This article is part of Utility Dive's "2023 U.S. Electric Power Industry Outlook" series. All articles are compiledView here。

In 2022, except for residential solar, installed capacity growth across all segments of the U.S. solar industry declined year-over-year, mainly due to state policy decisions and ongoing global supply chain disruptions. Experts say the industry will still face trade barriers and supply chain headwinds in 2023, but are optimistic about the tailwinds from the Inflation Reduction Act.

Tax credits in the Inflation Reduction Act are expected to incentivize the expansion of the domestic solar manufacturing industry, as the industry prepares for the expiration of U.S. President Joe Biden's executive order in June 2024. The executive order imposes a two-year pause on any new tariffs arising from the Commerce Department's ongoing investigation.

On December 2, the Commerce Department announced a preliminary affirmative determination in its investigation into whether solar panels imported from four Southeast Asian countries circumvent tariffs on Chinese-made components. The news dealt a blow to the solar industry, as component supply uncertainty had already led to project cancellations throughout 2022.

The Uyghur Forced Labor Prevention Act has also affected access to solar components. Reuters reported in November that a records request showed U.S. Customs and Border Protection had seized 1,053 shipments of solar equipment imported from China between June 21, when the law took effect, and October 25.

Wood Mackenzie senior analyst Sylvia Leyva Martinez said the 2023 solar industry outlook will "largely depend on the total volume of component shipments released this year," but CBP's lack of transparency makes forecasting difficult.

Martinez has heard secondhand reports that some shipments have been investigated and released, but said "getting first-hand data on this situation is very, very difficult."

"We expect total component shipments to return to normal by the end of the second quarter of 2023," Martinez said. "We still don't know how the whole situation will evolve, but based on preliminary information, some shipments have been released, and hopefully more components will be available in the second half of 2023."

John Smirnow, general counsel and vice president of market strategy at the Solar Energy Industries Association, also pointed to the uncertainty in implementing the Uyghur Forced Labor Prevention Act as a major source of volatility for the industry.

"We are beginning to see a small number of shipments clear from detention, which is positive progress, but there are still a large number of shipments detained, and the process is uncertain," Smirnow said. "What do companies need to do to prove their imported products do not contain Xinjiang inputs? We believe companies can prove it, but they need clear guidance from Customs."

Smirnow believes the Uyghur Forced Labor Prevention Act, combined with the ongoing Commerce Department investigation and the resulting shift toward domestic manufacturing, will create a "hangover effect in 2023."

However, he believes the market will improve compared to 2022.

"Then, as more domestic manufacturing comes online in 2024 and 2025, we hope many supply chain challenges will diminish, and by then we certainly expect deployment to begin accelerating," he said.

The Q4 2022 U.S. Solar Market Insight report released by Wood Mackenzie and SEIA in December said that due to the Commerce Department's preliminary determination that several companies violated tariffs, they expect "downside risks" next year, although the Commerce Department will not publish its final determination until May 1.

Martinez said she expects Biden's executive order to prevent major impacts from the tariff investigation in 2023 and 2024, but added that she is concerned about the supply-demand balance after the pause ends.

Corporate strategy adjustments are imminent

Rob Getti, chief operating officer of Distributed Solar Development, said his company and the industry as a whole have experienced "significant headwinds from U.S. policy volatility related to solar component imports, which has been quite turbulent for us."

"The situation has changed quite dramatically, leading to a period of high risk and uncertainty in importing components to the U.S.," Getti said, but he also echoed Martinez's view that the White House's pause on new tariffs has mitigated the impact.

"But since the second half of 2020, the global supply chain has generally been challenged, when various component inventories around the world began to decline, components that make up the broader equipment mix we use," Getti said. "This situation has continued to this day."

Getti said supply chain disruptions, such as labor shortages in shipping and trucking, have prompted DSD and other companies to abandon just-in-time procurement strategies and instead buy components in bulk "to create certainty in pricing and supply availability."

Previously, the industry specifically applied this strategy to solar components to take advantage of the "safe harbor" investment tax credit provision for renewable energy projects, locking in tax credits for a specific year by investing enough materials to qualify the project as started that year.

"Now, we are essentially applying this strategy to other major system components needed for solar projects," Getti said. "We have placed bulk purchase orders and paid deposits for all roof racking mobilized for our 2023 plans."

Getti said that for the 200 rooftop projects DSD is currently working on, the company has paid deposits to secure racking supply for all projects to ensure orders are fulfilled.

"This gives me supply certainty and locks in prices for that period, protecting us from the supply chain volatility we have experienced over the past two years," he said.

Although Getti believes the Inflation Reduction Act provides "significant tailwinds" for the solar industry to counter headwinds, he thinks supply chain normalization will take "years."

"The global supply chain volatility we are experiencing will not disappear quickly," he said. "We are facing the longest lead times for electrical components in the industry's history."

Getti also believes the Inflation Reduction Act will drive demand growth in the solar industry, and that after the new tariff pause expires in June 2024, there will be a supply shortage, adding that it is "simply impossible" for the U.S. to build sufficient domestic supply chain within the next 18 months to meet demand.

"Manufacturing capacity cannot possibly respond in that time frame to meet the demand from projects developers want to bring online by then," Getti said.

He noted that First Solar, the largest U.S. photovoltaic module manufacturer, has sold out its modules through 2024.

"Domestic manufacturing capacity cannot possibly be sufficient, or come online in time, to meet the gigawatt-scale demand projected due to the Inflation Reduction Act," Getti said. "We will continue to rely on foreign manufacturing for years to come."

Smirnow also said time is the biggest obstacle to building a domestic supply chain, including the time needed for manufacturers to choose states and specific locations. Due to current uncertainty, he expects companies to restructure supply chains, adjust production processes, and negotiate pricing in 2023, with the dust settling in 2024.

"It's a matter of time," Smirnow said. "Because of the Inflation Reduction Act, we will see a comprehensive solar manufacturing base in the U.S., we are confident of that. The question is just how long it will take to achieve it?"

The Inflation Reduction Act provides a 30% solar investment tax credit through 2025, whereas previously the credit was 26% and was scheduled to drop to 22% in 2023. Projects where all steel, iron, and manufactured components are produced in the U.S. can receive an additional 10% tax credit, and projects located in or near communities historically dependent on fossil fuel industries can also receive additional credits.

As a result, solar's attractiveness as an industry has greatly increased, while the solar component supply chain has become more uncertain.

Marlene Motyka, principal and U.S. renewable energy leader at Deloitte, said that although many solar projects were delayed in 2022, she saw few projects completely canceled, and demand has not truly weakened.

Motyka said the increase in wind and solar tax credits supports growth. "Some forecasts now suggest the law will stimulate 525 to 550 gigawatts of new utility-scale clean electricity by 2030. That is higher than the 300 gigawatts I initially estimated."

Domestic optimism

Becca Jones-Albertus, director of the Department of Energy's Solar Energy Technologies Office, is more optimistic about the industry's ability to build a domestic manufacturing base and expects a "very strong" domestic supply chain to form by 2025.

"Getting manufacturing capacity online by June 2024 is an aggressive timeline," Jones-Albertus said. "But I think it's too early to say whether the industry can achieve it."

She added that although the Commerce Department's preliminary determination found that four investigated companies circumvented tariffs, it found no evidence against the other four companies, and the companies found to have circumvented "also have time to reconfigure their supply chains."

Jones-Albertus believes the passage of the Inflation Reduction Act lays the foundation for successful domestic expansion of the U.S. solar industry, partly due to the nature of current domestic manufacturing barriers.

The U.S. has abundant quartz, she said, which is the material used to make polysilicon, a key component of photovoltaic cells. The challenge for domestic expansion has been economic, such as higher U.S. labor costs and stricter environmental regulations.

"That's why the manufacturing production tax credits in the Inflation Reduction Act are so powerful, because they target different supply chain segments, providing tax credits that can directly offset higher U.S. manufacturing costs, making U.S. manufacturing competitive with imports," she said.

Jones-Albertus said that from the passage of the Inflation Reduction Act to December 16, when she spoke with Utility Dive, 17 new solar manufacturing facilities had been announced, representing more than 75 gigawatts of proposed capacity.

Hanwha Q Cells, the second-largest domestic solar manufacturer, announced on January 11 that it will invest more than $2.5 billion to build a domestic supply chain, opening a second factory in Georgia to increase annual solar panel capacity to 8.4 gigawatts by 2024.

Martinez said she believes the Inflation Reduction Act provides the push needed to start the domestic solar supply chain, because manufacturing solar components in the U.S. is so costly that without subsidies it is almost entirely uncompetitive.

However, she mentioned the remaining uncertainty about the impact of the Inflation Reduction Act, and said it is too early to fully estimate the law's impact on total generation or domestic manufacturing expansion.

"I think the most important thing to watch in 2023 is what guidance the IRS provides on implementing all the tax credits in the Inflation Reduction Act, and after that we will have a clearer picture of how this will affect total U.S. renewable energy construction," Martinez said.