THE TD COWEN INSIGHT
The US has entered an extended period of broad-based, resilient policy support for domestic manufacturing in select energy transition technologies. Solar is a front-and-center beneficiary. We believe near-term policy-induced investments will concentrate on polysilicon, PV modules, and vertically integrated thin-film solar production.
This report contextualizes 10+ years of evolution in solar tariffs, trade, and industrial policy to arrive at our differentiated outlook. In building this report, we leveraged unique channel checks on advocacy along with legislative and regulatory spheres to holistically assess the effectiveness, resiliency, and impact of this emerging policy nexus.
INCREASED POLICY SUPPORT FOR DOMESTIC US ENERGY TRANSITION MANUFACTURING
This report addresses two key controversies associated with the rapid shift in policy support for domestic manufacturing across the solar value chain:
- Will the policy framework prove effective and resilient?
- What elements of the value chain are best positioned?
EFFECTIVENESS OF THE CURRENT POLICY FRAMEWORK
We believe the current policy framework will be effective unlike prior policy interventions (tariffs) that were ineffective in stimulating a profitable domestic solar manufacturing base. The 2021 Uyghur Forced Labor Prevention Act (UFLPA) and 2022 Inflation Reduction Act (IRA) are central to this evolution. It is our view that the US has entered an extended period of broad-based policy support for domestic manufacturing associated with select energy transition technologies. Solar manufacturing stands front and center in this process and is set to be a key beneficiary.
RESILIENCY OF THE CURRENT POLICY FRAMEWORK
We also believe the policy framework will be resilient. It is our view that classical trade policy has collided with national security and climate policy at a new nexus. This new nexus will prove resilient to policy volatility, longer lasting, and more impactful than market expectations. A key driver behind this resiliency is both U.S. political parties attempting to be ‘tough on China,’ which makes tariffs and industrial policy an increasingly bipartisan lodestar.
However, policy volatility remains a key risk to our thesis. That being said, China is also a central theme, as expressed by the UFLPA and the IRA, lowering the risk of policy volatility.
ELEMENTS OF THE VALUE CHAIN BEST POSITIONED AMID POLICY SHIFTS
We believe the tails of the PV manufacturing value chain (polysilicon and module manufacturing), in addition to vertically integrated thin-film solar producers, are best positioned to benefit from policy catalysts in the near term.
WHAT TO WATCH
Key narratives in 2023 are focused on how stridently the UFLPA will be enforced, along with details of IRA implementation guidance. Post 2025, we are also watching for any shifts in politics that would indicate a Democratic or Republican pullback from industrial policy objectives.
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