Everything You Need to Know About the Hoshine WRO's Impacts on the PV Solar industry
WRO on Solar Silicon | Restrictions on Chinese Tech | Clean Power Hour E58
In this live interview with Clean Power Hour’s Tim Montague, CEA’s Vice President of Technology, Paul Wormser discusses all things related to the recent WRO (Withhold Release Order) released by Customs and Border Protection on Hoshine Silicon.
During the discussion, Paul discusses:
History and explanation of Hoshine WRO
The steps and raw materials in the PV solar supply chain
Difference between silicon and polysilicon
How the WRO impacts the PV solar industry
How can companies mitigate the risk
SEIA’s Supply Chain Traceability Protocol
Challenges faced when performing traceability on the solar supply chain
Benefits of traceability for proving provenance and carbon content within supply chains
Webinar Transript
Tim Montague
The Clean Power Hour is brought to you by Continental Energy Solutions. I'm your host, Tim Montague. John Weaver will not be joining us today. Unfortunately, he's on vacation. I hope he's having a lovely time out there on the Plains. Today is a special edition of the Clean Power Hour. We are going to be talking about the recent Withhold and Release Order. The WRO, as it's called that the Customs and Border Protection agency placed on silicon metal products coming from a province in China called Xinjiang. To do this, we have an expert by the name of Paul Wormser. He is the Vice President of Technology for Clean Energy Associates, which is a global technical services and engineering firm. Welcome to the Clean Power, Paul,
Paul Wormser
Tim, thank you so much. Pleasure to be here. Looking forward to our discussion today,
Tim Montague
I'm really looking forward to this discussion. The silicon metal WRO has potential ramifications for our industry, but most solar professionals are struggling like myself to understand this problem or this looming problem and whether or not we need to make adjustments in our businesses because of it. So what is this WRO about and why should solar professionals or clean energy professionals care?
Paul Wormser
Well let me bring you back about 14 months to sort of the starting point of history in terms of how we got where to where we are today. So approximately 14 months ago, the State Department issued an advisory indicating that there were the potential for serious issues around forced labor in this Western province of China, called Xinjiang, as you pointed out, and that as a result, American companies doing business in some way with that province should consider shifting their supply chains. So that was the start of it that was followed by proposed legislation in the house and in the Senate that identified even more information about this particular region and identified in there. Some priority sectors to focus on that legislation was since revised in January and in February of this year and in the revised legislation, the three primary areas of focus of the legislation, not the only areas, but the primary areas were cotton, tomatoes, and polysilicon.
And the reason that matters for us in the solar industry is that about 95% of the solar modules that the world deploys every year have solar cells in them made from the raw material, polysilicon. So it affects an enormous share of the overall solar industry. What happened then is that the press ever since July of last year, and even as recently as yesterday and today, the press has picked up on the idea of these allegations of forced labor. And there have been some research reports issued by different agencies, by different groups about how they came to the conclusion of the allegation of forced labor. So it's taken a lot of, let's say attention and mind share because nobody - let's be really clear - nobody wants to buy a product that's made with forced labor. Let's also recognize that in 1930, all the way back there, the US put laws in effect that prohibit the importation of anything made with forced labor.
So over the last several months, the momentum has continued to gather about the issue and on June 24, just a couple of months ago, Customs and Border Protection issued what is known as the Withhold Release Order. And in effect, this order identifies what cannot come into the United States. In this particular case, the Withhold Release Order was germane to the solar industry because the Withhold Release Order says that no silica-based products from a company known as Hoshine can now come into the United States. And it's not just that Hoshine can't ship products into the US, but nobody who incorporates that particular material in their product can come into the United States.
Tim Montague
That's where things get tricky, right? Because this, the silicon metal that Hoshine is making is then transformed into solar cells and solar panels further down the value chain. And you can't necessarily tell where that silicon came from looking at the solar cell. Am I right?
Paul Wormser
You're right. And so the value chain as a whole, you start off with literally digging quartz out of the ground. So that's the mining operation from there. The quartz goes through a purification process to become silicon metal. From there, the silicon metal goes through a further purification process to become the polysilicon that we use in the solar industry. The polysilicon is grown into a crystal, and then the crystal is sliced to make wafers. The wafers are processed to make solar cells and the solar cells are connected to each other and encapsulated to form a solar module. So you're exactly right, that when you're looking at a finished product, when you're looking at a photovoltaic module, you see solar cells, you see glass, you see other materials. But you can't determine by looking at the module where the wafer was made. And as a consequence, you can't determine by looking at the module where the polysilicon was made. And as a consequence, you can't by looking at the module, determined where the silicon metal was made.
Tim Montague
And what is the role of Hoshine in this value chain? What all are they touching that impacts the solar value stream?
Paul Wormser
Hoshine is one of the producers of this material called silicon metal. We also refer to this as metallurgical grade silicon, and it's silicon that's between 98 and 99% pure. Hoshine is also the world's largest producer of this family of products. So they not only sell material to the solar industry, but Hoshine material that goes into other industries. In fact, the solar industry, while it's big, in terms of Hoshine sales, it's a small part of Hoshine overall business.
Tim Montague
Okay. And how credible are the accusations in your opinion, that Hoshine is using forced labor and that this WRO, is legitimate and something that the US government should be pursuing?
Paul Wormser
Well, the US government should always be pursuing allegations that appear to be credible on forced labor, because it's against the US law to bring things into the country with forced labor. Also any entity that is buying a product should be concerned and should be taking steps to make sure that their supply chains are following perhaps their codes of conduct, ethical sourcing policies, and so forth. Again, nobody wants anything with forced labor, the reports that are out there, point towards what the reports position as very strong, very credible evidence. I haven't had a chance to take a look at the primary resources of evidence. So I have no ability or no position to determine whether the allegations are true or not true, but there's a preponderance of allegation. So what matters right now is the US government's reaction to that and how buyers react to that. And as I said, the US government's position at this point is to issue the WRO for now with potential future actions
Tim Montague
And clarify for us the difference between polysilicon and other types of silicon that are used in solar panel manufacturer. Are all PV cells using this silicon metal or only some subset of PV modules.
Paul Wormser
So there some anomalies to the general rule, but the general rule is that about 97% of the wafers that become solar cells are produced in China. Those wafers are produced using polysilicon as the raw material. And polysilicon is produced using silicon metal as the raw material. There are other ways of doing this, but at this point you can call those early stage, not significant in terms of the overall production of solar modules that the world is buying today. There's also one larger exception. People who are manufacturing, foldable tech modules using thin films. And there's, that's a small part of the overall market, but still a significant piece. Most of the thin films that are commercially viable today do not use any form of silicon in the product.
Tim Montague
But to be clear whether the solar panel is monocrystalline technology or polycrystalline technology, this silicon metal is at play in that technology, right?
Paul Wormser
That's correct. So when we think about how wafers are made, wafers are made two ways. You can have, as you pointed out a monocrystalline wafer, and you can have a multi-crystalline wafer. In general, the US market has moved away from multi-crystalline and much more of the overall buying decisions today are based on buying modules with monocrystalline silicon. But the global market continues to buy both.
Tim Montague
Okay. And if I am a solar panel manufacturer, and I have a factory in Vietnam, I'm receiving solar cells that are manufactured in China or wafers, or both. And how do I know that the wafers I'm buying aren't made by Hoshine?
Paul Wormser
Well, Hoshine doesn't make wafers. So you know that right away.
Tim Montague
Okay. But I mean the raw material in the wafer,
Paul Wormser
But if you are a module assembly company in Vietnam, as you point out in this scenario, your solar cells are coming either from Vietnam or other places, but they're very unlikely to come from China if your product is going to the United States because of tariffs. So the tariffs were put in place several years ago. They're called anti-dumping and countervailing duty tariffs. And these tariffs are such that bringing product into the United States, In other words, when I say product, I mean, a finished module or a solar cell that was made in China, it would be most likely subject to this tariff. It makes it uneconomic. As a result, we buy from Vietnam. We buy from Malaysia, we buy from Cambodia, we buy from Thailand, we buy from other places. Those other places make the cell, but the cell is typically made from a wafer that is made in China.
Tim Montague
Okay. And so is there a way for manufacturers to know where their wafers or the materials in the wafers are coming from? Is this enforceable in other words, right. Hoshine is making a raw material that's going to the wafer factories. And then, and what percentage I guess of that, of the raw materials that are going into wafers. Approximately how big is Hoshine in this industry and is the material traceable.
Paul Wormser
So let's go back a little bit. The issue of forced labor in supply chains for products that come to the US it's very, very difficult to prove that there is no forced labor. It's even more difficult to prove that there's no forced labor in factories of any kind that operate in this region of China. In fact, the organizations that operate worldwide that do assessments of forced labor today are not going into that part of China. And this is in part because if they do, there's some risk to the people who go there, there's some risks to the people who get interviewed. There are some risks to the companies that participate. So if you start off with the allegation of any particular company, having forced labor in Xinjiang, it's very, very difficult to prove otherwise, as a consequence, if you want to avoid the possibility that your product has forced labor in it, and your fear thinking that there is forced labor in products made by Hoshine, then the obvious practical matter would be to make sure that the silicon metal that's used to make your product is made by somebody else.
So we refer to this as traceability. In other words, if you make a solar module, where did the cell come from? Where did the wafer come from? Where did the polysilicon come from? Where did the silicon metal come from? And if all of those answers contain no reference to Hoshine, then you can imagine that Customs would not detain you. And if they did that, they would very quickly release you to establish this. The Solar Energy Industries Association took a leadership position in establishing what you and I might think of as a US strategy to look at forced labor. And the US strategy that is suggested by SEIA is to prove the absence of forced labor, because that's so hard to do, but to really take a look at transparency and about chain of custody, about traceability, about provenance, these are different terms that we use effectively to mean the same thing, which is, can you, knowing your module, go upstream to the cell, to the wafer, to the polysilicon, to the silicon metal, and in concept, in concept, this is all doable.
In reality, it's quite difficult. And it's quite difficult for a number of reasons among these reasons, the company that you hypothesize as making modules in Vietnam might not be making the cell. They might be buying the cell, and the cell maker might be buying the wafer, and the wafer maker might be buying the polysilicon. So you can see that as we go through this, you're getting farther and farther away from the company that's making the module. So they certainly know who they buy the cell from, but they don't necessarily have visibility on where the wafer comes from. They have even less visibility on where the polysilicon comes from, and even less visibility on where the silicon metal comes from. So that's part of the complexity here. The other part of the complexity is because Hoshine sells their material to polysilicon makers in regions, across China.
And indeed, maybe even they export some. Then you can imagine that there might be some Hoshine material in the supply chains of most of the solar companies somewhere. It doesn't mean that they have to use the Hoshine polysilicon - the Hoshine silicon metal - but it's likely that there's some Hoshine silicon metal somewhere in the system. So the idea of course is if a supply chain includes any material from Hoshine, that that supply chain has to be able to separate the material that has Hoshine, raw material in it, from material that doesn't, and only the material that doesn't should be material that's imported into the United States.
Tim Montague
And so when we read in the news, though, that Canadian Solar and Trina Solar have had modules stopped at the port, from coming into the United States, how do the port authorities have such confidence? Because the picture you've painted, especially the fact that few people are willing to travel or are able to travel to Xinjiang and to visit Hoshine facilities. How can we actually enforce this and, and make this functional?
Paul Wormser
Well, the idea I think as I tried to explain, this is not to go to Hoshine facilities. The idea is to make sure that the supply chain does not include Hoshine. That's what you want to do to comply with the Withhold Release Order, in terms of any news that we've heard about detentions, we all want to be careful in terms of over-interpreting the news. And I say that because it's important for us to really get our facts straight on this issue.
Customs and Border Protection does not disclose publicly who they detained. They identify the detention to the importer. And the importer is often in the case of the United States, the US representative office of the manufacturer, not always, but in most cases, so that entity would know about the detention that entity would likely communicate information to its customers who are directly affected, but there's no way for you, there's no way for me to find out the specifics of the detention or who was detained or what was detained, unless we hear it through the network that we all are part of in the solar industry. Having started with the importer who gets that information. So if we hear about any individual company being detained, it's important to just not jump to the conclusion that it's true. It's important not to jump to the conclusion that it's because of the WRO, because there are other reasons for detentions.
Tim Montague
So walk us through if you would. I mean, my understanding is that Clean Energy Associates, one of the roles that you play is to validate the origin of solar materials. And so if I have a large pipeline, let's say several gigawatts of solar, I am very concerned about this problem, per se, because such a large percentage of silicon as you identified, is coming from China, what do you do for your customers to solve this problem?
Paul Wormser: (20:02)
Oh, let's start with the problem itself. If you are buying photovoltaic modules, you're in the US, and those modules are being imported. This is a concern you should absolutely have this concern because if Customs decides to detain a shipment, that's headed towards you, that the tension could last for days, but that detention could last forever. In other words, at some point in time, Customs makes a final decision about whether they will release or not release the goods into the US. If their final decision is to not release, then those goods don't go to you. And that can be very disruptive to you as the buyer, to your construction schedule, to the off-takers of the project that you're building, if you're utility scale, to the homeowners that are waiting for their solar goods. So it's a big deal in terms of the consequence.
Paul Wormser
If the product is detained, if you're a buyer, what we would encourage you to do is to talk to your supplier and see what the supplier is doing to address their supply chains and to address the WRO so that if by chance, Customs, detains one of their shipments, that they have all of the documentation that Customs is going to want to see in order to release the shipment into the US, right.
The role that we [Clean Energy Associates] play is going back a few months in time, if you will. We were one of the contributors to the Protocol for Traceability that the Solar Energy Industries Association has now published. It was published at the end of April. It's a framework to establish where things come from in the product it's applicable to many different kinds of products. It's not peculiar to the photovoltaic module, is not peculiar to Xinjiang, but it's absolutely applicable to making sure that as a supplier, you know what to do to establish traceability.
And if you're a buyer, you might require your supplier to follow that protocol. And that would help. In addition to writing the protocol as a co-author, we now execute that protocol on behalf of buyers across the United States. So we do an investigation of the module supplier and the supply chain that feeds the module supplier. We go through that with a collection of documents and assessment of what systems they have or don't have in place. And then we follow that up by onsite visits to the factory is involved to get confirmation that everything that's happening in the factory is consistent with the documentation.
Tim Montague
Sounds complicated.
Paul Wormser
Again, it's not rocket science, but it's complicated because of the number of entities that are involved. And because again, the module maker doesn't necessarily have a commercial agreement with the wafer maker, the polysilicon maker, or the silicon metal maker. So you can imagine if I want to go to the polysilicon company and say, where do you buy your silicon metal? The polysilicon company is not obligated in any commercial way to answer that question. So it's a matter of really getting the transparency, establishing the traceability, but getting cooperation and with respect to there is an additional layer of complexity. And I'd like to, to bring that to your attention, China has passed what's known as an Anti [Foreign] Sanctions Law.
This is because first and foremost, China has completely disavowed any, allegation or any existence of forced labor in the solar supply chain. As far as China is concerned, there is no such thing as a consequence. This Anti [Foreign] Sanctions Law was published recently, and in effect the Anti [Foreign] Sanctions Law, and I'm not an attorney, and I haven't read the law in Chinese. So forgive me if I make a broad sweeping review of what the law says. But my understanding is that the law says that if you, in some way, shape or form imply through your actions, even a hint of the existence of forced labor in the silicon supply chain in China, there could be consequences.
So you can imagine that if you're a polysilicon maker or a silicon metal maker or a wafer maker in China, every time you're asked a question about forced labor, you want to think hard and long before you answer that question. And if you're in China and you're in that supply chain, it's very possible that your view is completely aligned with the views of the Chinese government and that there is no forced labor in your supply chain. And I can say that when I look at positions taken by the supply chain companies in China, there isn't a single supply chain company in China that I'm aware of that has suggested that they have forced labor in the supply chain.
Tim Montague
I'm confused, I apologize. But so back to my initial question about, okay, thinking of large volumes of solar modules being purchased from credible Tier One manufacturers, who are doing their darndest to buy clean products that are not going to get stopped by US Customs, do I have confidence in this process and protocol that, SEIA and I will link to the protocol in the show notes, has created? Does the system work at the end of the day? I guess that's what I want to know.
Paul Wormser
Thanks for continuing to bring clarity to the question. I appreciate it. The protocol works in the sense that if everybody cooperates, the protocol will result in traceability through the supply chain, to the factories, the companies, and the products that are used in the supply chain. So that works in terms of implementation of the protocol. I'd have to say that the companies that are in the supply chain, whether they follow the protocol exactly, or whether they established something that accomplishes the same objective, some of the suppliers are in a position today to show you that the module they're making this afternoon can be traced to polysilicon from a specific supplier. Not all of them are ready to do that, but some are when the WRO was issued in June, I would suggest that the suppliers had been preparing for weeks and for months to be able to demonstrate traceability.
But I would also suggest that the suppliers had focused on polysilicon as the upper most element in the supply chain. And they were not focused on Hoshine, silicon metal. In other words, when the WRO was published, I think people got surprised. I think they were preparing for a different kind of a WRO. And the consequence of that is that I would suggest that most suppliers, if not all, were unprepared on June 24, when the WRO was published to present all of the documentation that Customs was looking for, I'd suggest that even today, most of the module makers would have a challenge showing that anything that they made prior to June 24 had zero Hoshine material and anything they made for a couple of months after June 24, would be hard to have good evidence, the kind of evidence that Customs wants to see what customers refers to as clear and compelling evidence.
So the protocol works. Implementation of the protocol, cooperation with all of the different elements of the supply chain. That's something that takes months. And so we can anticipate that maybe if the industry isn't ready today in a broad way, let's say a majority of the suppliers to demonstrate full traceability of a module being made today, they're working on it. And that kind of traceability will be more quickly achieved by the companies that are vertically integrated. In other words, the companies that make the module and the cell and the wafer they'll have an easier time and a faster time compared to the companies that make the module, but they buy the cell.
And we've also seen some announcements recently, and I'll highlight as one announcement that came out. That's very interesting to see one of the major suppliers, Jinko has announced that they're building a capability in Vietnam of making the wafer. They've also announced a long-term supply agreement with a polysilicon maker, a company called Wacker that makes polysilicon in the United States and in Germany. So it's pretty clear that among the approaches being taken by companies is to relocate the wafer manufacturing and relocate the supply chain to polysilicon so that they can avoid any perception that there is a possibility of a forced labor component coming into the US from that company.
Tim Montague
Yeah, it seems like that's really the only way to guarantee that you're not going to have some snafu with a large quantity of product, and that's highly problematic for developers and financier's. If you're, you know, if you have megawatts of panels that are coming to ports and then being stopped, that's at the 11th hour, right. You've got real projects that need to get constructed and commissioned. And, there's a looming potential, domino effect here that is catastrophic. So, I guess we'll, we'll leave it at that, Paul, if there's, if there's anything else you want to, you know, any parting thoughts, I would like to periodically touch base with you and CEA. And for our listeners, if you haven't seen episode 93 with Andy Klump, that is a good overview. Andy is the CEO of CEA and he gives us a good overview of what CEA is up to globally. They are a wonderful resource for our industry. So thank you all. Are there, are there any parting thoughts, Paul
Paul Wormser
Two, two parting thoughts if you will. The first is that moving your supply chain outside of China, isn't necessarily the only option, but it's certainly a good option. You can also go through implementation of the protocol, and this is something that would require the suppliers and the supply chain to cooperate, and then you would want to have it validated by an independent entity. That's one of the things that we do as we've discussed. So there are absolutely ways of mitigating your risk. And if there is a detention, if all of this is done, you would have all of the documentation Customs would want to see to be able to release the goods. So you can still operate with wafers from China. You can still operate with polysilicon from China, but you want to take those steps.
The other thing is that the protocol establishes traceability and traceability is not only valuable for making sure that somebody is not included, but traceability is also really valuable for other purposes. So many of us around the world are concerned these days about carbon footprint and to understand how much carbon content there is in a product. You really want to understand where the different parts of the product are made and what the sources of power are at those different locations. So traceability has an enormously beneficial side effect, if you will, beyond forced labor. And that carbon footprint analysis is just one of them. You can also imagine that if you're doing something like the recycling process at the end of life, that you want to know what's in the product. So having traceability to what's in the product and where it comes from can also be really, really helpful when doing a recycling program. So I like the protocol that SEIA has published, because it does absolutely address the idea of avoiding suppliers with forced labor and demonstrating that you're working with other suppliers. But I also like the fact that it can be used as a foundational element for a carbon footprint analysis or a recycling investigation.
Tim Montague
And to your knowledge is Xinjiang province one of the high coal energy provinces.
Paul Wormser
It is. And that's one of the reasons why a large part of the polysilicon production in the world is located in Xinjiang. And a large part of that polysilicon production sources it's silicon metal from the same province. It's because this is a place of abundant electricity, the manufacturing process for silicon metal and the manufacturing process for polysilicon use a lot of electricity. And so you want to locate your factories where that electricity is available, it's reliable and it's low cost.
Tim Montague
Yeah. And what we're talking about was, is addressed by the Ultra Low Carbon Solar Alliance. I did an interview with Michael Parr, P-A-R-R, just Google that. They are working to bring the world certified low carbon solar modules. And, and so sourcing your raw materials from low carbon energy sources is vital to that.
Paul Wormser
And you can make polysilicon using all kinds of power. So there are certainly polysilicon plants that depend mostly on hydro. Similarly, you can use other forms of fossil fuels or other forms of power as your source of electricity. So not everything is made with coal. And we want to make sure that, you know, if your sourcing program has a carbon analysis as an element in it, you want to know where the raw materials are made. And that's the benefit of the traceability program. You can find that out.
Tim Montague
Thank you. I want to make a couple of announcements. We are helping ISEA raise money. The Illinois Solar Energy Association is hosting a Tesla raffle. If you go to Illinois, solar.org and then click on the winner, Tesla, you will see that you can win a Tesla model X. This is a luxury pure electric vehicle made here in America. And we've been doing this for eight plus years, but it's a great way to support ISEA and potentially win a beautiful, pure EV. I also want our listeners to check out all of our content here the Clean Power Hour at cesnrg.com/podcast. Just scroll down to the Clean Power Hour where John Weaver and I are bringing you the latest in energy transition news every Friday. So please check that out. If you hit that big red subscribe button, we appreciate that. If you appreciate this content, please reach out to me and give me ideas for guests and topics that you want to see us covering. We rely on our listeners to bring us tips and information as well. So please subscribe to the channel, give us a thumbs up and share it with your friends. I want to thank Paul Wormser with Clean Energy Associates for coming on the Clean Power Hour today. I'm Tim Montague. Let's grow solar. Thank you so much, Paul Wormser.
Paul Wormser
Thank you so much, Tim. Really appreciate it. Thank you.
