To some extent, Chris Koczaja knew what he was getting into when he became president of LightWave Solar a year ago. In an industry known for its ups and downs, there has been little consistency in government regulations.
“They call this business the solar coaster,” he points out. “Technologies changes, but the solar coaster is really driven by the changing regulations and incentives that are there.”
And, now the solar industry has been hit with what Koczaja calls, “a double whammy” of tariffs. The solar industry is one of many in Tennessee, including agriculture and automotive, that could suffer financially from a trade war over tariffs.
Solar companies have been caught up in economic uncertainty for some time. After months of speculation in 2017, the U.S. will impose duties of 30 percent on solar equipment made abroad.
Nationally, about 80 percent of the parts used in solar is made outside the U.S. But in the months leading up to the tariffs being imposed, just the talk of what might happen caused an immediate run on panels.
There were plenty of panels to be had, but with solar project economics built around panel price, the fear was if companies didn’t gather up all the panels they would need the new panels would be at a higher price than had been built into a particular project’s price.
It wasn’t a supply issue, as such, but a supply-at-what-price problem.
“No one knew what the tariff could be,” Koczaja explains. “There was fear it could be like 60 percent, so there was a run and that did raise prices immediately.”
So, businesses like the Nashville-based LightWave Solar stockpiled panels, taking up tons of storage space and tying up revenue.
“In order to secure our business, we cleared out our warehouse and stuffed in as many panels as we could in it, to kind of secure the jobs that we had already sold, at a set panel price,” Koczaja says. “It takes cash that we would’ve invested other ways, and now, literally, it’s cash that’s sitting in the warehouse as panels. We had to make a conscious decision to use our available cash to put the panels in the warehouse, and not do other things we would’ve invested in.”
Then last month President Trump imposed a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports, with exemptions for Canada and Mexico.
“That was the double-whammy,” Koczaja acknowledges. “We had just gotten done with the solar tariffs, and then they announced steel and aluminum [tariffs]. Everything that holds up the solar panels is steel and aluminum.”
Literally overnight, manufacturers would offer no more than one-day price quotes because the unstable pricing of materials, Koczaja says. That instability lasted for weeks and has affected their business.
“Tariffs, in general, filter down to us, the consumers,” Koczaja adds. “Someone has to absorb that along the way. Our margins in our business are not large at all. We run a pretty slim business trying to deliver what we can while working under the incentive programs that are available.”