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Tariff ruling could further depress solar securitization

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A ruling by a federal trade agency could further stall U.S. securitization of solar panel financing, according to Moody’s Investors Service.

On Friday, the U.S. International Trade Commission voted 4-0 that imported panels are crippling American manufacturers, giving President Trump until January to decide whether to impose tariffs. It was addressing a complaint by two solar panel and module manufacturers, Suniva and SolarWorld, that are calling for trade protections against foreign CSPV panel and module makers.

“A decline in rooftop solar installations owing to the imposition of tariffs would likely decrease solar companies’ originations volume of rooftop solar financing contracts, including loans, leases and power purchase agreements,” Moody’s stated in a report published last week. It said that originations would decline because the tariffs would increase PV system costs and therefore decrease the economic savings that new solar customers would receive from financing PV systems.

On the other hand, imposing import tariffs could boost the performance of existing solar ABS, Moody’s said. Obligors under existing solar financing contracts would have a “marginally stronger” incentive to continue making payments, it said, because the economic savings from their solar contracts would be higher than the then-current market savings level in their geographical region as a result of higher system costs.

One of the credit risks to bonds backed by solar panel financing is obsolescence; homeowners would have less of an incentive, the thinking goes, to keep making payments on a 20-year loan or lease if a newer, cheaper technology exists that offers better cost savings.

Solar ABS issuance has already declined prior to the ruling.

Import tariffs would have a negative impact on the broader solar industry, as well.

In its report, Moody’s cited data estimates that rom Green Tech Media Research that a ruling in support of the claimants would result in the elimination of 88,000 U.S. jobs and the deferred installation of 47 GW of solar capacity between 2017 and 2022.

“The credit impacts of the imposition of tariffs on solar panels and modules are manifold,” the report stated. “The US’ solar industry employs 260,000 people throughout the country, but manufacturing is just a subset at 38,000 individuals. On the other hand, solar installations are the largest source of employment in the industry, accounting for over 137,000 jobs.”

The imposition of tariffs would also likely affect the pace of decarbonization in the U.S. by delaying investments in solar generation and, in turn, extending the life of some coal plants.

Moody’s noted that many utility companies have announced plans to make meaningful investments in solar generation as a means to help meet their future generation needs. For instance, NextEra Energy plans to build up to 5.4 GW of solar generation through 2020, while Duke Energy plans to procure 2.5 GW of solar generation over the next five years.

“Many of these projects will likely be put on hold if the solar economics change and these investments are no longer competitive relative to other sources of power,” the report stated.

The solar industry has grown rapidly over the past several years, in large part due to a precipitous cost in the cost of solar panels and modules. Since 2010, the price of utility scale solar PV system cost has gone from $4.57 per watt ($/W) in 2010 to $1.03/W in the first quarter of 2017, a 77% reduction in price.

Other segments of the industry like residential and commercial solar have similarly experienced material reduction in price as well, with the costs falling to $2.8/W and $1.85/W respectively, per Moody’s.

Installed capacity has grown from less than 1 GW in 2008 to 30 GW today and is expected to keep growing at a fast clip, assuming no trade barriers are imposed. “Some experts forecast an incremental 72.5 GW of installed capacity, double current levels, being added between 2018 and 2022,” the report stated.

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