Section 232 Tariffs Explained: What Developers, Corporates, and PPA Buyers Need to Know

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Hi and welcome to the Renewable Roundup podcast from Schneider
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Electric. I'm Russell Redding, Head of Energy Markets at Zygo,
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and every week I'm bringing you a podcast with top stories,
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critical sustainability topics, insights, and expert
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voices. So please, please hit the subscribe button and don't
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miss a thing. This week I'm really pleased to be joined once
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again by Kenny Schoolcraft. I've been wondering about Section
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232 tariffs in the US for a while now,
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so instead of scratching my head I asked Kenny.
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His insight was great and I wanted to share it with you.
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So what does Section 232 mean for developers,
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corporates, and PPAs? Let's find out.
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Welcome back to the Renewable Roundup, everyone. And once again this
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week, Kenny Schoolcraft has agreed to join me. Hi Kenny,
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how are you? Doing well, Russ. How are you?
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I'm good, thank you very much. We're kind of having a late summer at
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the moment, I think, before autumn really bites, which is quite nice.
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Yeah, I would, I would say the same here. It seems to be that,
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uh, it stays colder longer in the spring and
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warmer longer in the fall. Seasons are flip-flop, but cool
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weather is right around the corner. Excellent. And I'm glad to see my British influence
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is working on you when you're talking about the weather. Well done.
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Excellent. Absolutely. So thanks very much for joining us.
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I really appreciate you coming in. And the reason I've got you on today
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is because, um, obviously we've
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been talking to, to developers, we've been talking to corporates, we've been talking to you.
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I've been here, you know, all sorts of stuff and what have you. And I've
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been hearing lots about Section 232
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tariffs. And obviously I've had a bit of a look
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at it, but I know you've got a lot more knowledge on,
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on this than me. So I thought if I asked you nicely, you might come
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and talk to me about that and maybe just explain to me and
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the listeners out there what Section 232
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is all about. Yeah, uh, happy to. So,
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you know, this is a pretty pertinent and timely conversation.
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This is a hot topic amongst the developers that
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I'm talking to. Essentially, Section 232 covers
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a lot of things, but specifically back on August
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6th— and we'll keep this framed within—
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this is US-specific, right? The United States announced
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measures that cover polysilicone
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and products made from it, including solar cells and modules.
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And so, essentially, there's a price
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floor and tariff provisions that are scheduled to take place
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on December 4th, 2026.
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So, as a whole, Section 232, it's like a national security
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trade authority. And so the current administration,
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really, their objective is to help strengthen the
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US production of polysilicone downstream products.
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And so the August proclamation, what it did essentially
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sets the minimum import prices of
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polysilicone at $21 per kilogram,
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$100 per kilogram for ingots and wafers,
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and $0.22 per watt for solar cells, $0.38 per
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watt for solar modules. And then it also establishes an
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additional 15% duty on covered downstream products,
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including wafer cells, modules,
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specific to individual countries. Okay, so that's
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a lot, but what it essentially means is things
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that were cheaper overseas are now going
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to become more expensive for developers that are importing product.
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With the end goal from the administration that the U.S.
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onshores a lot of manufacturing production
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of these specific components.
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And so, you know, obviously there are cost impacts to
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developers, and then the question becomes, right, like, how does that
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affect the overall market? Now,
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there are all kinds of other sort of sticking points to
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this, right? You know, you could sit here and say, well,
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what if everyone just ordered all their products prior to that December 4th
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cutoff? But they've already put
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anti-stockpiling rules in place to prevent that.
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There's restrictions on importers whose volumes were a historical
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level, and now they exceed that by quite a bit.
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So like any other law or rule,
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right, there are potential loopholes and loopholes that are trying to be closed
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and people trying to take advantage. And so the market's still sort of sorting
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through the application of the rule and how we'll, we'll manage through it.
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So anything we talk about further to this is obviously
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subject to change. So, okay, yeah, that makes, that makes sense. So, um,
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December 2026, I think I got from you,
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was the sort of the implementation date. And basically
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what we're kind of saying is anything that's ordered in after that date you
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know, subject to these tariffs, whether it's, you know, however many cents
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per watt for, for cells and inverters and, and, or for the actual,
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uh, raw materials. And that's going to have an impact going
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forward because it sounds like we've implied that, um,
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people have tried to go as far as they can prior to that date,
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you know, within anti-stockpiling and, and, and, you know,
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volume limits and everything else to get what they can.
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Potentially. But obviously after that, then,
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um, you know, that's going to bite. That's going to be, as you said,
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an increased cost. So how do you think
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that is going to impact developers who obviously are
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working on solar projects? I mean, you know, is it—
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is it— it's going to make them more expensive? Do you think it might also
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shift things to other technologies, or does it just
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feed through into the cost? Or I guess there are lots of things Yeah,
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I think for utility-scale developers, the first
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effect is just a change in the equipment budget, right? So they may have
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supply chains already in place. They may have panels and cells already,
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you know, in stock. So for a developer
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with modules already in the US,
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firm supply agreement, Um, they may
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have a different exposure than a developer who's trying to
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import them for a 2027 delivery, right? And so the
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important thing to keep in mind is, as we talk through any of this,
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is each project is going to be affected differently,
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right, on whether or not there
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have been materials that have already been bought for that project
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Or not. And so there's
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not going to be a one-size-fits-all of like, what's the total
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impact, right? It's going to be developer-specific, what their supply
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chain looks like, what their project looks like,
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you know, kind of what their contracts are. And so if they're
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looking at their development model, right,
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if the equipment costs rise, they have to ask whether
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the project can absorb that increase through,
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you know, a contingency, a lower return, a different equipment
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choice, or a higher PPA price, right? And if the answer
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is no, then they may need to redesign the project
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or delay it, right? So that's sort of how
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they're having to manage this process right now is, what do I
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have? Within the rules?
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What's it allocated to? And then what's the
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maturity of sort of these projects? Because in a lot of cases, right, a project
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can't go forward until there's an off-taker. So,
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you know, that, that kind of becomes, becomes an issue,
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right? They may not have ordered anything at this point,
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um, and they may have, uh,
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supply chain agreements where Uh,
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they're not necessarily immune to the supplier saying,
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well, you're not ready to take this allocation, someone else will.
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And therefore, you know, those parts go away and
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they have to regroup. So, um,
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that's, that's really, you know, the issue for developers
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right now, you know, really kind of looking at their risk allocation,
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studying their EPC contracts, their equipment
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agreements, um, and then ultimately
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how they, they manage that through a contract with an off-taker.
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Yeah, that makes sense. Managing that risk. Yeah,
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and that's interesting because I— it— there are complex ways
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of looking at, at that. And I think the one thing that it's drawn me
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to is, um, thinking about my own analysis geographically
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of pricing in, in in the US,
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there are some places where pricing
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is lower and some is higher already. Yeah, and, and that
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can be affected by, by many things, um, you know, things like capacity
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factors. Clearly the yields are better in sunnier places than, than, than,
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you know, in some locations than others, um,
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connection costs and, and, and all sorts of other things.
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So I imagine, and I'm not sure, I'd be interested in your view on this,
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I imagine there might be some locations and geographical
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areas where the price shift
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or the absorption of that change might
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be easier than other locations where you might
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kind of say, well, it's already maybe marginal here, it's gonna, you know,
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there's not a lot we can do, it could push, just push that price
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out, it's gonna make it look much worse, where there might be other uh,
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other areas where I said, yeah, yeah, it's going to shift the price, but the
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yields are good and there are, there are other options and there's this, you know,
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and it's gonna not make such a big difference. Is that, is that
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reasonable conclusion, do you think? Yeah,
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I think, I think if you're talking in terms of like how much margin,
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uh, a developer might have in a specific geography,
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certainly that's applicable. I think more importantly you have to look at it
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in terms of instead of looking at raw percentages, right,
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to your point, let's say an ERCOT project is
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$50 and there's a $5 movement as a result of tariffs,
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that's 10%. So somebody said, well, there's a 10% impact.
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Okay, in a PJM project where
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it's the same materials, right,
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and that PJM project starts at $80 because, uh,
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The land cost is more expensive, the interconnection cost is more
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expensive, right? Your impact is obviously
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less, right? So it's just important when you're talking in raw dollars
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versus percentage change, right, that that will
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vary across geographies. But yeah, you're correct in that, like, there may be projects
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that may be able to absorb, you know, more of
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this from a developer standpoint. Than others, depending on
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kind of the maturity of the project or, or the developer's
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intent. Yeah, and I think I— that makes sense.
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And I was thinking, you know, if the yield per kilowatt,
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you know, per panel is higher, if the panel
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costs 10% more,
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if the yield is higher, you've got that 10% spread
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over more units of production. So the unit price doesn't need to
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go up as much as well. So It might— my brain
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was like, well, that might favor areas where,
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like in California and Texas and so on, where it's very sunny
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and you already see very high yields.
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Whereas— I think you're right. Yeah. Which is weirdly
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almost not what you want because actually they're already very heavily subscribed
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for solar because they're ideal locations. But that's another thing.
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So what, having talked about that,
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you know, there's going to be price shift. Do you have any views on
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how the, how much the prices might shift? We talked about, you know, clearly they're
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going to go up. Have you got any sort of views about
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where they might go? Yeah, I think if we were to paint with a broad
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brush, we've, we've heard from some like,
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uh, manufacturers of what their range
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is. I think it's anywhere from 2% to 7%.
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I've seen some developers already
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change their price upwards of 12%,
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right? And, and they said it's a result
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of the tariffs. Now, maybe they're baking in even more unknown risk into that than
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what the actual impact is. I'm sure a lot of developers are still kind
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of combing through what their agreements are. To figure out exact impacts.
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So, you know, there's known— there's known risk impacts, there's unknown
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risks and impacts. I think if you were to paint with a broad brush across,
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um, you know,
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if you were to give a dollar figure, um,
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you're probably looking at, you know,
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$2 to $5 megawatt-hour would be
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the actual impact to the developers.
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Now, again, that's— I don't have insight into everyone's
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portfolio. This is just sort of, um,
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you know, back-of-the-envelope math. Um,
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so, you know, we'll see in the coming months as we get refreshed
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pricing from developers and we can kind of backtest what individual
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projects were prior. There's obviously other things
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that are moving total price too, right?
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So, um, you know, a $50 PPA today becomes
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$60 next week, and maybe $5 of it
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is because of tariffs and $5 is because of something else.
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But we'll at least directionally have an idea. I think
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just overall though, yes, pricing will increase
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and will increase in pretty much every market as a result of this.
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Yeah, and that's really interesting. I think, uh,
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it's interesting to get that view of, of the shift. I think
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that's, that's obviously helpful for our modeling, and then we'll look at it again
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in, in more detail, and we'll get into that as part of the modeling we're
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doing in, in various, uh, ISOs. I also think
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that you, you've hit another thing on the head, is that there's all sorts
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of other things that are shifting, um, almost, you know,
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almost constantly, uh, in terms of other costs
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that developers— it's not just about buying panels and inverters,
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you know, there's connection costs, there's labour costs, there's groundworks,
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and ultimately this— they're borrowing that, that money potentially,
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or the return on your own equity or whatever you've got,
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and all of those things. And those things are shifting quite radically,
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you know, at times. And then you get
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into all the commercial bits and pieces about, well, you know, what's the scarcity and,
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and, you know, how aggressively are we going to look at that project and all
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those things. I think so. Actually, there's this— it's a time
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when I suspect that, um, I'll probably start
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chewing my pencil harder because the volatility around
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the forecasting is— we've already seen increases in some areas,
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and I think we'll potentially see more as all of these changes work
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through. Yeah, and if you look at sort of the third-party forecasts
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and models, um, you know, ERCOT obviously
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has been the hottest market. It tends to model well from a net present value
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perspective. And, you know, during the last runs
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of most models, it incorporated this, um,
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large increase in AI buildout, right? So think
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of it in terms of lots of power consumption. So the value of the
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power from a supply-demand standpoint becomes more
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valuable further out on the curve. So those
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NPVs were pulled up by, let's say, $1,
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$2 for a lot of projects.
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Now you've got sort of the opposite
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happening where, let's say,
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it's a $4 increase to a PPA price.
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And you want to pull that back to a net
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present value, that's maybe $2.
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And your models the next time may incorporate some
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sort of clawback in that AI demand just because of the
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public backlash that's currently taking place, or the,
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uh, the length of time it's taken for some of this stuff
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to get online. So what you might do is take a
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big cluster of projects that had a net present value
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in the positive for corporates, and it moves them more neutral
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or negative. And then that becomes potentially a challenge when you're
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trying to sell to corporates. Now, will the hyperscalers continue
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to buy these? Absolutely. Right. It's become
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a necessity for them. But for the average corporate,
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Um, between potential model changes next go-around and every
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dollar or 2 here moving it closer to zero or a negative NPV,
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um, that introduces some challenges of selling
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to corporates or corporates pivoting things like REC strips.
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Yeah, and you know what, Kenny, you've done it again, because what you've highlighted
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there is actually there's 2 sides to the equation.
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And I kind of get what you're saying because of obviously the
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way, you know, the shifts in NPVs. But it
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is important to remember the headline price of a PPA is
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only half of the story because actually you're looking at
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what that means in terms of value.
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And that, you know, that is different for everybody.
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I think we've seen a shift towards dare
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I say, what is the monetary value against, you know, the wider energy
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market and the forecasts of where that is, you know, what is the NPV.
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And that's a big part of the value because ultimately any PPA
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is going to go through a company's board and whoever's in charge
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of the finance is going to look at that and say, does this make sense?
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Does this— is this giving us something? And that something could be,
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you know, a a stable price,
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it could be a good price, it could be a positive NPV,
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but there are benefits. And then there are other things around it which again can
19:53.466 --> 19:56.733
seem difficult to quantify. But you're right, what you draw out from that is that
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the 2 things are, one, it's a 2-sided equation.
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So yes, PPAs went up,
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but that's not necessarily the whole story because what's the wider energy story
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and the wider corporate story? Yeah, and,
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you know, you hit on an important point of like headline price isn't
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the end-all to be-all because of, you know, what's,
20:19.650 --> 20:22.282
what's going to be the value of this contract at the end of the day,
20:22.298 --> 20:26.117
right? There's an unknown. And so these tariffs actually
20:26.150 --> 20:29.423
introduce that as well, right, from a pricing perspective,
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if you're not hammered out and who's responsible for what.
20:32.569 --> 20:36.100
So 2 PPA proposals with the same headline
20:36.600 --> 20:39.872
price may carry very different delivery risks from this.
20:40.211 --> 20:44.180
So, one developer may have their equipment secured,
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another may be relying on a future purchase at an assumed
20:48.591 --> 20:53.301
price, right? Or a corporate
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may be considering the timing of the offtake decision.
20:57.025 --> 21:00.702
And so, you know, a developer needs a signed PPA
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in a lot of cases to support the financing. In the procurement commitments.
21:05.425 --> 21:08.973
And so the corporate may want the
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certainty before signing,
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and the developer is saying, I can't provide that to you right now
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within certain bandwidth, and neither one's
21:20.684 --> 21:24.290
being unreasonable, right? So the solution is really putting all the conditions
21:24.790 --> 21:29.037
on the table, right? The procurement milestones, the financing progress,
21:30.116 --> 21:33.117
delay remedies, right? Um,
21:33.569 --> 21:37.054
and so, and that's really important for a
21:37.554 --> 21:40.830
VPPA, uh, for, for certain reasons. You know, it doesn't
21:41.330 --> 21:45.948
make the actual equipment risk disappear
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because the electrons aren't going directly to them.
21:49.070 --> 21:52.174
Um, so yeah, I mean, it, it,
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it's just yet another unknown.
21:56.189 --> 21:59.818
To parties, much like a, uh,
22:00.284 --> 22:04.121
a forecasted power price 10 to 15
22:04.153 --> 22:08.200
years in the future, where both parties will have to come to the table
22:08.954 --> 22:12.230
and sort of ask questions on where things
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stand in the process and who bears the risk should
22:16.822 --> 22:21.591
things change, right? So I think as a corporate What
22:22.362 --> 22:25.958
they would be asking today is really like, have the panels been
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secured? What's the cost and delivery date that's
22:30.521 --> 22:34.308
assumed within the PPA price? And if those assumptions change,
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who carries the risk? And if one developer
22:38.517 --> 22:41.855
answers those questions a certain way and one answers
22:41.951 --> 22:45.499
it a different way, even though they have the same headline price,
22:46.286 --> 22:49.753
one is going to look more attractive than the other. And it's
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going to be looked at from a total value perspective, not just the strike price.
22:54.725 --> 22:58.125
That's really interesting because right at the top of this,
22:58.895 --> 23:02.118
when we started talking, I thought, well, one of the questions I need to ask
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is what is the impact on corporate? And I almost thought, why do you need
23:06.451 --> 23:09.159
to ask this? Because actually it's dead obvious, isn't it? It's just going to push
23:09.659 --> 23:13.457
the price of PPAs up. You know, that's not great news. But actually,
23:13.874 --> 23:18.064
I think what you're alluding to and what you're saying is the
23:18.564 --> 23:22.302
reality is that it is quite complex
23:22.802 --> 23:26.798
to assess. It's not simple. So you do need to understand,
23:26.879 --> 23:30.668
you know, the value, say, through the net— the NPV. It's not just
23:31.168 --> 23:34.698
the headline price. You need to understand where's the value, should we
23:35.198 --> 23:38.022
say, versus your energy markets, your energy sourcing,
23:38.857 --> 23:42.790
but also Where's the risk or any benefits
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within that PPA structure potentially?
23:46.242 --> 23:49.597
So what it means is it's more vital as a corporate than ever that
23:50.097 --> 23:53.065
you're asking the right questions at the right time. Is that fair?
23:54.269 --> 23:56.934
Absolutely. Yeah, I think that that's what, you know,
23:58.282 --> 24:01.734
most corporates will be doing. You know, most corporates are probably
24:02.234 --> 24:05.426
running RFPs for this. So if I'm a developer, I want to make sure I
24:05.507 --> 24:08.955
can answer those questions. And if
24:09.455 --> 24:12.562
I'm a developer, I probably need to have a good handle on it from an
24:13.062 --> 24:16.009
internal perspective anyway, right? And none of this is cut and dry.
24:16.891 --> 24:20.497
It's going to be different for everyone. But the theme
24:20.997 --> 24:24.233
remains the same. And the theme is really
24:24.345 --> 24:27.631
very similar to what we've lived in the last couple of years anyway. There have
24:28.131 --> 24:31.559
been changes to tax credits and changes to, you know,
24:33.403 --> 24:37.402
interconnection queues and changes to costs, right? This is just another thing to
24:37.902 --> 24:41.513
add on top of it, but it in theory probably isn't going to be handled
24:42.013 --> 24:45.046
by corporate procurement teams or developers any
24:45.127 --> 24:48.242
differently. It's, it's again just a matter of like,
24:48.644 --> 24:52.113
here's an additional risk, how do we ring-fence it,
24:52.739 --> 24:57.139
and how much are we willing to share in the partnership of
24:57.171 --> 24:59.645
that risk in order to get a project built?
25:00.928 --> 25:04.728
Yeah, and therefore the whole thing becomes more critical.
25:04.872 --> 25:08.608
I should say about it's the understanding, understanding the environment, but then
25:08.945 --> 25:12.248
the developer getting the pitch right,
25:12.954 --> 25:16.610
um, to, to kind of say
25:17.684 --> 25:20.875
not only just look, here's my price, but actually here's, here's the other thing,
25:20.987 --> 25:24.435
and here's potentially, here's what's good. You know, we've sourced it, we've got some
25:24.935 --> 25:27.081
guarantees, we've done this, we're ready to go.
25:28.108 --> 25:31.142
Or that's not possible, but how do we pitch,
25:31.560 --> 25:34.948
you know, what we've got and the benefits of it, and how do we address
25:35.448 --> 25:40.167
those risks and manage those risks, and the corporates understanding them. So it's,
25:40.311 --> 25:43.731
uh, it unfortunately doesn't do much to simplify the,
25:43.860 --> 25:47.617
the wonderful world of corporate PPAs. But actually what
25:48.117 --> 25:51.214
it's not is what you might look at the headline and go, oh well,
25:51.311 --> 25:55.020
there's a tariff on polysilicon products, it's going to impact the
25:55.520 --> 25:58.990
solar, it's just going to take a hatchet to to
25:59.054 --> 26:02.185
solar PPAs. Well, the reality is it's anything
26:02.250 --> 26:05.381
but, isn't it? It presents some challenges,
26:05.414 --> 26:09.504
but as we've seen in literally every bump in the road and challenge
26:10.249 --> 26:13.278
wherever in the world, you know, so far,
26:14.233 --> 26:16.339
people find a way and people make it work.
26:18.032 --> 26:19.968
Yep, I think that's accurate. That's good.
26:21.627 --> 26:24.805
Before we wrap up, is there— it's been a really good chat. Um,
26:25.095 --> 26:28.150
thanks for coming in and talking to me about this. I think it's really— it's
26:28.650 --> 26:32.043
been helpful to understand it, and hopefully, you know, listeners will find it helpful
26:32.091 --> 26:35.322
too. Are there any last thoughts on this that you, you'd kind
26:35.822 --> 26:39.128
of— you feel you want to share before we wrap up? No,
26:39.144 --> 26:42.821
I think that's it, but certainly open to, uh, you know, anyone listening.
26:42.918 --> 26:46.272
If you have any, uh, questions or comments, feel free to reach out.
26:47.490 --> 26:50.075
Happy to have more conversations like this.
26:51.384 --> 26:55.041
Excellent. So there you have it. If, if you've got any questions, please ask Kenny.
26:55.378 --> 26:58.619
Um, he's the expert. Don't ask me, I'm just a semi-expert.
26:59.004 --> 27:01.185
And you can reach out, uh, you can email him, you can get to him
27:01.685 --> 27:04.554
through the Zygo platform, you can find him on LinkedIn. Um,
27:05.099 --> 27:08.179
Kenny, it's been a pleasure as always. I appreciate you
27:08.679 --> 27:11.211
taking the time. Thank you so much for joining me. Thanks for having me,