Editor's note: S&P Global Ratings believes there is a high degree of unpredictability around policy implementation by the U.S. administration and possible responses--specifically with regard to tariffs--and the potential effect on economies, supply chains, and credit conditions around the world. As a result, our baseline forecasts carry a significant amount of uncertainty. As situations evolve, we will gauge the macro and credit materiality of potential and actual policy shifts and reassess our guidance accordingly (see our research here spglobal.com/ratings).
This report does not constitute a rating action.
Key Takeaways
- For solar panels, Chinese production is largely irrelevant because U.S. developers have shifted imports away from China.
- Southeast Asian reliance for panel imports is significant but we expect dependance to decline if current tariffs stand.
- Despite lower exposure to The Association of Southeast Asian Nations (ASEAN) countries, we expect solar power purchase agreements (PPA) prices to rise.
- U.S. prices are significantly higher, and U.S. domestic panel manufacturers are likely not sharing 45x credit benefits with developers.
- We expect battery deployment could decrease if current tariff proposals are imposed.
- Common strategies used to mitigate tariff risks include safe harboring requirements through 2026, diversifying the supply chain out of Southeast Asia, and using domestic suppliers.
The inescapable truth about uncertainty is that it is different from risk. Frank Knight, a leading economist of the Chicago school of economic thought, first pointed out in 1921 that a poker player can figure out the odds of success when holding a pair of kings. But when dealing with macroeconomic factors, geopolitical tensions, or the impact of future disruptive forces, you cannot know the distribution of all potential outcomes. There are an awful lot of wild cards in the pack.
The uncertainty around what the tariff dispute could imply for business is the top-most concern for all sponsors, investors, and intermediaries that we met at the recent S&P Global Commodity Insights power conference in Las Vegas. That said, few sectors have as much experience navigating global trade headwinds as clean energy given the multiple tariffs under Section 301 of the Trade Act of 1974 and antidumping/countervailing duty (AD/CVD) investigations. Developers have been wading through these uncertainties over the last few years and, therefore, come into the current tariff announcements better able to weather the maelstrom than most sectors. In addition, because of the credits offered through the Inflation Reduction Act (IRA) provisions, the sector has also invested heavily in reshoring and domestic production.
In this commentary, we discuss how tariffs could affect the credit quality of competitive renewables companies in the power sector. We have focused largely on solar cells/modules and battery energy storage systems (BESS) given our view that these products are the most vulnerable to tariffs. Equipment like trackers and arrays anyway represent less than 10% of a utility-scale solar system’s cost.
Also, given the current pause on tariffs announced by President Trump, we recognize that the tariffs that will eventually apply are an evolving issue.
Chinese Products Are Already Under Tariffs
The first Trump administration's Section 301 review in 2017 led to tariffs on about $160 billion and $115 billion worth of Chinese products at rates of 25% and 7.5%, respectively. These tariffs, along with subsequent adjustments by the Biden administration, reduced mainland China's share of U.S. imports to 13.6% by September 2024 from 21.1% in 2016.
In May 2024, the Biden administration increased tariffs on China under Section 301. These higher tariffs go into effect January 2026 (except those noted below):
- On electric vehicles (EVs) to 100% from 25%;
- Solar cells to 50% from 25% (effective September 2024);
- Steel and aluminum to 25% from 0%-7.5%; and
- Lithium-ion batteries to 25% from 7.5%.
Sidebar 1: On cells, modules, and panels
A solar cell is also known as a photovoltaic (PV) cell. It is an important electronic component of a solar energy system that produces electricity when sunlight or photons strike the collector. It is typically designed with monocrystalline or polycrystalline materials, where multiple layers are present inside it. When sunlight hits the semiconductors, the loose electrons get released, enabling an electric current to flow inside the small circuit. This current is then carried by a conductor to power electrical devices.
Solar cells produce limited amounts of energy, so multiple solar cells are connected in series of parallel circuits to create a solar module. Solar modules seal the solar cells and wiring in a protective case to guard them against weather conditions. The modules are then wired together into a solar panel, which amplifies, protects, and directs the energy coming from the individual modules of solar cells.
Crystalline silicon (c-Si) solar panels can be grouped into two categories--monocrystalline solar cells and polycrystalline cells--which rely on thin layers of silicon wafers and other rare materials to absorb sunlight. Monocrystalline solar panels are typically more efficient than polycrystalline panels and offer better performance at higher temperatures. However, monocrystalline solar panels are also more costly to produce. In comparison, polycrystalline solar panels are less wasteful during the manufacturing process and come at a lower cost but with only a slightly lower efficiency. C-Si solar panel suppliers have largely moved to monocrystalline cells.
Thin film panels are becoming increasingly popular in the solar panel industry as deposition systems and other technology becomes more commonplace and widely accepted. Several thin film modules that require less silicon in the manufacturing process are competing for the spotlight and looking to edge out c-Si.
Thin film panels are also starting to bridge the price gap by replacing silicon with other rare materials like cadmium and indium and offer more flexibility and portability. Thin layer solar panels are also ideal for space use due to their high-efficiency semiconductor material and radiation tolerance. Modern panels also have lower temperature coefficients than crystalline panels, offering durability as a trade for its pricing.
We note that thin film solar panels contain rare earth metals/elements in the form of copper indium gallium di-selenide (CIGS) and cadmium telluride (CdTe). For c-Si solar panels, there are no rare earth metals/elements used. China’s recent ban on rare earth minerals export includes Tellurium, one of the raw materials in CdTe. First Solar has a vertically integrated manufacturing process in the U.S. and although it sources Tellurium domestically (i.e., in the U.S.) , it also imports from other countries as well. We are still trying to ascertain how the domestic production of thin film panels could be affected, if at all, should China continue to limit rare earth mineral exports.
For Solar Panels, Chinese Production Is Largely Irrelevant
The tariffs that apply to Chinese solar cells/modules are largely immaterial because U.S. developers no longer buy solar cells/modules out of China due to prevailing AD/CVD on Chinese production and the inability to import due to the Uyghur Forced Labor Prevention Act. With various tariff battles and AD/CVD cases in effect, it has become more important to know the country of origin for solar cells. Unsurprisingly, most imported silicon solar cells come from Southeast Asia. Of note, only 490 kilowatts (KW) of solar cells were imported directly from China in 2024.
However, for context, the Trump administration announced two rounds of 10% tariffs on China in February and March 2025. On April 2, 2025, the Trump administration levied an incremental 34% tariff on Chinese goods alongside tariffs on several other countries. This 34% rate was increased to 125% after China retaliated with its tariffs on U.S. goods, effectively resulting in a 145% reciprocal tariff rate on Chinese products.
On April 11, the Trump administration exempted several goods from the reciprocal tariffs. This included cell phones, laptops, semiconductors for chips, and several other aspects of electrical components and equipment. We note that every product exempted from the reciprocal tariffs is referenced via a specific Harmonized Tariff Schedule of the United States (HTSUS) code. These codes are extremely specific and narrow, and reference certain import types. Several news channels listed solar cells in these exempted goods.
However, developers we spoke to do not think solar cells are exempt from the reciprocal tariffs even though the surrounding products listed in the HTSUS did get exemptions. As a result, if the 145% reciprocal tariffs apply, tariffs on Chinese solar cells will increase to 195% (i.e., stacking 50% of Section 301 and 145% of reciprocal tariffs).
As we noted earlier, developers have largely mitigated their exposure to Chinese production because higher tariffs have been imposed since 2017.
Southeast Asian Production Still Dominates U.S. Solar Installations
AD/CVD tariffs still apply to solar cells from Cambodia, Malaysia, Thailand, and Vietnam and to modules imported with cells from those countries (see sidebar 1). While companies like First Solar Inc. and Hanwha Q CELLS GmbH have large domestic production facilities, roughly 84% of solar cells and modules imported into the U.S. during the fourth quarter of 2023 came from these four Southeast Asian countries. We note that country of origin for solar panels for tariff purposes is tied to where the solar cells are made.
The U.S. imported $12.9 billion in cells/modules from the four countries, or 77% of total module imports, and 13.9 gigawatts (GW) of silicon cells in 2024. Data also shows it imported 54.3 GW of finished panels in 2024 as project developers secured sufficient supplies to meet timelines through safe harboring. However, this exposure is reducing as sources become both domestic and dispersed across the world. Because tariffs are stacked and will affect panel prices from Asia, we expect the panel market to meaningfully onshore from 2025.
Sidebar 2: Status of duties and tariffs on Southeast Asian solar cells/modules imports
AD duties increase prices for equipment that is dumped in the U.S. at discounted prices that are below what the manufacturers charge customers in their home markets. CVDs are supposed to offset subsidies that foreign manufacturers receive from their governments that allow them to export products at prices that are below what unsubsidized manufacturers can afford to charge.
The AD/CVDs duties are in response to a petition that a group of seven solar panel manufacturers called the American Alliance for Solar Manufacturing Trade Committee filed with the U.S. government in April 2024.
The U.S. Department of Commerce (DoC) recently announced finalized AD tariffs on c-Si solar cells from Cambodia, Malaysia, Thailand, and Vietnam of 117.18%, 1.92%, 111.45%, and 271.28%, respectively. However, each company is tariffed against its exports. For example, while Vietnam was imposed the highest rate, 11 companies were imposed individual rates, including JA Solar (52.54%), Jinko Solar (120.38%), and Trina Solar (77.12%). In Malaysia, Hanwha QCells was assessed a rate of 0% given de minimis imports by the U.S., while Jinko Solar was assessed the countrywide rate of 1.92%.
Importantly, these duties are in addition to existing Section 201 solar tariffs that are currently 14%, but are scheduled to end on Feb. 6, 2026, and to tariffs that took effect on April 5, 2025, at a 10% rate and are scheduled to increase (pending successful negotiations with the U.S. administration) to 46% for Vietnam, 24% for Malaysia, 36% for Thailand, and 49% for Cambodia on July 9, 2025.
Our understanding is that CdTe thin-film technology is exempt from the Section 201 tariffs and there is a tariff quota exemption to the first 5 GW of imported c-Si solar cells.
Despite Lower Exposure To ASEAN Countries, We Expect Solar PPA Prices To Rise
There are currently 12 manufacturers of solar modules in the U.S., with 16 expected to be in production by the first half of 2027. There is, however, a continued mismatch in the capacity of solar modules to solar cells made in the U.S. There are currently seven cell producers, increasing to 10 by the first half of 2027.
Near-term risks such as elevated inventory (30-50 GW), tariffs, and IRA uncertainty could delay any demand pull. We note that imports from the four countries have declined markedly since the beginning of the year, so even though the final rates are far higher, the impact is largely baked in. With an elevated inventory, we could see the true impact of AD/CVD starting in mid-2026, assuming most of the inventory is set to be deployed in 2025 and early 2026. Still, the DoC made “critical circumstances” findings for some of the exporters in Thailand and Vietnam. It is investigating whether there was a rush of imports only to try to beat the imposition of preliminary duties. Should both the DoC and the U.S. International Trade Commission (ITC) make affirmative findings on critical circumstances, duties can be imposed 90 days earlier than they otherwise would have been.
Because domestic modules are in high demand and short supply, solar module manufacturers are charging a premium for fully domestic produced modules. It appears that because of the high demand, domestic manufacturers are not passing through 45x credit incentives and taking advantage of the tariff moat.
In the first quarter of 2025, we saw a substantial difference between domestic and international prices, which we list below:
- An average of 37 cents per direct current watts (DC-watt) for fully domestic cells with U.S. assembly.
- 25 cents per watt for fully imported modules into the U.S. at the prevailing (lower) tariff (from Southeast Asia, excluding China).
We note the cost of solar cells from China shipped free-on-board destination to any country in the rest of the world is substantially lower and averages about 15 cents/watt. Perversely, if local demand in China, which remains the largest solar market in the world, weakens in the second quarter of 2025, it will further weigh down solar cell pricing in the rest of world.
We expect module prices to rise in the U.S. market after the recent AD/CVD final determination (and as revised reciprocal tariffs are imposed) and that costs to customers given local solar cell shortages will pass through. The marginal price for panels to the U.S. market will still be referenced off the import price. U.S.-made panel prices will remain out of the money. We think effective module prices will rise further to somewhere between U.S. manufacturing costs and the cost of imported modules after the levy of finalized tariffs/duties, calculated below:
- Domestic cost = Imported solar cell + tariff (or fully domestic produced cell) + local balance of module costs– production tax credit subsidy.
- ASEAN imported cost = ASEAN production cost + tariff.
Solar PPA prices rose to $60 per megawatt hours (MWh) in the first quarter of 2025 from $28/MWh in the first quarter of 2021 (see chart 1) as developers factored in the costs of IRA uncertainty, supply disruptions, and higher interest rates. We now expect prices to rise more as tariff costs are passed through.
Chart 1
Market participants have indicated to us that newly originated solar PPAs are now being inked in the low- to high-$70/MWh area.
BESS Deployment Could Slow If Current Tariffs Stick
The vast majority of anode material currently comes from China, and we would expect meaningful disruption to the global market should high tariffs be applied.
Even prior to the 125% reciprocal tariffs, the battery sector was paying a 3.4% global lithium-ion tariff, 7.5% Section 301 tariff, and President Trump’s original 20% China tariff.
Now with potential reciprocal China tariffs of 125%, BESS is facing a 155%+ all-in tariff (3.4%+7.5%+20%+125%=155.9%). This is set to increase even further in January 2026 as Section 301 tariffs go to 25%, bringing total tariffs to 173.4%. We note that this already high number for deliveries starting Jan. 1, 2026, and excludes an AD/CVD investigation.
About 80% of the world’s active anode market is dominated by China. There is also a pending AD/CVD case for battery anodes, which could increase battery prices substantially via a roughly 800% tariff on the active anode material. On Jan. 31, 2025, the U.S. ITC and DoC determined that there was reasonable indication that the establishment of a U.S. industry is materially suppressed by subsidized imports of active anode material from China.
As a result, we think the US ITC could consider AD duties, specifically for imported anode material:
- Active anode material is the primary component for lithium-ion battery anodes, which enable the flow of electric charge through the battery.
- As a rule of thumb, active anodes typically represent 10%-15% of the cost of a battery system, and the American Active Anode Material Producers is alleging dumping margins of 828%-921%.
- We estimate active anode material costs subject to AD/CVD at $7-$10 per kilowatt hours (KWh).
- If an 800% duty were placed on active anodes, all else equal, the pricing for a $100/KWh BESS system could effectively double to $190/KWh.
We note the tariffs are never on the full price paid by a U.S. customer; they are on the transfer price from the supplier’s Chinese affiliate to its U.S. affiliate and will have certain costs backed out such as for shipping, transport, commissioning, warranty, etc. We still think if this sticks, and when these tariffs are stacked, they push average pricing for a four-hour duration battery system to about $300/KWh. While the economics worked at these prices in prior years, much of the industry’s growth has been premised on the cost curve further declining, creating a virtuous demand cycle.
Given that the U.S. grid needs all forms of power and specifically needs batteries to firm up renewable generation and provide frequency regulation, such tariffs will slow battery deployment meaningfully.
Besides, Chinese suppliers are rapidly building factories outside of China to avoid tariffs--they have been working on that for a while and will have meaningful supply outside China in 2026. Finally, the cost to produce a battery is falling rapidly to where Chinese suppliers can absorb a significant amount of tariffs.
Credit Impact On The Competitive Renewable Sector
Power developers have been managing AD/CVD reviews, tariffs, and IRA uncertainty for the last few years. Because of their experience, we think they can brace against the recent announcements better than most sectors. That said, we expect some impacts on margins given the potential enormity of the cost moves resulting from tariffs.
Given the customer need for power, we believe new PPAs will be priced with tariff costs included. We expect most companies are contractually locking in all of their major equipment (as well as engineering, procurement, and construction arrangements and hedging for long-term financing) when they sign PPAs. However, there will be a need to adjust some PPAs that are signed but the projects are not yet completed.
Companies have taken various actions to mitigate the impact of tariffs. For instance, AES Corp. has all its 2025 project needs in the U.S. and much of its 2026-2027 plans are either in-country as well, or are using domestic suppliers. We think subcomponents may have international supplier exposure but the tariff revision risk is largely on the supplier. Broadly, all its solar panels, trackers, and batteries requirements are either in-country or contracted to be domestically produced for U.S. projects coming online through 2027.
Similarly, at its recent earnings call, NextEra Energy Inc indicated that differing amounts of NEE’s needs through 2026 by technology are in the country. We expect that much of its supply chain contracts put tariff risk on the suppliers. However, given the potentially materially higher tariffs, there is risk that suppliers are less willing to deliver shipments if all the risk is put on them. We believe this should be partly mitigated by the spread between margins sold at in the U.S. versus the rest of the world, which provides some room to absorb the impacts. NextEra has also built much more diversity in its supply chain, such as supplier execution and financial risks. The company claims only about $150 million in tariff risk in its four-year capital expenditure plan for NextEra energy resources Inc. Its wind generation equipment is sourced domestically. The solar supply chain is diversified and not affected by the latest AD/CVD determination. Interestingly, its batteries procurement now has a key domestic purchase arrangement.
Other companies such as Clearway Energy Inc. do not bear any development risk. Clearway’s risk is borne at the sponsor level (Clearway Energy Group). The development company is largely protected on its solar purchase through high domestic content and generally on the wind procurement as well. We think the more challenged segment could be batteries and the sourcing there for selected projects. While there are some risk-sharing mechanisms with off-takers and original equipment manufacturers for some projects, we expect the company may defer some projects by a year.
| Primary Contact: | Aneesh Prabhu, CFA, FRM, New York 1-212-438-1285; aneesh.prabhu@spglobal.com |
| Secondary Contacts: | Vishal H Merani, CFA, New York 1-212-438-2679; vishal.merani@spglobal.com |
| Luqman Ali, CFA, New York 1-212-438-0557; luqman.ali@spglobal.com |
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