US solar panel manufacturers get a gift from the US military

American solar panel manufacturers once dominated the global market. Today, they account for just 2.5 percent of worldwide manufacuturing.

For years, China has siphoned off American business and now dominates, producing panels for nearly two-thirds of the world market.

American manufacturers have cried foul at the reversal in fortune, arguing Chinese solar manufacturers get illegal subsidies from the Chinese government and have been dumping product, or selling below cost, on the US market. The US Department of Commerce agreed with American manufacturers last year and imposed some duties on solar panels imported from China. China is now retaliating with tariffs on American materials for solar panels.

The tit-for-tat seems to be continuing, as US manufacturers got some welcome news from the US military this week: The Pentagon won’t be buying any more solar panels from China.

By law, the American government already couldn’t. On President Herbert Hoover’s last day in office in 1933, he signed the “Buy American Act,” which says the US government will give preference to US-made products, if costs are reasonable, for things like highways and transit programs. Simple enough.

But in the modern global economy, manufacturing isn’t nearly as clean and simple. If Country A supplies the raw material for parts that are made in Country B, then manufactured in Country C, then exported from Country D, who can rightly claim ownership of the final product?   

The Department of Defense is attempting to clarify that with an interim rule — a long legal document — that defines the country of origin for solar panels as the final place where a "substantial transformation" occurred.  According to the ruling, the Defense Department can now buy solar panels from a US manufacturer or a company in a country that currently has a free trade agreement with the US, 20 nations, or a member of a select group within the World Trade Organization. China is not on either list.

The nation's largest solar panel manufacuter, German-owned SolarWorld AG, with facilities in Hillsboro, Ore., issued a press release commending the announcement, saying it would prevent China from exploiting loopholes. 

“This is a big deal for certain players,” says MJ Shiao, a solar analyst with GTM Research in Boston.

Currently, The Army, Navy and Air Force operate about 1 percent of the installed solar panels in the US.  But that could be the tip of the iceberg. Within the next five years, the Pentagon could install about eight times as many solar panels, about 1 gigawatt worth, on military bases and on up to 120,000 homes for military personnel in privatized communities.

And the Department of Defense has even bigger ambitions for renewable energy, in general. The DoD plans to have up to 3 gigawatts installed by the year 2025. Needless to say, this has US solar companies excited.

But what’s to stop the Army or Navy from buying its solar panels from South Korea, or Canada, or any other approved nation that can produce solar panels more efficiently than the US?

“That’s an interesting question,” Shiao says. “There are certainly competitive manufacturers in the rest of the world that could also supply modules [panels], potentially. It just depends on what the cost point of those factories in, let’s say, Singapore’s are versus what the US is producing.”

But, at least for American manufacutuers, the Pentagon won't be shopping in China.