through those countries before sending products to the U.S.
For at least several months, Cleveland-Cliffs, Inc., a huge Ohio-based iron mining company, has publicly called for the administration to strengthen tariffs on imported steel. In March, the company closed its $3 billion acquisition of AK Steel, which has plants in Pennsylvania and Ohio that produce electrical steel. A bipartisan group of federal lawmakers had also urged the administration to consider action in the interest of national security.
Cleveland-Cliffs CEO Lourenco Goncalves has said that its newly acquired domestic steel factories were...
