The solar industry has endured not one, not two, but at least three direct tariffs for the last year on imported goods that are essential in the manufacturing and deployment of PV systems.
In addition to tariffs on solar panels and Chinese inverters, President Donald Trump’s administration also imposed trade tariffs of 25% for imported steel and 10% on imported aluminum in early 2018 in an attempt to encourage the domestic purchase of these components and materials. The only countries exempt from the steel and aluminum tariffs are Australia, South Korea, Argentina and Brazil.
The new steel tax has caused solar mounting, racking and tracking companies to adapt and seek out savings. With the tariffs, Trump sought to amend what he believed was a trade deficit. Instead, officials from solar companies interviewed for this story reported an initial price increase of about 30% in domestically produced steel that has just now started to taper off one year later.
While inverters and modules are an obvious cost, steel is an overlooked aspect to solar arrays. It’s the primary material used for fabricating mounting and racking products, and although the tariffs are supposed to expire — with no set end date — a lasting jump in price is attached to the metal. Procurement prices have risen both domestically and internationally for steel and racking, and mounting companies have tried to adapt to the added costs.
Working the market
When the steel tariff was imposed in March 2018, projects that were on the table for fixed-tilt solar racking provider AP Alternatives (APA) were put on hold. Every single APA product is made with galvanized steel that is mostly purchased in the United States. To account for the costs of the steel tariff, the company’s mounting and racking products have increased in price by approximately 30%.
Aside from fabricating mounting and racking solutions, APA also offers installation services for its customers, many of whom are federal clients. These larger federal projects require all materials used to be manufactured and purchased in the United States under the Buy American Act.
“Right now, we’re in the process of doing all of our blanket orders — our large steel buys — pretty much for the year, because we don’t really see an upward or downward trend that’s going to be a big swing either way at this point,” said Josh Von Deylen, CEO of APA.
With blanket orders, companies like APA — those that have large enough purchasing power — can lock a purchase price on steel for six months at a time. The buying company must also establish a quantity of steel and purchase that amount during the six-month period.
The blankets are a locked-in cost, even if a company issues one when the market is at a particularly low or high price point. It’s an advantageous but risky buying ability for companies that attain steel in large enough quantities.
APA hasn’t been able to use blanket pricing consistently since the steel tariff was enacted. However, for the last several months, Von Deylen said the steel market prices have slowly declined and remained predictable after peaking at the end of 2018.
“But that being said, our president can make one decision that could change things overnight, and that is what is very damaging,” Von Deylen said. “When it’s something that we can predict, that we can see, that we can anticipate, that’s good. It’s just when drastic changes are made overnight, those are what really force everybody to scramble to come up with new plans.”
Von Deylen said since the solar project cycle can last anywhere from two to 12 months, customers were returning after the tariff was in place to find their budgets had risen drastically.
“That’s very detrimental to a solar project, so we put quotes out there at what steel was based on our blankets,” he said. “Then when steel jumped basically within two, three months just through the roof, it was detrimental to a lot of our customers and APA really had to work with them on how to distribute and mitigate costs in those areas. We even took lower margins on a lot of projects simply because these are long-term customers and the projects just couldn’t pencil that pickup jump.”
The prospect of tariffs caused a higher jump in steel prices than when the tariffs were actually implemented, Von Deylen said. When the tariffs were put in place for solar modules, prices started falling because companies finally knew what was going on and could plan ahead
“The main item with tariffs is actually the physical word itself: Tariffs,” he said. “It’s more of a scare for our industry than it is a major cost impact. You don’t know how the industry is going to react. What’s going to stop? What’s going to be put on pause? How much is it going to actually scare the industry and shake it up?”
But luckily, those projects that were stalled in 2018 are coming to fruition in 2019. Von Deylen said it’s shaping up to be a record year, with projected output at quadruple last year — with some possible influence from the ramp-down of the Federal Investment Tax Credit.
The intended purpose of the tariffs was to persuade companies to purchase steel from U.S. distributors. However, some solar mounting companies were already buying the metal domestically.
“An added tax is a constraint, business-wise. The more our customers have to pay for things is not good,” said Ned Jansen, procurement manager at RBI Solar. “No one wants to pay more for anything that they do in their daily lives. It affects your disposable income. As a company, we’d rather not have the tariffs be there. I think it would make it more advantageous for our customers to want to do more in the solar industry.”
RBI Solar, a mounting, racking and tracking solutions provider, purchases most of its steel domestically, with a small percentage imported. That was RBI’s practice prior to the Trump steel tariffs.
“The supply chain remains strong,” Jansen said. “We do our best to buy our steel at the best price at the best time for our customers, but it’s all based on timing. If we have the opportunity to buy steel at a cheaper price based on what it’s been trading at, we’ll do it for the customer.”
But that depends on whether a customer is ready to move forward on a project. The U.S. steel market has seen an increase in prices relative to the 25% tax, with hundreds of thousands of tons of the metal traded daily. The fluctuating market makes buying hot-rolled steel at times either optimal or a loss. RBI Solar is at the whim of the customer and the domestic steel market since the company purchases the materials and designs and manufactures its mounting and racking products on a per-project basis.
“It’s always guesswork — trying to understand when it’s going to be the best time to buy and what is not the best time to buy,” Jansen said.
Pre-tariffed imported steel was inexpensive, and American mills were trying to keep up by producing better – or cheaper – steel than what Asian markets were making, Jansen said. That drove overall steel prices down. When the tariff came into effect, the demand for steel remained the same, but supply from international producers was expectedly down.
The company capitalizes on low price points in the domestic steel market. RBI mitigates some of the costs brought on by the tariffs through vendor programs. With the company’s position in the racking and mounting market, RBI tries to absorb as much of the cost as possible, because, Jansen said, who the tariffs affect the most is the end user.
At a design level, RBI is researching how to make the steel used in its mounting and racking solutions last longer, giving customers more value in their purchases. Jansen recommended that installers take a hard look at what mounting systems they’re using in certain regions, due to the amount of steel used in various models. Warmer climates can require less while colder areas require more steel.
Finding savings elsewhere
The challenge solar canopy manufacturer Quest Renewables encountered at the advent of the Trump steel tariff was a sense of uncertainty. That uncertainty resulted in difficult solar project financing, and the volatility in the market resulted in short lead times, giving buyers only a 24-hour notice of projected steel prices.
“It created disruption, but not long-term financial pain,” said Finn Findley, CEO of Quest Renewables. “As soon as people knew what the tariffs were like, then a lot of those projects came through. If they were financed, either the owner was buying the system, or they had gotten financing out of the tariffs and the project went right through.”
It took about a month for the steel market to become predictable again, he said. And like RBI, Quest Renewables purchases steel domestically. But the company has found cost savings to mitigate the tariffs by addressing other aspects of solar, namely installation.
“I think one of the things that we’re doing that’s different, and we’re pushing more focus on it, is really looking at integrating all the steps of building solar projects,” Findley said. “Not just, ‘Can I get the least expensive electronics? Can I get the least expensive panels?’ But, ‘How do I build a system that lets all those pieces come together in the most cost-effective and efficient way?’
“I think in the longer term, it’s going to be critical for everyone in the industry to be good at that,” he continued. “The industry was so driven by reduction in the cost of panels for so long and panels are pretty inexpensive now…and electronics have gotten less expensive, but the construction processes remain stubbornly consistent in terms of cost.”
That means all at once addressing how installers connect solar equipment to a site and reducing labor, components and raw materials. Quest Renewables’ QuadPod Solar Canopy carports are lifted onto an array site using a crane, minimizing the number of required installers and the time it would take to move the components otherwise. Findley said racking prices are a small percentage of the total project cost. Thanks to savings at a labor level, the company was able to keep its pricing flat.
“For us, steel is not as important a component, because we’re looking at labor savings, which is going to be far more than steel tariffs will ever be,” Findley said. “The cost of steel relative to the overall cost of the project isn’t a huge percentage. What we have actually found is that by making the construction process more efficient, we could drive more savings into designing carports.”
The luxury of not worrying about steel price jumps is exclusive to companies that both fabricate and install their mounting and racking products. Quest led a large outreach initiative in preparation for the tariffs. Sales and marketing personnel were contacting customers to quell any anxieties about the tariffs.
“We just said, ‘Look, there’s enough uncertainty here. We’ll take the risk on that cost increase and don’t worry about the steel tariffs. We’ll figure out how to deal with them,’” Findley said.
As the steel tariff was imposed, Quest Renewables was undergoing improvement in its supply chain, so finding more efficient suppliers was already a priority. It allowed the company to purchase larger quantities of steel and maintain its prices without absorbing the cost. Quest Renewables started as a result of a U.S. Department of Energy research project to minimize the amount of steel used in solar canopies.
“I think that this is probably a good exercise to go through as the industry prepares for the sunsetting of the Investment Tax Credit — to see how to deal with economic adversity and continue to be successful,” Findley said. “It’s instructive for the industry to look at the tariffs and see how we deal with a rising cost environment.”