US solar tariffs could drive Southeast Asia’s transition boom

Southeast Asia may find itself in a unique position to boost its energy transition, following recent plans by the United States to impose significant tariffs on solar panel imports from the region. The US announcement includes substantial duties on solar panels produced in Cambodia, Vietnam, Thailand, and Malaysia, which could reshape the regional dynamics of renewable energy.

The tariffs stem from a probe, initiated prior to the current US administration, aimed at investigating what were perceived as unfair practices by firms headquartered in China operating in Southeast Asia. The planned levies could add to already existing tariffs implemented previously, such as a general 10% applied broadly, and as much as 145% on products originating from China.

Given China’s dominant role in the global solar sector, being responsible for eight out of every ten solar panels made worldwide, the impact on the US market is expected to be profound. The increased costs could effectively make it financially unviable for solar exports from Southeast Asia to enter the US market, a sentiment expressed by industry experts.

In 2024, Southeast Asia supplied nearly 80% of the solar panels imported by the United States. Even though solar production has increased domestically in the US, the industry still heavily relies on parts from abroad. This situation presents a potential crisis for Chinese manufacturers who face limitations in an already saturated local market.

Many Chinese firms have previously relocated operations to Southeast Asia, in hopes of circumventing restrictive measures implemented by both the US and the EU seeking to protect and develop their solar sectors. Tariffs proposed could range dramatically, with Malaysian products facing up to approximately 40% and some Cambodian manufacturers as high as 3,521%.

An Opportunity for Energy Shift

Amidst these challenges lies a potential opportunity for Southeast Asia. Analysts suggest that the tariffs and ongoing trade tensions may accelerate the region’s shift towards renewable energy sources. China, being a pivotal player, is likely to intensify its focus on neighboring markets, encouraging rapid adoption of green energy solutions throughout Southeast Asia.

Historically, the region has faced criticism for its slow transition away from fossil fuels like coal, despite the decreasing costs of renewable technologies such as wind and solar power. Malaysia, as an example, currently relies on fossil fuels for the vast majority of its electricity production. However, it aims to enhance the share of renewables to 24% by 2030, a target seen by some as insufficient when considering international climate objectives.

The new tariff regime presents a dual opportunity, where Southeast Asia could develop its solar sector for internal use, beyond just leveraging its production capabilities for export. This strategic shift could prompt a rise in domestic clean energy utilization, creating a buffer against global market fluctuations.

Nonetheless, replacing the substantial US market will pose a significant challenge, especially given the infancy of renewable energy infrastructure in Southeast Asia. Success may depend on transforming the current export-driven momentum into a robust, locally focused cleantech industry.

While certain markets might find appeal in competitive pricing, regions like Indonesia and India have instituted policies that favor their domestic solar industries. This means countries might exhibit caution in importing solar panels in large quantities, aligning rather with goals of maintaining trade balance and fostering local employment within the green energy sector.