In a move that could affect multi-gigawatts of residential, commercial, and utility-scale installations in 2022, in March, the US Commerce Department announced that Auxin had presented sufficient evidence for an investigation into transshipments from China through Southeast Asia. The order is region-wide and not manufacturer-specific; for example, Hanwha Q-Cells, a South Korean manufacturer with cell and module manufacturing in Malaysia, is included in the investigation, as is Taiwan-based UREC (Malaysia, Vietnam, Thailand). Using supporting information from a Bloomberg Report and NREL, Auxin claims that cell processing is a minor part of the total module cost. Based on the Bloomberg Report, Auxin claims that wafers, silver and aluminum paste, and silane represent the majority of cell and module processing costs. Auxin, a module assembler based in San Jose, California, stated that the cell manufacturing and module assembly processes are relatively trivial, further claiming that little IP is involved in cell processing. Tariffs, if imposed, would be retroactive. 

The petition does not cover thin-film manufacturers in Southeast Asia.

Once the investigation was announced, developers reported that manufacturers began canceling outstanding orders, even those for 2022. Modules delayed because of supply chain problems turned into canceled orders, and manufacturers outside of Southeast Asia raised prices accordingly. As many developers were waiting for delayed orders for multimegawatt installations already in progress, module mismatch is an unintended consequence of the investigation. Having their orders canceled, developers must look to other countries to provide modules with the appropriate specifications for their projects. As module assemblers in Europe, India, and elsewhere get their cells from Southeast Asia and China, developers risk new and potentially retroactive tariffs on new orders.

The DOC has 150 days to investigate and another 150 days to decide and make recommendations. At this point, it is unknown whether or not the DOC will impose tariffs, whether or not they will be retroactive if imposed, and whether or not the bifacial exemption will apply.

Analysis:

In its petition, Auxin avers that cell manufacturing is a relatively minor part of the solar technology chain and that the investment required to produce cells from wafers and then assemble modules is minimal compared to that of investment required for polysilicon/ingot/wafer production. Auxin relied on a report published in February 2021 by Bloomberg for much of its assessment. Quoting from the report, Auxin asserted that “the technical hurdles required for cell manufacturing are lower than for polysilicon through-wafer manufacturing.” This assertion is repeated nine times without listing any specific technical hurdles.

To offer proof of the difference in investment, Auxin offers a range of $643 million to $2.1 billion for polysilicon capacity versus $7.7-million to a maximum of $160- million to add solar cell capacity. Yes, polysilicon production requires significant capital and a lot of time. Comparing the investment required for polysilicon production to the investment required for cell manufacturing requires an explanation as to why the comparison is relevant. The comparison is not relevant because the two processes cannot be compared. Making the comparison via a range without any detail shows a lack of critical thinking, unacceptable even in a high school essay.

Auxin states that R&D is primarily conducted in China and that all materials necessary to produce cells and modules are manufactured in China and shipped to subsidiaries in Southeast Asia. Further, Auxin, referring to the report, stated that the cost of silicon wafers, silver paste, solar glass, aluminum frames, junction boxes, EVA, and backsheets supposedly supplied by China to companies in Southeast Asia make up the majority of module costs.

Auxin is both correct and incorrect. The investment required at each point in the chain (polysilicon, ingots and wafers, cells, and modules) is different – with the investment required for polysilicon production the most significant. Making a judgment based on combining the investment required for polysilicon, ingots, and wafers compared with the cost of producing cells and modules will obviously result in the conclusion that poly/ingot/wafer production requires more money than cell manufacturing and module assembly—a conclusion that splits hairs to meaninglessness. 

As to Auxin’s point that the photovoltaic value chain is primarily located in China, it is accurate that China has chosen to build up and support its domestic PV manufacturing base, including expansions into Southeast Asia. It is equally valid that the US, Europe, Japan, and for many years India accepted low prices for China’s cells and modules instead of supporting domestic manufacturing at home. At this point, the PV manufacturing scales are so tilted in China’s favor that it will take years to resolve the imbalance.

Assuming that cell manufacturing is somehow less technical and has fewer hurdles is a leap not well explained by either Auxin or Bloomberg. Likewise, assuming that R&D is a function performed only in China is, well, a leap into science fiction. China’s manufacturers have transferred R&D knowledge to subsidiaries – but all PV knowledge is transferred from universities, national labs, and other manufacturers. The US has deep PV R&D in its universities, national labs, and startups and, other than First Solar, it just hasn’t transferred to domestic production. Australia’s universities are still the gestation point for much of today’s commercial cell technology, for example, PERC – and Australia has not chosen to support domestic manufacturing despite being the world leader in PV wafer and cell research.

During the 201 hearings in 2021, Auxin testified that it was ready to begin cell manufacturing, which indicates that it understands the technical aspects of cell processing. Suppose Auxin is prepared to manufacture cells at its San Jose, California facility. In that case, it understands that cell processing is highly complex, highly technical, and high risk – this indicates that using the assertion that cell processing has fewer technical hurdles than wafer and polysilicon processing is disingenuous. 

  • Polysilicon production is a messy, dirty, high-energy process. Currently, there is more investment in the Siemens process than the fluidized bed process. Polysilicon manufacturing requires considerable money and at least two years from investment to production. 
  • The simplest way to describe the wafer process is: the polysilicon is melted into a crucible to form the ingot, and the ingot is sliced into wafers (there is also kerfless wafering). The aforementioned is not meant to stand in as a definitive description of wafer manufacturing. 
  • The basic steps in cell processing are: precheck and pretreat, texturing, acid cleaning, diffusion, etching and edge isolation, post-etch washing, anti-reflective coating deposition, contract printing and drying, testing and sorting. 

Comment: The US has launched an investigation to protect domestic manufacturing that, other than First Solar’s CdTe, it does not have, nor will it have significant domestic manufacturing any time soon.

Should the investigation and decision take the allotted 300 days, developers and installers in the US will continue facing higher prices and fewer choices.

What if the US encouraged China to locate cell manufacturing in the US? Would it then investigate wafer manufacturers in China claiming that cell manufacturing alone was of little value? Would Auxin withdraw its petition if a Chinese wafer/cell manufacturer invested in Auxin for expansion into cell manufacturing?

Lesson: Currently, the US has strong climate change goals – though the country is one election away from those goals going up in a puff of carbon dioxide – it will not realize its goals without domestic cell manufacturing or relaxation on tariffs. 

China’s photovoltaic manufacturing sector dominates global PV manufacturing. It is well past time to stop disputing the reality and for other governments to consider the opportunity cost of not following suit by supporting domestic manufacturing with incentives and subsidies.

Aiko Solar recently announced that it had received RMB 300-Billion from the government for expansion purposes, publicly announcing what China’s manufacturers had previously disavowed. Figure 2.1 observes China’s solar cell capacity growth from 2011 through 2021. At the end of 2021, China’s solar cell sector was so far ahead of the rest of the world that it is difficult to imagine a change in the situation.

Figure: China and ROW Solar Cell Capacity Growth, 2011-2021

How did China accomplish its goal of dominating solar cell manufacturing? First, it subsidized its industry; manufacturers enjoyed cheap or free labor and energy, and they engaged in aggressive pricing strategies that rendered competition almost impossible.

Though cheap energy in and of itself is not bad, coal as a primary driver of solar cell manufacturing is counter worldwide goals to limit global warming.

The definition of cheap labor depends on the market, but free labor based on forced labor should not be countenanced.

Although not a strategy specific to China, aggressive pricing was used by the industry observers and insiders as proof of progress – even as manufacturers in Germany, the US, and Japan failed. The typical talking point concerning the inability to compete was that China’s manufacturers were more efficient than manufacturers in other countries. In reality, they were just able to accept lower margins for a longer period.

Aside from almost erasing the competition, the industry has no real data to support cost improvement instead relying on back-engineering based on assumptions.

As solar manufacturers were priced out of the market in Europe, the US, and Japan, the US switched its goals to either becoming a cutting-edge solar technology IP machine, which didn’t happen or finding the next-generation technology, a goal that produced CIGS manufacturer Solyndra.

For the most part, the US and Europe provided support for markets (demand), ceding solar cell manufacturing to China. No one foresaw a prolonged supply chain disruption period caused by a global pandemic.

By choosing to support their markets instead of manufacturing, focusing on next-generation technology instead of commercialized technologies, while continuing to support fossil fuels, countries missed an opportunity to invest in domestic solar manufacturing – they could have invested in both. The opportunity cost of the choices countries other than China made is to end up in a situation where there is no domestic manufacturing precisely when it is needed and losing the long-term jobs that come with thriving manufacturing industries.

Two years into the pandemic, global supply chains remain upheaved. At the same time, the solar industry continues suffering the realities of disruptions in production and shipping, not to mention volatile prices for all components.

In 2022 the global solar industry faces a variety of risks – all, except the last, interrelated.

  • Pandemic Risk
  • Recession Risk
  • Tariff Risk
  • Incentive Risk
  • Supply Chain Risks
  • Price Risk
  • Quality Risk
  • Political Risk
  • Military Conflict Risk
  • Climate Change Risk

Pandemic Risk: The risk that the mutating virus will continue shutting down manufacturing and potential projects causing ongoing supply chain upheaval.

Recession Risk: Inflation, consumer uncertainty, the war in Ukraine, and China’s slowing economic growth indicated a high potential for a recession at the end of 2022. A major recession could lead to an investment pullback and end-user reluctance to buy. Countries (in Europe, the US, and India) might become reluctant to invest in start-up manufacturing during a recession. During a severe recession, the probability of one or more down years in solar demand is high.

Tariff/Ban Risk: To avoid tariffs, manufacturers can establish manufacturing in new countries not subject to tariffs, or, in the country imposing the tariff, or can ship partially completed products through a manufacturer in a tariff-neutral country for minimal processing and on from there to its destination.

Tariff risk is currently specific to the US and India. The US market already has tariffs on imported cells and modules from China and other countries, with the 201 tariffs specific to China. The new US investigation into transshipments from manufacturers in China to subsidiaries and other manufacturers in Southeast Asia has upended the US market. It is unclear whether US bifacial exemption from the 201 tariffs will apply, and importers have pulled back in advance of the hearing cancelling contracts and refusing to sell to US buyers. The US currently has only one cell major manufacturer, CdTe producer First Solar, and about 4-GWp of module assembly capacity, most of which is ill-prepared to serve the multi-megawatt ground market. 

The US also has a custom’s ban and more than one law against importing modules produced with material manufactured in Xinjiang by forced labor. The original law was never enforced. The current law is under discussion concerning enforcement. In 2021, the CBD’s WRO stranded product in port led to the return of ~1.6-GWp of module product. Clearly, there is no justification for buying goods produced with forced labor. China has stated that the allegation is not true. Sellers and buyers run the risk that cells and modules will be rejected at US customs and returned to the shipper.

As with the US, India does not currently have sufficient capacity to serve its market. In 2021 it imported 99% of the cells and modules it installed. The country has established a reasonably generous incentive for manufacturers along the solar value chain to locate facilities in the country, but this will take time. In the meantime, India imposed a 25% tariff on imported cells and a 40% tariff on imported modules.

The US and India are protecting a domestic supply chain that they currently do not have.

The EU is going in a different direction and has suggested that its member countries reduce VAT to 0% to 5% on a variety of products that module from rooftop applications.

Tariffs are a tax on the buyer and encourage importers to develop workarounds or avoid the market altogether, something that the US is experiencing at the beginning of 2022.

Incentive Risk: Going hand-in-hand with political risk, it is the risk that the incentive will decrease over time, will not be renewed, or be subject to retroactive changes. The history of solar incentives supports all three outcomes and does not support stable, long-term incentives.

Supply Chain Risks: COVID manufacturing work stoppages have become common since 2020, leading to periods of constrained supply. Shipping disruptions and delays have become common. Once shuttered, even temporarily, resuming polysilicon production takes time and is costly. One result of the supply chain disruptions is higher prices.

But the real problem with the photovoltaic supply chain is that China, including its expansions in Southeast Asia, controls over 90% of polysilicon production, close to 100% of glass production, close to 100% of backsheet, EVA, and other materials, 86% of global cell capacity, and over 90% of global module assembly capacity. China’s manufacturers have a virtual monopoly on the materials required to manufacture a PV module and control the availability of products and prices. It will take years for other countries to develop supply chains sufficient to serve their domestic markets.

Price Risk: Price risk tags neatly with supply chain risk because, in a virtual monopoly, overcapacity does not necessarily lead to lower prices.

Quality Risk: Industry-wide, quality control receives less interest from manufacturers than ever. Pilot-scale production has shrunk from five years to one month, if that, and is likely one reason for poorly performing modules, another reason being poor packaging protocols. In 2021, at least 2.6-GWp of poorly or nonperforming modules were removed from the field. The solar industry’s accelerated growth has much to do with the lack of pilot-scale production as more and more product is rushed into the field without a proper assessment. The problem will only worsen, and buyers and governments will eventually lose confidence.

Political Risk: Many markets for solar deployment are unstable politically, leaving the country vulnerable to social unrest, economic unrest, and as with the current war in Ukraine, war.

Even in countries with relatively secure systems and governments, one election can change the outlook for solar deployment. All elections in all countries can and have resulted in governments being less friendly to renewables and less likely to promote policies that increase deployment.

Military Conflict Risk: Constant conflicts in the Middle East should have prepared the world for the high potential of conflict elsewhere.

Climate Change Risk: Coal is the primary energy source for polysilicon, wafer, and cell production in China and much of Southeast Asia. Therefore, even as the industry promises a cleaner future, it neutralizes this promise by contributing to the pollution that is driving global warming.

On the system side, extreme weather events are a risk to solar electricity production for all applications from rooftop to multi-megawatt ground mount. Climate change risk as it relates to solar goes directly to lost production and the need for rapid recovery and climate change weather forecasting.

In February, the solar industry took another step closer to having one supplier (China) when LG announced it would exit solar manufacturing by mid-year. The company will reportedly attempt to find work within the corporation for approximately 900 employees worldwide or offer severance packages. Citing higher prices for materials and shipping, supply chain difficulties due to COVID, and price competition, LG is choosing to focus on higher-margin and more profitable renewable energy segments such as energy storage and home energy management. Concerning its warranty obligation, the company will continue supporting modules currently in the field. LG manufactured high-end n-type modules primarily for rooftop residential and commercial applications.

Considered a premium brand, LG’s n-type modules are in high demand in countries with strong residential rooftop markets – and at a premium price. Unfortunately, price and margin erosion were inevitable, given the strong competition from China and manufacturers in Southeast Asia.

Competitive pricing wasn’t the only problem facing LG; higher prices for polysilicon, consumables, glass, backsheets, shipping, manufacturing shutdowns because of COVID, and shipping delays also contribute to lower margins.

Europe’s manufacturers. The US. Panasonic, then, pretty much all Japanese manufacturers, including Solar Frontier, and now South Korea-based LG – and another one gone and another one gone. LG’s exit is important because it highlights the difficulty of competing in a virtual monopoly. In 2011, solar manufacturers in Europe and the US began exiting following sharp price decreases. Years later, manufacturers in Japan quietly stepped back, facing the same margin pressures.

LG’s exit means less choice for buyers even with industry cell capacity >300-GWp.

Globally, there is ~305-GWp of thin-film and crystalline cell capacity and ~397.1-GWp of module assembly capacity. Eighty-three percent of module assembly capacity and 87% of cell capacity is either located in China or is China-owned and located in Southeast Asia. By the end of 2022, ~88% of polysilicon capacity will be located in China or China-owned. China dominates backsheet production and glass production. In 2020, Beijing miscalculated the demand for solar glass leading to a worldwide shortage.

The solar industry has one primary supplier and many markets. Any disruption in the value chain, including but not limited to war or social unrest, a pandemic, trade wars, shipping disruptions, accidents, or other mishaps in manufacturing facilities, upends the industry.

Changes in pilot-scale timelines are driven by manufacturers in China – once, it took three to five years to begin commercial production; now, it takes a month. Cell and module quality has decreased with truncated pilot-scale timelines.

Markets without sufficient domestic manufacturing of metallurgical silicon, polysilicon, cells, modules, and other components, have no price control. Buyers were able to ignore their vulnerability for over a decade as prices reliably decreased – this changed in 2020 when the pandemic brought with it manufacturing shutdowns and shipping delays. Accidents in polysilicon facilities led to shortages. Prices ticked up and continued increasing, giving China’s manufacturers the healthiest margins, they’d experienced. Once viewed as the most efficient way to operate, just-in-time manufacturing fell short in the face of a swarm (or wedge) of black swans.

China’s domination of the solar supply chain was encouraged by buyers and governments who, under the assumption that the low prices were progress, failed to support domestic manufacturing. Buyers are now struggling to find modules and will take anything they can get from previously little-known manufacturers while hoping for no unexpected price increases.

What can be done? Candidly, it will take years and significant government funding to build back domestic polysilicon, wafer, cell, module manufacturing in Europe, Japan, and the US – and it doesn’t stop with the module. Governments need to commit to supporting consumable production, glass production, backsheet production, and production of other system components. Governments need to commit to buyer incentives and, unfortunately, some protections against low price imports. Getting to the commitment is difficult – maintaining it is nearly impossible. Meanwhile, buyers will need to buy domestic products even when they are more expensive than the imports – this last, good intentions aside, is highly unlikely. Example: you have the choice of two identical TVs only one is $300 less expensive. The expensive TV is made in your country. Most of the time, you will buy the cheaper TV.

The current market situation will ease. An overcapacity situation is coming and with it lower prices. By the time the US, Europe, and Japan rebuild their domestic solar manufacturing, buyers will be enjoying lower prices and higher availability. Memories are short. But don’t worry, though the current dire market situation will ease, and it will be back. 

How cheap will modules be this year? For years the solar industry was used to rapidly falling module prices – no way would price ever increase. Nope. Buyer business models evolved around the expectation that there was always a lower price right around the corner.

Design a system for one manufacturer’s modules, find a lower price, pay a redesign fee and move on. In 2019, though the average module price was $0.36/Wp – the low was $0.21/Wp. At the time, most people expected that 2022 prices would be headed below $0.20/Wp. Figure 3 presents average module prices from 2010 through 2020. From 2010 through 2012, module prices decreased significantly before hitting some speed bumps from 2013 through 2015.

Figure 1: Average Module Prices 2010 through 2020

In 2020, despite supply chain hiccups and shortages of some materials, average module prices decreased by 8% to $0.33/Wp from $0.36/Wp in 2019.  At the beginning of 2021, industry participants expected another 8% to 9% decline.

Price decrease expectations ran smack into supply chain realities, and Q2 2021 saw buyers all along the solar value chain enduring upticks in prices for polysilicon, wafers, and cells, along with price hikes for trackers, other system components, and shipping. Delivery delays compounded the problem, with developers forced to make adjustments. Figure 4 offers quarterly polysilicon and average module prices for 2021.

Figure 2: Quarterly Average Polysilicon and Module Prices 2021

Since mid-last year, module buyers have endured force majeure contract changes on everything from delivery dates to price and even terms. Prices have increased on almost a monthly basis.

 The problems are particularly acute for US buyers, who, along with tariffs, face custom delays over bans on goods produced using forced labor.

Meanwhile, reports of future price decreases, while giving many reasons to hope, are wearing thin in the face of reality because, at this point, truthfully, visibility is low and the likelihood of continued volatility high. In addition, buyers should expect a host of new fees to crop up, including those that ensure delivery to the project, safe passage through customs in the US, and likely price guarantees set as a fee on the negotiated price – still subject to force majeure, of course.

Resilience Fatigue

Resilience is the ability to bounce back after adversity – but bouncing back again, again, and again is exhausting. Contract or no contract, module sellers are passing costs onto buyers. Developers and others likely cannot do the same. Renegotiating the same contract, again and again, is at the least frustrating and frankly, infuriating.

For years buyers believed they had price control – this was an illusion. There is relatively little polysilicon, wafer, cell, and module manufacturing that is not China-owned. When you have one seller, and the product is crucial, that seller can set any price they want. As buyers are learning, just because prices decreased for over a decade doesn’t mean they always will.

There are no quick answers. Stronger contracts? Nah. Fees to guarantee prices? Nah.

There will be an overcapacity of polysilicon by late Q3 2022, along with an overcapacity of wafers, cells, and module assembly. In a non-pandemic world, this would force significant price decreases – and, depending on the market – it may. But, more capacity will not help with tariffs, shipping delays, the cost of shipping, and customs delays.

Buyers are more than fatigued. Many a business model was built on the switch to solar and other renewables – and this is still a good bet. Getting through 2022 requires patience, but patience won’t salvage supplier-buyer relationships.

Down the road, low visibility or not, overcapacity will do its work, and there will be a shift. When this shift comes, manufacturers may find themselves negotiating with the long memories of buyers subject to one too many force majeure contract changes.

In the solar industry, contracts are made to be broken, and there is a lot of precedent for this – MEMC’s abandonment of their contract with BP Solar being high on the list.

Seller beware. Buyers won’t forget and will have their day.

  1. Expect prices to stay high through at least the first half of 2022 as the supply chain continues working itself out AND
  2. Expect prices to drop for all markets sometime during the second half of the year as the industry as supply chains recover and overcapacity asserts – except for US buyers as the Senate passed the Forced Labor Bill and eventually, President Biden is certain to sign it into law
  3. Expect the bifacial exemption from the 201 tariffs in the US to stay in place until … it doesn’t, but don’t worry, it will be back
  4. Expect manufacturers to continue adding n-type cell capacity even as high purity polysilicon additions lag
  5. Expect TOPCon to be the n and p type capacity addition winner as manufacturers begin the switch from PERC
  6. Expect announcements of new cell manufacturing capacity in Europe and the US
  7. Don’t expect all of these announcements to come true
  8. Do expect India to start adding manufacturing capacity while keeping their tariff in place
  9. Expect many, many, many product and service offerings promising to streamline and speed up module and component deliveries – this is the product of 2022 BUT
  10. Expect most of them to be a waste of money – these new products will likely include:
    1. New charges to ensure delivery from the port to the project
    1. New insurance offerings to cover unexpected supply chain hiccups
    1. New charges from sellers to get the product ready to pass customs in the US and other countries (in the US, these will be specific to the Forced Labor Bans)
    1. New consulting products to help developers and manufacturers understand new rules – advice that is freely available already
    1. New packaging to reduce the time from crate to field
    1. Many many companies offering quality inspections
    1. Etc.
  11. Do expect governments to continue discussing and taking meaningful action on forced labor in Xinjiang and potentially cobalt mining in the Congo
  12. Expect more announcements about Perovskite technology but
  13. Do not expect more installations of Perovskite technology and
  14. Do expect governments to continue investing in Perovskite technology
  15. Dread further buildup of solar manufacturing capacity in China and the countries of Southeast Asia as it makes for a lopsided, unhealthy supply chain with little options when things go awry
  16. Dread continued quality erosion in polysilicon, wafer, cell, and module manufacturing as pilot scale production becomes a thing of the past and shortcuts become the new normal
  17. Expect pure play cell manufacturers such as Aiko and Tongwei to aggressively add cell capacity as others, such as Jinko Solar, Trina Solar, and Canadian Solar, add wafer and module assembly capacity, sending wafers out for processing to be returned as cells
  18. Expect bids on projects to remain high through mid-2022 before dropping like a stone towards the end of the year
  19. Dread the continued use of coal to provide electricity to solar manufacturing
  20. Hope for more distributed solar + storage so that countries can move away from the outdated and archaic utility scale business models
  21. Hope governments invest in updated, resilient, and renewable ready utility infrastructures because a flexible, resilient grid, renewable energy technologies, and storage are the keys to a future of energy independence

22. Expect the solar market to grow despite all obstacles and setbacks because the trend is clear and solar is finally big business

The CPUC is set to vote NEM 3.0 into law, changing the math for prospective residential solar customers. Commissioners will hold a hearing on December 20 and vote in January 2022. Once NEM 3.0 is adopted, the commission will choose a date to sunset NEM 2.0 and transition solar system owners to NEM 3.0.

Currently, solar system owners are compensated at retail rates for electricity generated by their systems. NEM 3.0 will compensate system owners at rates less than retail. The new rates have not been established. NEM 3.0 will change the payback time for system owners. Solar system owners will also pay a grid benefits charge and a monthly grid participation charge. The proposed charges are in the following tables.

Table 7 Grid Benefits Charge Recommendations
PartyPG&E CustomersSDG&E CustomersSCE Customers
Public Advocates Office364$7.66/kW$6.14/kW$5.76/kW
Joint Utilities365$14.13/kW$14.06/kW$10.24/kW
Table 8 Adopted Monthly Grid Participation Charge for Successor Tariff Customers
Customer SegmentPG&ESDG&ESCE
Residential$8.00/kW$8.00 kW$8.00 kW
Low-Income$0/kW$0/kW$0/kW
Nonresidential$0/kW$0/kW$0/kW

Comment: The CPUC is relying on low system price data that is not reflective of the average to shore up their assumption that payback times will not increase. The commission’s data does reflect higher prices for system components that are currently driving system prices up. The commission’s analysis fails to consider the effect of tariffs and bans on modules shipped from Xinjiang and how a supply shortage could affect the future price of components. NEM 3.0 will arrive just as system prices increase and inflation increases prices for groceries and other necessities, thus complicating the system buying decision. 

Commissioners also see inequity in how grid operation charges are spread among ratepayers and seem to assume that adding grid charges to the bills of solar system owners will level the playing field and potentially result in lower electricity rates for all ratepayers. 

Bluntly, are the commissioners even slightly familiar with the utilities they oversee? Because even a casual observer would assume that rates will not go down, and in fact, utilities will soon be bellying up to the bar for another increase. 

Meanwhile, climate change worsens while the commissioners continue enabling the polluters. 

Bernadette Del Chiaro, Executive Director, California Solar & Storage Association (CALSSA), said: “This is, frankly, not a sound public policy proposal. It penalizes consumers who invest in clean energy, which is insanity as the country continues to be pummeled by ever-present climate disasters. It rubber stamps the investor-owned utility’s gutting of NEM, cutting export credits 80% overnight. And it makes retroactive changes to 1.3 million early adopters moving the timeline up five years. This proposal would devastate tens of thousands of jobs and hundreds of small businesses. It is now up to the other four commissioners and the governor to course correct.”

Barry Cinnamon, CEO of Cinnamon Energy Systems, said: “PG&E has dumped a ton of coal in the stockings of all California customers who do not yet have solar. Going solar under NEM 3 will more than double the payback time for all new solar customers. Moreover, by retroactively reducing the grandfathering period by 5 years for existing solar customers they take away 25% of the value of all existing solar systems.

Congratulations, PG&E! With one fell swoop you manage to maximize your profits, reduce benefits for existing solar customers, double the payback for new customers and make it impossible for California to meet its zero carbon emissions goals.

The two departing CPUC commissioners who oversaw this potential destruction of the largest solar market in the U.S. are punishing current and future solar customers, and dooming California’s climate change efforts.”

Lesson: What the government giveth, the government will find an excuse to taketh away.

Shipment Progress 1997, 2004, 2009, 2020

1997 was the first year shipments topped 100 MWp and manufacturers looked to 100-MWp of capacity to provide economies of scale

In 2004, the industry topped 1-GWp in shipments and manufacturers pointed to 1-GWp of capacity as the economies of scale benchmark

In the mid-2000s, manufacturers in Taiwan and Europe planned to become pure play cell manufacturers

In 2009, with shipments nearing 10-GWp annually, manufacturers focused on 10-GWp of capacity to provide economies. Pure play cell manufacturing fell out of favor.

After 2020 – capacities of >30-GWp are the focus and pure play cell manufacturing is back!

Economies of Scale – the good, the bad, and the underutilized 1987, 2007, 2017, & 2021 Estimate

Unused capacity is a cost to manufacturers.

Shipments 1989 through 1999, all Technologies

In the early days of the PV industry, shipments of standard monocrystalline technology dominated. In the 1980s into the early 1990s, amorphous silicon performed well, losing share when the consumer-indoor application (watches, calculators) declined, and it failed to prove less expensive to manufacture.

Crystalline Shipments 1989 through 2009

In 1998, multicrystalline, which was less expensive to manufacture, began gaining share in the market.

Multicrystalline took the major share of shipments in 2003. At the same time, shipments from China began taking share from manufacturers in Europe, Japan, and the US.

Crystalline Shipments 2009 through 2019

Though it seems to be an overnight shift from multi to monocrystalline, the change began much earlier. In 2012, manufacturers began adding p-type mono and multicrystalline PERC capacity, primarily focusing on p-type mono-PERC.

In 2018, manufacturers began shipping significant volumes of PERC, particularly monocrystalline.

A little Pricing History …

Since 2009 the accurate cost of PV cell and module manufacturing has been obscured by subsidies. Price is a market function and not a reliable indicator of manufacturing progress. Module prices are currently increasing.

Current Industry Cell Capacity

Current Module Assembly Capacity

Shipments 2011 to 2021 estimate

Once upon a time off-grid dominated

Off-grid (remote) solar deployment uses storage – in the past, lead acid batteries. Progress with storage has been slower than hoped as it was thought of as too expensive. Now, the future depends on it.

To truly become one of the industries of the future solar needs to:

1. Have a supply chain free of forced labor.

~45% of polysilicon is produced in Xinjiang

Metallurgical Silicon producer Hoshine serves clients outside of China

~60% of cobalt is manufactured in the Congo

2. Have a supply chain free of conventional energy.

Much of the world’s metallurgical silicon, polysilicon, wafers, cells, and modules are produced using coal as an energy source.

3. NOT provide electricity to coal and other dirty mining enterprises.

Solar installations are commonly used to provide electricity for mining – including coal

4. Have manufacturing in ALL countries with solar demand.

The industry provides jobs in science, engineering, manufacturing, and construction – jobs, jobs, jobs

5. Have a diversified workforce.

6. Be transparent about ALL the cost components of PV manufacturing – meaning ALL incentives, grants, loans, debt – everything from consumables to polysilicon to glass, aluminum, et al, so that the industry has a clear cost curve with which to track progress.

7. Accept that manufacturers need more than a 5%, 10%, 15% margin to run operations.

Forecast

The accelerated and conservative forecasts need a global manufacturing effort to come to pass and there must be sufficient capacity for all materials.

For storage to play a significant role, battery technologies need continued research effort – including into cobalt free battery technologies – and storage must play a significant role in a modernized grid.

“There are only two ways to live your life. One is as though nothing is a miracle. he other is as though everything is a miracle.” Albert Einstein

1997 was the first year that global shipments broke the 100-MWp mark, and the US had a 42% share. After breaking the 100-MWp mark, manufacturers began pointing to the economies of scale that 100-MWp manufacturing capacity would bring. Back in the day, US solar cell and module manufacturing was primarily supported by oil or energy companies such as Arco, Shell, BP, and even Enron. The Walton family (think Walmart) was an early investor in CdTe manufacturer First Solar. Then and now, the US government, via DoE grants and loans, provides support for startup solar manufacturing but little support for ongoing commercial solar cell and module assembly manufacturing.

 By 1999, driven by Japan’s strong residential rooftop incentive and government support,  manufacturing shifted to Japan. Then, in 2007, boosted by the FiT-driven market and government manufacturing incentives, manufacturers in Europe, primarily Germany, took the lead.

Accelerating demand for PV installations in Europe – including the new multi-megawatt utility-scale application – strained the supply of polysilicon available to the PV industry. As a result, prices for polysilicon, wafers, cells, and modules increased significantly, increasing costs and margins for manufacturers and buyers.

In 2009, having built sufficient manufacturing capacity, China’s manufacturers entered the market with an aggressive pricing strategy that drove prices down by 42% in one year. Manufacturers in other countries could not compete with the low margins China’s manufacturers were willing to accept, and so – one after another – they failed.

Manufacturers in China were able to take advantage of government loans, grants, free or inexpensive land, low energy costs, and low labor costs to dominate global shipments from 2011 to the present day.

Figure 1 offers average module prices from 2005 through an estimate for 2021. Figure 2 presents shipments from China and the rest of the world from 2007 through 2020.

Figure 2 presents shipments from China and the rest of the world from 2007 through 2020.

Why do PV manufacturers fail?

In a perfect world, countries with demand for solar installations would have sufficient manufacturing to meet that demand. There are no perfect worlds. Buyers seek less expensive products.  Meanwhile, manufacturing migrates to lower-cost areas with more manufacturing incentives. Governments, observing decreasing prices and assuming they represent progress, peg aid to further price decreases creating a landscape in which participants continue to chase goals that are, in reality, nothing but mirages.

Using the US as an example, dearly departed manufacturers include Siemens Solar, BP Solar, AstroPower, Evergreen Solar (ribbon), United Solar (a-Si), and the un-dearly departed Solyndra. Over the years, there were acquisitions (BP Solar and Solarex) and (ARCO, Siemens, and Shell Solar).

In 2004, eager to take advantage of the accelerating market for solar, GE acquired bankrupt AstroPower only to shut it down in 2009. Observing the success of CdTe manufacturer First Solar, GE acquired Colorado-based CdTe startup PrimeStar in 2011, announcing it would build a 400-MWp manufacturing facility. In 2013, having ramped nothing, GE sold PrimeStar’s technology to First Solar. China-based Hanergy acquired CIGS startups Global Solar and MiaSole.

Manufacturers fail for various reasons, so the best answer to – why do manufacturers fail? – is, it depends. However, solar manufacturers typically fail, and in some cases fail to launch, because of unrealistic expectations about cost and price and a lack of government patience and support. Companies that begin by chasing an unrealistic goal will never catch it.

The Prescription is Time and Money – Lots of Time, Lots of Money

As long as the metric for progress is based on an artificial cost curve, it will be difficult to build solar manufacturing capacity outside of China and Southeast Asia.

While offering demand-side incentives and a smattering of state-by-state manufacturing incentives, the US has chosen a stick approach, using tariffs on imports from China to protect, basically, no one. The US also, as indicated, provides grants and loans to startup manufacturing through the DoE. Currently, the country has one large thin-film manufacturer and several gigawatts of module assembly for crystalline. This year, Senator Jon Ossoff, Democrat, Georgia, introduced the Solar Energy Manufacturing Act and successfully negotiated to include it in the upcoming Congressional Budget Measure. It could pass as stands, be reduced in scope, or excluded from the final budget.

India has chosen a stick and carrot approach using high tariffs to discourage imports while introducing a production-linked incentive to encourage manufacturing to locate in the country. India will need to keep its incentive in place long enough to support its new manufacturing base against competitively priced imports.

Across Europe,  no stick and a smattering of manufacturing incentives has done little to encourage domestic supply. The EU might consider a production incentive similar to India that stays in place long enough to support a fledgling industry. A Buy-European incentive would help to encourage domestic buying.

Countries looking to start up photovoltaic manufacturing will need patience and the willingness to support the effort for years. Though carrot and stick approaches are common, manufacturers usually pass the tariffs on to buyers, increasing cost. Maybe it’s time for a two-carrot approach – incentives for buying domestically produced cells and modules along with manufacturing incentives.

The solar industry has gotten a bad rap for always having its hand out. The conventional energy industry has had its hand out for decades. To build a domestic supply chain, governments might consider offering solar manufacturers the same embedded incentives available to oil, coal, and natural gas, incentives embedded in the energy structure to the degree that they become invisible to the public over time.

In 2021 a combination of disruptions in coal production, higher-priced imports of coal, and low availability of hydroelectric due to drought have led the country’s generators to ration electricity and to impose blackouts to preserve the grid.

Two-thirds of China’s electricity comes from coal, the rest from a combination of natural gas and renewables. China is the world’s largest importer of natural gas. In October, flooding in Shanxi, the country’s largest coal-producing region at a quarter of the country’s supply, led to a suspension of operations at 60 mines and halted work at close to 400 others.

Businesses – including polysilicon, wafer, cell, and module manufacturers – are, by government order, reducing hours and acceding to consumption limits. As a result, solar polysilicon, wafer, cell, and module manufacturers are reducing hours and idling equipment while facing mounting orders that they may not be able to fill.

Meanwhile, similar to California’s energy crisis in the early 2000s, the cost of imported coal and natural gas has spiked, leaving generators caught between the government-regulated price to consumers and the market-determined price.

Buyers, already facing increased prices for components, higher shipping costs, shipping delays, and, in the US, cost increases and delays due to the WRO, can now expect more supply constraints. Further complicating supply chain concerns, a resurgence of COVID in the Southeast Asia manufacturing hubs of Vietnam, Malaysia, Indonesia, and Thailand, have led to production shutdowns.  

Comment: The world is still dealing with COVID realities, including manufacturing shutdowns and supply chain issues. As countries ramp activities, electricity demand is peaking just as efforts to ramp down the use of conventional energy collides with ramping up the use of renewables. As renewables are variable resources, storage is required to make the switch.

Even if storage were ready for a sustained rollout, global traditional transmission and distribution infrastructures are not resilient enough to support the change. Conservation and money are needed to move forward – governments need to be prepared and willing to pay.Lesson: In 1988, then-NASA scientist James Hansen testified before the US congress about the realities of climate change and what the world would face without acting. We didn’t act, and we’re facing the realities of extreme weather, droughts, higher prices, and scarcity.  Will government commit to the cost – history has not borne out a willingness to do so.