When President Trump implemented tariffs on imported solar cells and panels early in 2018, it was intended to drive a manufacturing renaissance in the U.S. and potentially hurt the overseas solar manufacturing industry. But solar manufacturing isn't returning to the U.S., and solar panel prices are actually lower now than when tariffs were implemented, a strange turn for the industry.

As tariffs make a measured decline from 30% now to 15% in 2021, they'll become even less of a headwind. Here's a look at where solar panel prices are today and who may be affected.

Solar panel prices are plunging

The quarterly U.S. Solar Market Insight Report put out by energy consultancy Wood Mackenzie and the Solar Energy Industries Association (SEIA) tracks the per-watt costs of solar cells and panels in the U.S., which reflect the impact of tariffs. The table below shows the change in cell and panel pricing over the past year, and you can see that prices are actually declining, despite tariffs going into place in Q1 2018.

Item Q4 2017 Q1 2018 Q2 2018 Q3 2018 Solar cells $0.22 $0.20 $0.18 $0.13 Solar panels $0.48 $0.47 $0.42 $0.38

What drove prices lower had nothing to do with U.S. manufacturing or the tariffs themselves. It was the high demand late in 2017 that led to unusually high panel pricing, and a subsequent drop in demand after tariffs were implemented in the U.S. and solar incentives were cut in China.

By mid-2018, the solar industry had entered a new phase of oversupply, and global cell and panel pricing plunged. According to an analysis by the website EnergyTrend, solar panels can be purchased in tariff-free international markets for $0.22 per watt, an incredibly low price for solar products.

What this means for earnings

While demand has picked up for solar panels as prices have fallen, we should expect fourth-quarter earnings and guidance for 2019 to be mixed, depending on a company's manufacturing capacity.

Canadian Solar (NASDAQ:CSIQ) and China's JinkoSolar (NYSE:JKS) are two of the largest solar manufacturers in the world, and I would expect both to report lower revenue per watt sold, although margins may not be as bad as you might think.

The one benefit for some solar manufacturers is that component pricing is down even more than panel prices. You can see above that the spread between cell and panel pricing remained about flat over the past year, and polysilicon and wafer prices (components that go into making solar cells) are down significantly as well. That dynamic could actually help Canadian Solar's and JinkoSolar's margin percentage because both assemble more solar panels than the number of cells they produce.

U.S. manufacturer First Solar (NASDAQ:FSLR), which benefited from tariffs because it was never subject to them, has reported weaker-than-expected guidance for 2019 because it's seeing lower panel pricing. It doesn't have the same component benefit as Canadian Solar or JinkoSolar may have because it manufactures the full solar panel. Ironically, it has been hurt more than most competitors by the supply-and-demand imbalance in 2018, and that will continue this year.

SunPower (NASDAQ:SPWR) is one company that may see both sides of the pricing dynamic. The U.S. company makes everything from polysilicon to solar panels for some of its high-efficiency solar panels, which could see lower margins as panel pricing pressure hits the market in residential and commercial solar. But in power plants, it's buying commodity cells and assembling them into solar panels known as its P-Series, which could see better margins as component prices decline.

Check out the latest Canadian Solar, JinkoSolar, First Solar, and SunPower earnings call transcripts.

What this means long term

As rough as 2018 was for solar companies, low component pricing is helping drive volume demand going into 2019 and beyond. In the U.S., Wood Mackenzie and the SEIA increased their 2020 to 2023 solar-installation guidance by 3.2 GW in the last quarter, due to a rush of utility-scale project signings. In China, JinkoSolar has already said it's seeing higher demand as panel prices decline.

We've seen time and again that declining costs for solar components are far more important than any protective tariffs, and that showed in the U.S. in 2018. Expect falling costs to continue to be a driver of long-term solar growth. And if the policy environment improves in 2019, the U.S. could be a growth market once again.