JinkoSolar announced this week that it is finalizing plans to build an advanced solar manufacturing facility in the U.S., as the company continues to monitor the implementation of new tariffs on imported solar cells and modules.
The company's board of directors authorized JinkoSolar to move forward with the construction process, as the Shanghai-based firm reported that it has signed a master solar module supply agreement with a U.S. counterparty to provide around 1.75 gigawatts of high-efficiency solar modules over three years.
JinkoSolar's management team recently told investors that it is targeting to build the U.S. facility for around $120 million, GTM learned. That amount is well below the total projected cost of a $410 million facility under consideration in Jacksonville, Florida -- dubbed "Project Volt." The Jacksonville City Council has already approved $24.2 million in incentives to attract the unknown foreign manufacturer involved in those negotiations.
If the $120 million target is correct, Jinko's new factory could be separate from Project Volt or constitute a part of it. Local media reports state that the project involves two sites, and JinkoSolar's could be one of them. However, the facility cost and location could not be independently confirmed.
“We haven’t yet decided the detailed plan of setting up the factory," according to an emailed statement provided by Jinko. "We will make [a] decision [in] late February or early March."
While several economists and industry analysts have stated that new tariffs imposed by President Trump won't spark a U.S. solar manufacturing renaissance, the Jinko news comes as several existing U.S. module makers are starting to ramp up capacity and make new hires. Other foreign solar manufacturers may also be considering a U.S. market entry. GTM reported last fall that a handful of major solar cell and module players were weighing their options around opening new U.S. production facilities pending the outcome of the Section 201 solar trade case.
First-mover advantage
Jinko's new manufacturing plant will benefit from the 2.5 gigawatts of tariff-free solar cells permitted under President Trump's proclamation on the Section 201 solar trade case. However, it's currently unclear how the 2.5-gigawatt quota will be treated. Stakeholders will be watching closely to see if the Office of the U.S. Trade Representative announces carve-outs for imports from various countries, or if the quota will be addressed on a first-come, first-served basis.
"Being the first mover is definitely an advantage because you only have so much cell manufacturing you can import without any tariff," said Maheep Mandloi, alternative energy analyst for Credit Suisse.
Assuming JinkoSolar can replicate the cost advantage of an automated solar production facility in China within the U.S., these domestically produced solar modules will be cheaper than imported modules that are subject to the tariff. JinkoSolar is expected to produce modules in the U.S. using tariff-free cells that are 10 percent more expensive than modules made in Asia before the new tariffs were introduced. That would give the company a leg up on Asian-made modules that are now 30 percent more expensive due to the tariff. Jinko is expected to maintain that slight price advantage even as the tariff declines over the next four years.
In a note to investors, Credit Suisse stated that "JinkoSolar's strategy to build U.S. module-manufacturing makes sense [in the] near term as U.S. modules will cost 15%-5% less compared to imported modules under tariffs through 2021, firm supply contracts protect downside if import-tariffs are withdrawn prematurely, and higher U.S. margins provide cushion against growing oversupply and lower margins in the industry."
There's a clear incentive to build in the U.S. if JinkoSolar can recuperate its investment in the new facility over the four-year tariff period. The word "if" is key, though. Many industry watchers are skeptical that Jinko can set up a new plant and offer solar products for such an affordable price.
Is NextEra Jinko's failsafe?
Then there's the risk that tariffs will be withdrawn early due to challenges at the World Trade Organization, making a U.S. factory unnecessary. But even then, JinkoSolar might be OK.
"What’s most important is that Jinko has a firm contract for supplying solar modules to a U.S. developer," said Mandloi. "If...the tariffs are removed, which is the biggest risk for anyone building a factory in the U.S., [Jinko] could still supply the developer with modules from Asia and still capture the higher margin.”
The master solar module supply agreement "acts as a failsafe for Jinko in this case," he said.
That failsafe could very well be the NextEra Energy subsidiary, NextEra Energy Resources. Company CEO James Robo maintained a very positive outlook on solar pricing in the years to come and downplayed the impact of the new tariff on the company's latest earnings call. He also said the Florida-based energy giant has already secured solar supplies to serve its development pipeline into 2020, which would give NextEra some runway to continue developing projects while waiting for a new module manufacturing facility to come online.
If tariffs are removed early, Jinko will have the tricky task of deciding whether to wind down its U.S. plant. The same will be true in four years' time, when the Section 201 tariffs expire. By that time, however, JinkoSolar expects its modules will be able to take advantage of a "Made in the USA" premium, according to the Credit Suisse investor note.
The premium would be similar to what manufacturers of various types get in the U.S. today if they sell products to the military or other government entities. In addition, some solar customers, particularly in the commercial and residential space, may choose to pay more for a U.S.-made product.
Taiwanese module makers eye the U.S. market
JinkoSolar isn't the only foreign manufacturer looking to set up shop in the U.S. market.
United Renewable Energy (URE), a vertically integrated PV maker formed by the combination of the three Taiwan-based solar cell manufacturers Gintech Energy, Solartech Energy and Neo Solar Power (NSP), is also making plans to launch a U.S. module factory.
Digitimes reports that "apart from concerns about the safeguard tariffs, the three makers are building the plant to cater to a major U.S.-based power generation developer who has decided to give URE massive PV module orders." URE will invest $10.2 million to $16.9 million (USD) to construct a PV module plant with annual production capacity of 500 to 1,000 megawatts, the Digitimes story states, citing NSP chairman Sam Hong, who is set to become URE chairman.
The reported price tag for that facility is impossibly low, however. PV Magazine reports that the stated amount could only cover manufacturing equipment, at best. The all-in capital expense for a U.S.-based module manufacturing plant would be several orders of magnitude more.
Hao Huang, who works in investor relations for NSP, confirmed that URE "is planning to expand its module capacity worldwide in the short- [to] mid-term," adding that the U.S. emerged as "one of the choices because of the new solar tariffs." But he could not confirm any additional information.
“Neither the location, [the] capacity nor [the] capex has been decided yet,” he said.
A true renaissance?
Reports of new domestic solar manufacturing plants run counter to the emerging consensus among many experts, namely, that Trump's relatively modest solar tariff will do little to boost U.S. manufacturing. The recent announcements around new production facilities seem to imply that the protectionist trade measures worked. But it's important to underscore that a lot still remains unclear.
JinkoSolar and URE have not confirmed their construction plans. Ultimately, the timing and pricing may not be compelling enough for these companies -- or any foreign company -- to follow through with their manufacturing plans. Existing U.S. solar cell and module manufacturers may boost production as a result of the Section 201 case, but there haven't been any major announcements since the trade decision came out. That's likely because a lot of decision-making still rests on how the 2.5-gigawatt tariff-free quota for imported cells will be implemented.
Plus, even if tariffs spur some level of new investment, it may not be enough to offset broader solar industry effects -- particularly with respect to jobs. The Solar Energy Industries Association projects that 23,000 solar jobs will be lost this year alone as a result of the tariffs. As one example, Trump's trade action was the nail in the coffin for Vermont-based Soveren Solar, which closed shop this week after confronting a series of policy blows.
According to Mandloi of Credit Suisse, virtually all solar module manufacturing plants coming online around the world today are automated, except for some regions in China where labor is cheap. That means the employment benefits of any new manufacturing plants will be minimal, while the job losses in solar installation could be significant.
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