Commerce’s Tariff Probe Darkens Outlook for Solar Deals

Bracewell’s Danielle Varnell told Law360 that she “would not be surprised if there are [renegotiation] attempts throughout the industry, from both developers and offtakers” on existing contracts in light of the recent solar tariff circumvention probe launched by the US Department of Commerce.

Commerce is investigating allegations from US solar panel manufacturer Auxin Solar Inc. that Chinese manufacturers are skirting solar panel and solar cell duties by shifting production to Cambodia, Malaysia, Thailand and Vietnam. They claim the specter of additional, steep tariffs that may be retroactively applied makes any purchases from those four Southeast Asian countries radioactive, which will further squeeze already tight global supply chains and ultimately chill US solar development.

To some extent, the additional uncertainty created by the probe can be baked into contracts being negotiated for new solar projects. But that’s not so easy for projects with existing contracts.

“How do we appropriately allocate the risk between all the parties in the chain here, and not have just one party bearing all the risk of this current investigation?” asked Varnell.

If parties fail to reach some sort of agreement to share or mitigate the risks posed by the Commerce probe, that’s a recipe for contracts being terminated or parties defaulting on their obligations, and litigation could follow.

“If participants in the industry decide that they have to terminate contracts, or to not perform on [contracts], there may be litigation risks based on ‘change in law’ risks,” added Varnell. “There could be potential force majeure risk.”

Commerce’s decision to investigate will be published in the April 1 Federal Register. The agency has 150 days from that date to issue a preliminary determination in the case.

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