Steven Cooke is managing director for the United States West region at Linesight, a global construction consultancy that provides independent cost management and general consultancy services to the U.S. construction industry. A native of Edinburgh but based in San Francisco, Cooke is a chartered surveyor and has more than 20 years of professional experience in construction cost management.
The new solar panel import tariffs being implemented by the United States are causing some concern for the construction industry, and for good reason. A 30-percent duty on solar panels from overseas will have quite the financial impact on a growing industry in the nation—an industry that was poised to make the next jump in its evolution.
The tariffs will have consequences for green building in general, but they could specifically jeopardize the eco-friendly standards and priorities of companies hoping to create the next generation of residential and commercial buildings. However, though there are legitimate causes for concern, there is also evidence that things might not change as much as many experts fear.
Obviously, costs will go up. It is the central aspect of the tariffs, setting importers back and making domestic manufacturers (which tend to be more expensive) more attractive to investors and builders. The projected increase in cost is 10 percent, and growth is projected to be about 10-percent slower as well. But, it’s important to note that with the value being derived from solar power, it shouldn’t be a deal breaker, especially considering the tariffs’ built-in measures to fall away over time.
Also, as it’s often been said, the value of positive publicity is growing over time as more people pay attention to issues in the construction industry and with essentially every industry striving to be more environmentally friendly. In short, green sells.
New Standards Under Fire
One of the most pressing questions for the solar tariffs is how they will impact Leadership in Energy and Environmental Design (LEED) certification. This standard of green building has been growing in popularity because of its reported 20-percent return on investment rate (ROI) and public relations (PR) benefits. Solar has traditionally been one of the easiest ways to earn credits for the LEED standard, as builders could attain 17 percent of the required credits with the implementation of solar panels alone, but research is demonstrating that panels remain the best deal, even in the face of higher costs.
The price of solar is simply falling too fast for tariffs like these to have a catastrophic impact on the solar industry. In addition, the tariffs will fall 5 percent per year before falling away completely after 4 years. Combined with the falling price of solar as the technology proliferates, the LEED standard is still worth striving toward for many builders. If solar is preventing a builder from achieving LEED certification, it was likely already a problem before the tariffs.
The trend seems to operate the same way for other green building standards as well. Solar doesn’t appear to be an actual necessity for any of these standards; rather, it is merely one of the best ways to achieve LEED credits. This doesn’t seem likely to change, even with the impact of the solar tariffs considered, which is good news if you’re building in an area where another available form of renewable energy is more cost-effective. But, for most projects, solar is still the best choice for energy efficiency, even on a large scale.
Investment Tax Credit Opportunity
Another factor to consider is the degree to which the Investment Tax Credit (ITC) for Renewable Energy helps mitigate the potential costs for large projects. Given that the amount of time before a project has to connect its assets to the electrical grid is four years, and that the tariff falls off in 2021, companies can register for the full benefits of the ITC before it ends in 2019 and wait until they are no longer impacted by the tariff to take advantage. It’s an important strategy to consider for companies who think that the tariffs will change their bottom line in such a way that they cannot pursue previously planned projects.
Changes in Industry
It’s impossible to talk about any of this without discussing the new mandate in California regarding solar on all new homes built. This represents a shift for all sectors of the construction industry, regardless of the type of structures being built and the state in which they are built. California has the sixth largest economy in the world, and with it mandating solar, then the solar business is bound to explode. If so, it will be a great opportunity for builders to cash in on the positive buzz surrounding this plan, which was supported by the public, and to take advantage of the increased business that solar companies in the region experience.
The Washington Question
There is a confluence of factors in recent months that threatens to invalidate several of these numbers. Many of the solar firms in the U.S. are filing for exemptions from tariffs, and successful petitions could result in prices going down. In addition, a group of congressional representatives is looking to overturn the tariffs altogether, which would, of course, negate the entire issue. It’s something to keep an eye on, but a full repeal seems unlikely.
Changed & Unchanged
The takeaway for green construction is that business will likely continue as normal. The solar tariffs are going to impact prices, but not enough to inhibit the gains from the industry growing at the rate that it has been. The tariffs are set to decline over time, and there’s still a small chance that action from individual companies requesting exemptions or action within Congress to overturn the tariffs, will nullify them before they become an issue for construction companies.
More importantly, large projects can still take advantage of the ITC before it expires and wait to get the solar components until the tariffs have completely disappeared. Amongst many benefits of the continuously decreasing cost of solar energy as a construction strategy, this is an important opportunity—especially true because of the way in which the continued emphasis on green construction standards like LEED is providing benefits to companies in the realms of return on investment (ROI) and public relations (PR).
The PR benefit is still the main one for green building, especially given the increasing viability of solar as an energy strategy; the spotlight being placed on construction by the tariffs; and big companies like Google, Facebook and Apple pumping out press releases about their green buildings. Solar has hit a road block, but not a big enough one to impact its meteoric rise in the U.S. economy.