{"id":25292,"date":"2017-11-15T19:53:15","date_gmt":"2017-11-16T00:53:15","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/isolationism-how-to-kill-american-solar\/"},"modified":"2017-11-15T19:56:36","modified_gmt":"2017-11-16T00:56:36","slug":"isolationism-how-to-kill-american-solar","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/isolationism-how-to-kill-american-solar\/","title":{"rendered":"Isolationism: How to kill American solar"},"content":{"rendered":"

Solar success story challenged by import tariffs<\/strong><\/p>\n

Solar energy has been booming in the U.S., resulting in 9.5 GW of new capacity additions to the electric generating mix in 2016, the highest of any single energy resource [1]. Because of this tremendous growth, the electricity we rely on every day is becoming more sustainable, U.S. is gaining highly desired energy independence, and economy has added over 260,000 well-paying solar jobs [2].<\/p>\n

\"\"<\/a><\/p>\n

However, the industry is facing a tough challenge that can severely undermine this progress. The success story of solar can be largely attributed to plentiful supply of cheap solar modules, majority of which are imported from China [3]. The International Trade Commission (ITC) ruled in September 2017 in favor of two financially troubled U.S. solar manufacturers that claim they have suffered because of the imports. ITC recommended that President Trump imposes import tariffs on solar modules [4].<\/p>\n

One of the U.S. companies that will be most impacted by solar import tariffs is NextEra Energy Inc. (NEE), one of the largest developers of solar. NextEra owns and operates over 2.2 GW of solar, enough to power more than 300,000 American homes with clean energy [5]. Due to economies of scale and improvements in solar module technology driven by large Chinese manufacturers, NEE has the advantage of dramatically low prices of these commoditized modules. Securing lower prices on key components of a solar farm enables NEE to build power projects that are more cost-competitive than fossil-fueled alternatives. Over the next three years, NEE expects to more than double their existing solar portfolio [6]. Demand for solar depends on competitive pricing, which in turn depends on access to low-price panels. Proposed import tariffs will significantly increase prices of most solar components, putting pressure on NEE\u2019s forecasted growth.<\/p>\n

The best defense is good offense <\/strong><\/p>\n

Since the tariff case has been introduced by the ITC, NEE has taken several actions to remain competitive in the industry and deliver on development projections communicated to the investors. Shortly after the election of President Trump in 2016, NEE pre-bought a large volume of panels from their existing suppliers to meet projected demand for 2017 and 2018 [7]. While this decision resulted in higher inventory carrying costs, it served as an insurance policy against uncertainty and enabled NEE to fulfill their signed near-term contracts. NEE was also one of the most proactive players to address this challenge, stockpiling solar modules from Tier 1 suppliers before they increased prices and later ran out of excess capacity to meet this spike in demand [8].<\/p>\n

Because of uncertainty of the trade case and a broad range of potential outcomes, NEE hasn\u2019t devised a concrete long-term mitigation strategy. While their focus remains on addressing supply shortages in the short term, the company is developing a few long-term scenarios to be prepared for any potential outcome. Post 2019, Executive Management expects the market to reach a new equilibrium [9].<\/p>\n

Looking ahead for NextEra Energy <\/strong><\/p>\n

While NEE has stock-piled panels for 2017 and 2018 project needs, management has highlighted 2019 as a year of highest concern for shortage of solar modules. Since NextEra\u2019s existing Tier 1 supplier base does not have additional capacity, NEE should consider bringing in top Tier 2 Chinese manufacturers into their approved supplier network <\/strong>to help close the gap in module supply for 2019. Additionally, NEE could explore building a coalition with other stakeholders<\/strong> negatively impacted by the trade tariffs, such as other solar developers, electric utilities, environmental advocacy organizations, and associations of solar installation workers. Together, these organizations should take an active lobbying role and articulate to the Federal agencies the value of strong American solar industry, including cleaner electricity mix, energy independence, and thousands of well-paying jobs.<\/p>\n

To prepare for the long-term implications of the trade case, it would be prudent for NEE to start building relationships with U.S.-based solar module manufacturers<\/strong>, such as Tesla, Sunniva, and SolarWorld. While the current quality of modules manufactured by most U.S.-based players is subpar to their Chinese competitors, large purchasers like NEE would be well positioned to influence local industry and co-develop superior products [10]. Additionally, over time, higher demand for local solar panels will allow American manufacturers to gain economies of scale, automate processes, and ultimately progress along experience curve to drive down costs.<\/p>\n

The crucial open question is how companies like NextEra with complex global supply chains should plan for political risk and changes in policy. Do they change their operational model to immediately accommodate major political changes or wait it out until the tides turn?<\/p>\n

(794 words)<\/p>\n

 <\/p>\n

    \n
  1. U.S. Energy Information Administration, \u201cToday in Energy”, https:\/\/www.eia.gov\/todayinenergy\/detail.php?id=25172<\/a>, accessed November 2017.<\/li>\n
  2. The Editorial Board, \u201cHow to Kill American Solar\u201d, Wall Street Journal<\/em>, October 29, 2017, https:\/\/www.wsj.com\/articles\/how-to-kill-american-solar-1509312015<\/a> , accessed November 2017.<\/li>\n
  3. Cassandra Profita and Grace Hood, \u201cHow Tariffs Could Help And Hurt The Solar Industry\u201d, NPR, October 30, 2017, https:\/\/www.npr.org\/2017\/10\/30\/560501750\/how-tariffs-could-help-and-hurt-the-solar-industry<\/a>, accessed November 2017<\/li>\n
  4. The Editorial Board, \u201cHow to Kill American Solar\u201d, Wall Street Journal<\/em>, October 29, 2017, https:\/\/www.wsj.com\/articles\/how-to-kill-american-solar-1509312015<\/a> , accessed November 2017.<\/li>\n
  5. NextEra Energy, 2016 Corporate Sustainability Report, p. 5, via NextEra Energy Corporate website, accessed November 2017<\/li>\n
  6. NextEra Energy, Third Quarter 2017 Earnings Conference Call Presentation, p. 11., via NextEra Energy Corporate website, accessed November 2017<\/li>\n
  7. NextEra Energy, Third Quarter 2017 Earnings Conference Call Transcript, p. 13., via SNL Financial Energy, accessed November 2017<\/li>\n
  8. Barry Cinnamon, \u201cThe Threat of Tariffs Is Already Reshaping the US Solar Market\u201d, Greentech Media<\/em>, August 18, 2017, https:\/\/www.greentechmedia.com\/articles\/read\/the-threat-of-us-tariffs-is-already-impacting-the-solar-market#gs._ym20EE<\/a>, accessed November 2017<\/li>\n
  9. NextEra Energy, Third Quarter 2017 Earnings Conference Call Transcript, p. 13., via SNL Financial Energy, accessed November 2017<\/li>\n
  10. The Editorial Board, \u201cHow to Kill American Solar\u201d, Wall Street Journal<\/em>, October 29, 2017, https:\/\/www.wsj.com\/articles\/how-to-kill-american-solar-1509312015<\/a> , accessed November 2017.<\/li>\n<\/ol>\n

     <\/p>\n

    Cover photo: Consumer Energy, \u201cSolar Gardens\u201d, https:\/\/www.consumersenergy.com\/residential\/renewable-energy\/solar-gardens<\/a>, accessed November 2017<\/p>\n

    Embedded power capacity additions chart: Mike Munsell, \u201cUS Solar Market Grows 95% in 2016, Smashes Records\u201d, Greentech Media<\/em>, February 15, 2017, https:\/\/www.greentechmedia.com\/articles\/read\/us-solar-market-grows-95-in-2016-smashes-records#gs.JorNTgY<\/a>, accessed November 2017<\/p>\n","protected":false},"excerpt":{"rendered":"

    How NextEra Energy, America\u2019s largest renewable energy developer, can continue to decarbonize the U.S. grid despite looming trade tariffs <\/p>\n","protected":false},"author":9891,"featured_media":25437,"comment_status":"open","ping_status":"closed","template":"","categories":[3239,1764,87,2112,3266],"class_list":["post-25292","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-isolationism","category-nextera","category-renewables","category-solar-power","category-tariffs","hck-taxonomy-organization-nextera-energy","hck-taxonomy-industry-energy","hck-taxonomy-country-united-states"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\nIsolationism: How to kill American solar - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/isolationism-how-to-kill-american-solar\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Isolationism: How to kill American solar - 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