Clean Energy Associates

View Original

Directions to De-risk a Solar Supply Chain

By Andy Klump

This article was originally published in pv magazine - September 2024 Edition.

US industrial policy has supported an uptick in annual solar module production capacity, while trade policy has ramped up the cost of cell and module imports. Andy Klump, the founder of Clean Energy Associates (CEA), offers some tips to help solar developers plan a route to success.  


When tariffs and antidumping measures push the cost of cell and module imports skywards, it pays to have diversity in the supply chain.

There are several key supply chain questions for PV developers fresh from successful funding rounds to consider as the United States tries to incentivize domestic production and scrutinizes solar imports.  The policies in the Inflation Reduction Act (IRA) have helped spur an 11 GW increase in annual PV module production capacity, according to the Solar Energy Industries Association’s (SEIA) most recent market update, from 15.6 GW in the fourth quarter of 2023 to 26.6 GW in the following quarter. 

The latest figure could supply around 70% of US demand, stated the SEIA. In the short term, though, US-based developers will still need to consider international trade disputes and related tariffs, which can have a 10-year-plus history and relate to some of the biggest Chinese equipment suppliers. For example, a recent update to Section 201 tariffs removed an exemption for bifacial modules. Section 301 tariffs on Chinese PV cells and modules have doubled from 25% to 50%, and there is now an antidumping and countervailing duty (AD/CVD) focus on crystalline silicon cells and modules from four Southeast Asian countries. Against that backdrop, developer planning teams should consider several key factors. They need to assess whether their strategy facilitates optimized and flexible supplier selection. They should evaluate whether supply partners qualify for the IRA domestic content bonus. It is also important to have contingency plans in place in case of tariffs against Southeast Asian suppliers. Teams must also ensure their supply chain is diversified. Finally, they should verify whether suppliers have sufficient R&D capabilities to stay at the cutting edge of US-manufactured products. 

Supplier selection 

Does a supplier have flexibility if a production unit location has to move due to unfavorable regulation or policy? For example, for 12-month project timelines, what happens if new AD/CVDs are applied nine months in? It is prudent to assume such developments could occur, but only a handful of solar supply contracts currently cover regulatory uncertainty. In 2022, the IRA included a domestic content bonus for projects built with sufficient proportions of domestically produced steel, iron, and manufactured products. In May 2024, the US Internal Revenue Service released further guidance on the rules and, in general, all manufacturing steps for iron and steel must be on US soil to qualify. Under the IRA Production Tax Credit, projects that meet domestic content requirements receive a 10% bonus to their tax exemption status. The IRA Investment Tax Credit offers a further 10% “adder” to qualifying sites. Solar developer strategic planning teams will want to ensure that suppliers fully comply with all required content rules.

Contingency plans 

One CEA client has said that they plan to stick with a supplier which has manufacturing lines in Southeast Asia and the United States. Selecting a supplier with production lines in more than one country is a more flexible approach. The client’s reasoning is that if tariff rates exceed a certain level, they can shift to domestic production. Key topics for a solar developer’s strategic team to consider include whether or not supply partners have a plan to migrate manufacturing to the United States, how robust those plans are, and what parts of the supply chain are included. Then, in assessing those plans, it’s worth considering what problems are likely to arise when setting up a new production line. Virtually no manufacturing line ramps up without trouble, so delivery delays and even product quality issues should always be anticipated in newly established facilities. A developer’s strategic planning team will also need to assess a supplier’s financial commitment to maintaining and upgrading any new domestic production facility. Understanding a supplier’s research and development plans ensures funds are earmarked for US facilities. A production line with little prospect of new investment will diminish the ability to remain on the leading edge of technology and conversion efficiency improvements.

Single suppliers

Since 2021, several developers have realized, too late, that they were overly dependent upon a single supplier. The escalation of the US-China trade dispute has affected such suppliers and developers have discovered that their dependence on one company was disastrous. As a rule of thumb, small- to midsized project pipelines should look to have relationships with at least two suppliers. Development of large, multi-gigawatt pipelines needs at least three suppliers. The decision largely depends on how much risk developers and their finance partners are willing to assume. Developers with a smaller number of suppliers may be able to realize better returns. Greater uncertainty might end up being the trade-off in the current trade environment, however. 

Partner over price 

One of the best risk-mitigation strategies is to visit a supplier’s Asian headquarters and get to know senior decision-makers. That will better inform supplier decisions with insights that a US-based commercial team might be unable, or unwilling, to share. Establishing a supply chain with stable suppliers who have manufacturing facilities in Asia and North America is a worthwhile strategy. Ultimately, a winning strategy might be to place a higher value on the partner than the price of their products. Strategic planning teams should consider the pros and cons of paying a premium now for a partner who can be trusted for years. 


Andy Klump, CEO and founder of Clean Energy Associates, has worked with clients in more than 25 countries and has managed offices in Germany, Spain, the United States, Mexico, Chile, and China.


See this gallery in the original post