Reshoring

The US and India have implemented incentives to encourage domestic solar manufacturing. The EU and European countries have less defined plans but well-defined intentions for domestic solar manufacturing. With all the hoped for new solar manufacturing capacity in Europe, India, and the US, most seem to have forgotten that China makes most of the necessary manufacturing equipment. So, add that to the list of businesses needed to restart manufacturing outside of China.

How easy will it be for the US, India, Japan, and European countries to restart domestic manufacturing? Despite enthusiastic estimates of fast-growing supply chains, the start is slow, and for good reasons.

But before getting to the pros and cons of reshoring solar manufacturing – a word about Just in Time manufacturing. Also known as the Toyota Production System, JIT is a system of keeping inventory levels low by having suppliers align their production and delivery to customer orders. JIT worked well in theory and fact for decades – not seamlessly, of course. JIT works less well for smaller companies providing customized products. Changes in buyer tastes and the economy can lead to problems. As blatantly clear during the pandemic, a disruption to the distribution chain causes a complete collapse of JIT and a negation of the system’s positive aspects. JIT works less well for lopsided industries such as solar with one large supplier (China) and buyers outside China. During the pandemic, distributors, dealers, developers, installers, and module assemblers in the US, Europe, Japan, and other countries suffered long delays or were unable to get product at all.

Though many in the solar industry do not remember a time when China did not dominate the supply chain, Europe, the US, South Korea, and Japan had thriving solar value chains over a decade ago. At least they did before aggressive pricing drove manufacturers in these countries out of business. Even South Korea’s manufacturers have struggled, with LG exiting in 2021.

Challenges to restarting domestic solar manufacturing in Europe, the US, and India include:

The expense and chicken and egg aspects of building a solar supply chain that needs (just for crystalline) metallurgical silicon, polysilicon, crystal growing, ingot pulling, wafer slicing, cell production, and module assembly – not to mention consumables such as adhesives, backsheets, glass, aluminum, and equipment. Where do you start? What do you build first? Adding cell manufacturing without the rest of the upstream value chain doesn’t get you there and adding polysilicon without sufficient metallurgical silicon or crystal growing, ingot pulling, and wafer slicing leaves a hole in the value chain. Some have suggested sending polysilicon from the US to China for processing – a solution that keeps the US an importer with many of the same supply chain problems it has now.

The uncertainty of demand for solar deployment during high inflation and a potential recession is a concern. Future demand is never a certainty. Face it, today’s forecast of exponential growth often becomes tomorrow’s explanation of why it was unmet. Current global economic and political stability may slow demand if inadequate infrastructure doesn’t do it first. That’s right, folks; no country has infrastructure capable of supporting current forecasts of solar demand – at least without sufficient storage.

Developers worldwide (particularly in the US are clamoring for stable contracts, even at higher prices – they may not be satisfied for long, paying up to $0.10/Wp more than they did just five years ago. One reason for higher prices will be labor costs. Workers in Europe and the US demand and deserve a living wage. In India, a living wage means something different, and with less stringent labor laws, modules produced in the country will be less expensive. Elsewhere, again, in the US and Europe, wages typically increase, and employers must cover medical, potentially dental, insurance, and other costs and taxes.

On a positive note, with a domestic solar value chain, JIT principles should provide some inventory relief to manufacturers and help lower costs.

The solar industry will be healthier with diversified manufacturing – but it will not be easy to maintain. Cheap imports killed manufacturing in the US, India, Europe, and Japan once, and it can happen again, which means that high tariffs for imports will likely stay in place in the US and India. European countries may also need to implement higher import duties to protect their investment in domestic industry alive.

Infrastructure

Infrastructure is the elephant (or electron) in the room. Globally, infrastructure is insufficient to support renewable goals and forecasts. Also, goals and forecasts are fine and dandy, but without consistent government support, business models that address buying habits and affordability, and, oh yes, affordability, they are parsley.

California provides a prime example of enthusiastic goals and mandates that ignore hard realities. Solar is required on new buildings, and the state will phase out gas-only cars by 2035. Higher gas prices in the state are driving a boom in EVs. Yet, as the state enthusiastically embraces its electric car and renewable future, it has failed to develop the infrastructure and utility business model to support it.

The point is that goals are great, but the basics must come first. Unfortunately, infrastructure needs are often ignored until a crisis brings them to the fore. Even now, Texas is warning its citizens of rolling blackouts ahead of freezing weather. Texas experienced catastrophic infrastructure failure during its 2021 freeze – yet it failed to address the problem.

Perovskites

Not to knock perovskite technology – but a little common sense in the face of current enthusiasm is wise. Plenty of perovskite announcements these days; the PR-driven solar news is filled with announcements of record efficiencies, reliability improvements, benefits of roll-to-roll manufacturing, and for the US – the potential of polysilicon-free domestic manufacturing. Thus far, there is no evidence of improved reliability has emerged.

Right now, it’s a crystalline world – specifically, it’s a monocrystalline world likely split between p-and-n-type technologies. But don’t count multicrystalline out yet. Manufacturers continue to work on increasing multicrystalline efficiency using black silicon and n-type starting material. Meantime, monocrystalline producers are looking at p-type TOPCon and HJT to lower costs.

Responding to pressure from solar developers, on June 6, President Biden used his executive order powers to pause the Commerce investigation into Southeast Asian suppliers for 24 months and evoked the Defense Production Act to spur domestic manufacturing.

Both FERC and the North American Electric Reliability Corporation recently warned of likely unreliability in electricity supply. Declaring an emergency in electricity supply, Biden used a section of the 1930 Tariff Act that allows the president to suspend tariffs on certain products to address emergencies.

From President Biden’s Statement:

“NOW, THEREFORE, I, JOSEPH R. BIDEN JR., President of the United States, by the authority vested in me by the Constitution and the laws of the United States of America, including by section 318(a) of the Tariff Act of 1930, as amended, 19 U.S.C. 1318(a), do hereby declare an emergency to exist with respect to the threats to the availability of sufficient electricity generation capacity to meet expected customer demand.  Pursuant to this declaration, I hereby direct as follows:

     Section 1.  Emergency Authority.  (a)  To provide additional authority to the Secretary of Commerce (Secretary) to respond to the emergency herein declared, the authority under section 1318(a) of title 19, United States Code, is invoked and made available, according to its terms, to the Secretary.

     (b)  To provide relief from the emergency, the Secretary shall consider taking appropriate action under section 1318(a) of title 19, United States Code, to permit, until 24 months after the date of this proclamation or until the emergency declared herein has terminated, whichever occurs first, under such regulations and under such conditions as the Secretary may prescribe, the importation, free of the collection of duties and estimated duties, if applicable, under sections 1671, 1673, 1675, and 1677j of title 19, United States Code, of certain solar cells and modules, exported from the Kingdom of Cambodia, Malaysia, the Kingdom of Thailand, and the Socialist Republic of Vietnam, and that are not already subject to an antidumping or countervailing duty order as of the date of this proclamation, and to temporarily extend during the course of the emergency the time therein prescribed for the performance of any act related to such imports.   

     (c)  The Secretary shall consult with the Secretary of the Treasury and the Secretary of Homeland Security, or their designees, before exercising, as invoked and made available under this proclamation, any of the authorities set forth in section 1318(a) of title 19, United States Code.”

To address the ongoing energy problem, President Biden authorized the use of the Defense Production Act (DPA) to accelerate domestic production of :

• Solar Panel Components
• Building insulation
• Heat pumps
• Equipment for using clean electricity generated fuels such as electrolyzers and fuel cells
• Critical grid infrastructure components such as transformers

The use of DPA goes hand in hand with the Make More in America action in which the US Export/Import Bank (EXIM) looks to prioritize investments in clean energy manufacturing.

President Biden also gave domestically solar modules super preference status for federal projects and directed the development of master supply agreements to indicate the preference status. Theoretically, master supply agreements speed the procurement process by making it more efficient. The administration plans to open discussions with key stakeholders to discuss using DPA to increase domestic clean energy manufacturing.

Recently the administration enacted its Permitting Action Plan. In collaboration with five agencies, the Department of the Interior will work to expedite reviews of clean energy projects on public lands with the goal of permitting 25-GWp by 2025. The administration also reduced rents and fees for projects on public lands by up to 50%.

Comment: President Biden buoyed the spirits of US developers and installers with a respite from new tariffs while also angering Auxin and others claiming unfair labor practices.

Following the president’s action, the spigot opened, and suppliers began responding to queries about product availability. The move didn’t completely solve supply problems, and it certainly won’t lower prices or ameliorate painful contract terms, but it eased the supply situation – at least until June 21.

The far stricter Uyghur Forced Labor Prevention Act (UFLPA) kicks in on June 21 and will likely slam the door on some imports while slowing progress for others. The bar for WRO enforcement was lowered after its implementation caused chaos – there is no option to lower the bar for UFLPA enforcement.

Tariffs have done little to spur solar cell manufacturing in the US. Buyers want the lower price and typically need incentives to buy higher-priced domestic production.

It’s possible that buyers – stung by two years of broken contracts and unstable prices – will pay a bit more for reliability (actually getting what they contracted for at the agreed-upon price).

Auxin is likely to appeal.

Biden’s use of DPA to spur manufacturing is unlikely to encourage cell manufacturing in the US without grants, loans, and manufacturing incentives such as those in stuck-in-limbo SEMA.

A lesson in tariff history follows – the lesson is that tariffs almost always fail to produce the desired result.

Lesson: A Short History of US Tariffs

As a preamble, the 2012, 2014, and 2022 (Auxin) tariffs were based on the US Tariff Act of 1930. The US Tariff Act of 1930 is widely viewed as the most protectionist in the history of US protectionist acts and is believed to have helped lead to WW2 by isolating the US from Europe at a particularly fragile time. The 2018 201 Tariffs were based on the 1974 Trade Act.

Once upon a time, in a country that rebelled against taxes, tariffs were used to fund the government.

The Tariff Act of 1789 was signed into law by George Washington to protect trade and raise revenues. Along with the collection act of 1789, this law set up US trade policy. His Secretary of State, Alexander Hamilton, supported it, arguing that it would encourage the development of domestic industries by protecting them against more mature subsidized foreign competitors (Infant Industry Theory).

In 1816, an overtly protectionist tariff of 25% on textiles and up to 30% on manufactured goods was enacted. In 1821 these tariffs were extended to goods manufactured from wool, iron, hemp, lead, glass, and other products.

In 1828 this period of significant protectionism peaked with the Tariff of Abominations (named by US Southern State objectors, particularly South Carolina), during which tariffs were >50% on many goods. The 1828 tariffs, designed to protect goods manufactured in the Northern US states from imports, angered the states of the south, the economies of which were primarily agriculture using free slave labor. The southern states objected to the increase in prices.

The US experienced a recession from 1828 to 1829 as England and the United States conducted a trade war.

Tariffs were scaled back in 1832 and, by 1857, averaged 20%.

In 1861, the US threw protectionist caution to the wind. The Morrill Tariff was enacted, initiating a period of steadily rising tariffs and all the discontent that went with them from Southern State detractors who viewed the increases as impacting their economies. In 1861 the Southern US States seceded from the Union. The Morrill Tariff was one of several factors that incited the Southern States to secede and, by any standard, the least important historically. The Southern states were reliant on an unpaid workforce consisting of enslaved people, a practice that had become abhorrent to many – well, to some.

Following the Civil War, in 1888, new tariffs were enacted to protect domestic industry. It was also argued that tariffs were needed to reduce the Treasury’s surplus.

In 1909, the Payne Aldrich Tariff (Representative Sereno Payne and Senator Nelson, both Republicans) lowered 650 tariffs, raised 220, and left 1150 tariffs unchanged.

Under President Woodrow Wilson, the Underwood Act of 1913 was passed, establishing a Federal income tax with the goal of lowering tariffs and raising revenue from domestic sources (taxpayers). The result was a decrease in the average tariff from ~40% to ~20%.

From 1914 through 1918, the world was busy with World War I; following World War I, the Fordney-McCumber Tariff of 1922, passed to protect US farms and manufacturers, returned the US to a policy of higher tariffs.

The US Tariff Act of 1930 – is the basis of much US solar industry angst. In 1930, Smoot-Hawley, the descendant of many protectionist tariff laws and far surpassing most of them, was enacted, leading to the highest tariffs in 100 years (between 50% and 100%) on ~900 products and a global trade war. It likely exacerbated the great depression from 1929 to 1939 and many feel, was a factor leading to WW2. Though Smoot-Hawley was not the first US tariff, it is viewed as the granddaddy of bad trade policy.

In 1934 President Roosevelt signed the Reciprocal Trade Agreements Act, which reduced tariffs, liberalized trade, and promoted cooperation with other countries. The Reciprocal Trade Agreements Act established reductions in tariffs based on most-favored-nation status and was a forerunner of GATT. 

From 1939 to 1945, trade dysfunction was interrupted by World War II.

In 1944, recognizing the need for global cooperation, the World Bank and IMF were created by the Bretton Woods Agreement. In 1947, the ITO was created, out of which GATT arose with the goal of progressively lowering tariffs. In 1995, the WTO was formed to resolve trade differences because, frankly, people interacting in global markets will act in their own best interests, sometimes leading to actions against everyone’s best interests.

President John F Kennedy signed the Trade Expansion Act of 1962 to give the US President stronger negotiating power with partner nations. In signing it, he wrote: “This act recognizes, fully and completely, that we cannot protect our economy by stagnating behind tariff walls, but that the best protection possible is a mutual lowering of tariff barriers among friendly nations so that all may benefit from a free flow of goods.”

Though the Trade Expansion Act may not have been intended as a tool to impose new tariffs, the law of unintended consequences will almost always rise up and slap down a few consequences just for kicks and giggles. In the case of the Trade Expansion Act, it granted the president heretofore unprecedented power to negotiate tariffs up to 80%. The act may have been intended as a negotiating tool, but it is often used as a cudgel.

A lesson from the Trade Expansion Act is that though the direr use of a political policy may not be foreseen, it will eventually be used, and its use justified.

The Trade Act of 1974, in theory, was designed to expand US manufacturing participation in global markets and reduce trade barriers. It also – and this is important – gave the US President broad fast-track authority. Under it, the US president can provide temporary relief to an industry. Gerald Ford, who became the 38th president after the resignation of Richard Nixon, was president at the time. The Trade Act of 1974 was deemed necessary because it gave the president a stronger negotiating position during the Tokyo multilateral trade negotiations.

Section 201 of the 1974 Trade Act theoretically sets a high bar for petitioners. But unfortunately, theory and practice often fail to intersect, and once the door is open for interpretation based on personal bias and agenda, it is challenging to close it.

In 2002, having learned nothing from history, President Bush moved to protect the US domestic steel industry by using Section 201 of the 1974 Trade Act to enact protectionist tariffs. In 2003, announcing the tariffs a success, they were canceled. The 2002 steel tariffs led to the successful loss of ~200,000 jobs as prices for steel rose.

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
Party	PG&E Customers	SDG&E Customers	SCE 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 Segment	PG&E	SDG&E	SCE
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