New trade tariffs and stricter import restrictions in the U.S. solar energy supply chain could expand domestic manufacturing but would create a more expensive market, potentially slowing the sector’s growth, according to a recent report by Wood Mackenzie.

In recent years, the U.S. solar manufacturing industry has expanded significantly. Since the Inflation Reduction Act (IRA) was passed in late 2022, domestic solar module manufacturing capacity has quadrupled, reaching over 30 GW in the second quarter of 2024, with over 70 GW of cell manufacturing facilities announced.

However, with solar component prices dropping sharply in the past year, domestic manufacturers find themselves in a precarious position. Additional protectionist measures may be adopted in response. A new report by Wood Mackenzie, “The U.S. Solar Supply Chain Under Greater Protectionism”, examines the future of domestic manufacturing and pricing under a supply-constrained scenario.

Rising Trade Actions and Their Impact

“Many in the solar industry increasingly anticipate more trade actions in the future,” said Michelle Davis, Head of Global Solar at Wood Mackenzie.

“Domestic manufacturers may push for more protectionist measures to safeguard their businesses. Additionally, there is growing anti-China sentiment in U.S. politics, with Chinese-owned companies producing most of the world’s solar equipment and manufacturing machinery. The upcoming presidential election also adds uncertainty. It’s impossible to predict the policies either administration might enact, but both have historically supported protectionist trade actions. A Trump administration, for instance, would be a wildcard for the industry, with proposals for 60% tariffs on all Chinese imports,” Davis explained.

In the short term, a supply-constrained future would likely boost domestic manufacturing activity to meet market needs. However, Davis cautioned, “This would result in a more expensive market for domestic buyers.”

Projected Growth Under Protectionist Policies

According to Wood Mackenzie’s analysis, if more protectionist measures restrict solar supply to the U.S.:

• Wafer manufacturing would expand by an additional 5 GW (152%) by 2027.
• Cell manufacturing would grow by an additional 12 GW (53%).
• Module manufacturing would increase by an additional 19.2 GW (28%).

A More Expensive Market to Follow

While increased domestic manufacturing would enhance economies of scale and reduce internal costs, higher U.S. labor costs and restricted access to international competitors and supplies would create a more expensive overall market.

The report estimates that domestically produced modules with U.S.-made cells will cost approximately $0.41 per watt in 2025, dropping to $0.35 per watt by 2032. In comparison, current imported module prices average around $0.20 per watt.

A stronger domestic solar supply chain does offer several benefits that could offset higher prices. Buyers would have more equipment options with reduced trade risks, resulting in greater reliability in delivery timelines. However, in a supply-restricted future, buyers will need to adapt their procurement strategies to account for these trade-offs.

The Need for Smart Policy to Ensure a Smooth Transition

While the expansion of the domestic solar supply chain is underway, its future remains uncertain. Regulatory, political, and trade uncertainties hinder further development of U.S. solar manufacturing facilities.

Davis concluded:
“Our analysis shows that if the U.S. adopts more protectionist measures that ultimately limit solar imports, it will likely drive growth in the domestic solar supply chain. However, it will also increase equipment prices and may delay—or even jeopardize—the feasibility of solar projects. This could further hinder progress toward the nation’s stated decarbonization goals.”

Balancing Growth and Stability
Establishing a robust domestic supply chain without disrupting the current solar market’s growth will require intelligent policy solutions.

• Addressing Market Uncertainty: Eliminating policy and market uncertainties, such as ongoing tariff investigations, would help businesses make long-term investments.
• Incentives for Manufacturing: Tax credits, like the 45X incentives, must be available within timelines aligned with facility construction.

“With the right policy actions, the U.S. can transition smoothly to greater solar manufacturing while avoiding the supply chain chaos of recent years,” Davis concluded.