Figuring out the solar fallout from the Commerce probe

The solar industry has only started digesting the Commerce Department's finding Friday that four of the world's biggest solar module suppliers are illegally evading U.S. tariffs.

Why it matters: There's already a shortage of modules in the U.S., which has driven up prices and left some projects in limbo. The preliminary finding threatens to further constrain the U.S. solar supply chain.

What's happening: Four companies — BYD Hong Kong, Canadian Solar, Trina and Vina Solar — are illegally circumventing U.S. tariffs on Chinese solar manufacturers, the Commerce Department said Friday.

Catch up fast: China heavily subsidizes its solar supply chain, controlling about 80% of global modules.

• The flood of cheap modules helped make solar energy competitive. It also knocked out rival manufacturers, including those in the U.S.
• The U.S. for decades has had "anti-dumping" and "anti-circumvention" tariffs aimed at rooting out such practices.
• Earlier this year, a small solar module manufacturer in California filed a petition with the Commerce Department, alleging that China-based solar module manufacturers were illegally skirting these tariffs.

Zoom in: The investigation included the threat of retroactive tariffs. That brought the U.S. solar industry to a near standstill virtually overnight.

• President Biden, under intense pressure from the solar industry, issued a two-year reprieve in June from potential penalties.
• The manufacturers, meanwhile, claim that the modules are being made in countries in Southeast Asia, not China.

What they found: Commerce concluded the bulk of the manufacturing process is still occurring in China.

• Only minor processing occurs at the companies' factories in Cambodia, Malaysia, Thailand and Vietnam.

What's next: Commerce's investigation brings tariff penalties that range from 16% — a fee that most U.S. developers can absorb — to as high as 254%.

• Those penalties, if assessed, won't take effect until June 2024, thanks to the reprieve from Biden.
• "That's going to be here before we know it," Marlene Motyka, U.S. renewable energy leader for Deloitte, tells Axios.

What we're watching: It's a busy holiday season for general counsels.

• "Developers were already starting to incorporate language in their agreements that there could be the need to increase the price of off-take agreements to compensate for an additional tariff," Motyka says.
• Domestic solar manufacturers and Democratic allies in Congress are also pushing the Biden administration to extend the reprieve. Policy-watchers like the Cowen Washington Research Group predict that such an extension is likely.
• U.S. companies have been racing to build a domestic solar supply chain to reduce reliance on Chinese manufacturers. But this will take a decade or more to bring to scale.