U.S. slaps tariffs on Chinese panels. Is this the end of cheap solar?

Over the past few years, the price of solar power in the United States has been dropping at a dramatic pace. Part of the reason for the drop: China has been flooding the U.S. market with dirt-cheap solar panels. But that’s all about to change.

About to get 31 percent pricier. (Qiu wenshan - QIU WENSHAN - IMAGINECHINA) On Thursday, the Commerce Department ruled that China’s solar manufacturers are engaged in “dumping” — that is, they’re selling their panels for below-market rates in order to drive their competitors out of business. In response, the Commerce Department has slapped a 31 percent tariff on imports of silicon photovoltaic cells from many major Chinese manufacturers. That’s on top of a separate 3.61 percent charge levied in March. So if these tariffs stick, will that mean the end of cheap solar power in the United States?

Some companies worry that it might. It’s important to remember that there’s a big rift in the U.S. solar industry over trade policy with China. Domestic manufacturers of solar panels — such as SolarWorld — say that they’re being stomped out of business by Chinese competitors who are unfairly subsidized by the government. But companies that install solar panels, represented by the Coalition for Affordable Solar Energy, oppose import tariffs on the grounds that they make solar panels more expensive.

“This decision will increase solar electricity prices in the U.S. precisely at the moment solar power is becoming competitive with fossil fuel-generated electricity,” said Jigar Shah, president of CASE, in a statement.

It’s difficult, however, to forecast the precise effects of the new tariffs. In January, CASE released an analysis by the Brattle Group finding that a 50 percent tariff on Chinese panels could jack up U.S. solar prices by 25 to 30 percent. (About half of all solar systems installed in the U.S. in 2011 used photovoltaic panels made in China, with the panels making up around one-quarter or more of the total cost.)

If a tariff did drive up prices, it would buck a recent trend toward ever-cheaper solar energy. In the past five years, the U.S. retail price of solar power has fallen by half. Rooftop solar installations doubled in 2011. And, according to a new study by Bloomberg Energy Finance, solar power is rapidly reaching the point where it can compete with traditional fossil fuel sources in some instances.

But not everyone’s quite so sure the effects of the new tariffs will be so dramatic. For one, China might adapt by shifting its manufacturing abroad. One Chinese solar-panel maker, JinkoSolar, told the New York Times that the company could ramp up production in Canada in a matter of months, circumventing the U.S. tariffs. There’s also currently a glut of solar modules on the world market, which could allow installers to find cheap solar panels elsewhere.

Meanwhile, other analysts says that China’s low prices have never been the primary drivers of the boom in U.S. solar installations. In a policy brief for the Center for American Progress, Melanie Hart and Kate Gordon point out that the key drivers of America’s solar surge have been demand-side policies, such as tax credits for installation or state-level renewable energy standards.

“If you look within the U.S. market,” Hart and Gordon write, “there is a huge amount of variation from state to state, and that variation is primarily due to differences in state incentives.”

The Commerce Department won’t issue a final ruling on the new tariff until October. It still needs to finalize its decision on whether China is unfairly subsidizing its panels, and the International Trade Commission needs to determine whether the wave of Chinese imports is really harming U.S. domestic manufacturers.