International Business Podcast #76

On this episode of the International Business Podcast, host Leonardo Marra interviews Clean Energy Associates’ CEO, Andy Klump on the topics of solar supply chain traceability and the importance of company culture.

Podcast Transcript

Leonardo Marra:
Andy is a renewable energy executive with 20 years of solar energy, storage and technology experience. He is the founder, owner and CEO of Clean Energy Associates, a solar energy and storage technical due diligence and engineering services firm with a presence in 13 countries with over 170 professionals. You can find more details about Andy in the show notes. Now let's get into today's episode.

Hi, Andy, I'm glad to have you on. Welcome to the show.

Andy Klump:
Excellent. Thank you for the invitation and I'm excited for today's discussion.

Leonardo Marra:
Andy, what makes you an international professional?

Andy Klump:
Well, first of all, I've been living abroad and doing business internationally for the last 20 years, most specifically in the solar energy industry over the last 15 years. I currently reside in Shanghai, although I'm right now on a business trip in the US. But our company works with many global manufacturers, developers, EPCs, which are engineering, procurement, construction companies, and financiers. So the very nature of the solar industry is global. And we often have to deal with folks around the globe frequently, and we worked with clients or had client projects in actually 64 countries globally. So I'd say in addition to that, I've also been a passionate traveler. I've been at 60 plus countries, but once again, I've been living, even though I'm from the US I've been living and working in China for the last 18 years.

What is Polysilicon?

Leonardo Marra:
Let's start from basics because I guess many people from the audience don’t know this particular word, and you're the expert here. What is polysilicon in simple terms, Andy?

Andy Klump:
Yes. So polysilicon is a part of the crystalline solar supply chain. So most people know a blue hued solar panel if they saw it on a rooftop or an installation. But polysilicon is a refined chemical product coming from a metallurgical-grade silicon input. And that metallurgical-grade silicon comes out of the ground. So to put it in another context, I'll say the reason the solar photovoltaic industry has been successful is because silicon in its elemental form is actually the second most common elements in the Earth's crust, making up roughly 26% of the matter. And it is the only element that does not degrade extensively with a long period of exposure to the sun. So polysilicon, as I said, is basically taking that refined silicon and putting it through a very complex chemical process into a highly purified state. And it later gets processed into what most people know as a solar panel or a solar module.

Solar Supply Chain Shortages and Challenges

Leonardo Marra:
As of now, there is a crisis. The global glass shortage is affecting millions of manufacturers. What can you tell us about this crisis?

Andy Klump:
Yes. So I think there's a number of supply chain shortages and challenges that are happening right now in the industry. And I would caution you to say millions. I would say there's thousands of manufacturers throughout the solar supply chain and many are impacted by a lot of fronts. I think the core issue is that there's a high demand for solar energy right now, and there is a shortage of the amount of supply. And the amount of supply in polysilicon is quite acute. And so the amount of demand has exceeded supply, really exacerbated pricing from the early part of 2021. So we have seen pricing more than triple, and that is effectively what's causing a bit of a crisis, because it makes the end solar module or the solar panel more expensive, but there’s also a heightened awareness of manufacturers, the need to expand and grow their supply.

Leonardo Marra:
And for how long do you foresee this crisis potentially still happening?

Andy Klump:
I would say that the typical manufacturing expansion process for other parts of the typical crystalline supply chain is usually a shorter period, anywhere from three to six months, so you can see a substantial increase in solar modules or solar cells, for example. But for polysilicon, it does take a bit longer. The typical expansion path is anywhere from 18 to 24 months. I think there's some manufacturers who can complete some very rapid expansions within China in the 12 to 15 month time horizon. But more recently in the last several weeks, China has announced a shift away from energy intensive industries, and polysilicon is one of those. So a number of polysilicon expansion plans in China are on hold right now. So I anticipate that this polysilicon shortage could last another two years or so into 2023. But I do think there is supply coming online in 2022, and it will be not as acute as it is right now. But once again, we also know there's a lot of pent-up demand, which is currently on hold and many projects have been postponed, so it's this constant balancing act of supply and demand. But once again, I've seen this in the last 15 years, and I certainly expect that it will correct at some point

Leonardo Marra:
You mentioned supply chain, so let's focus on this topic for a little bit. Supply chain traceability allows to track products from sources to consumers. Is this important, Andy?

Andy Klump:
Yes. I think it is important for a lot of fronts. Many companies are increasingly looking at ESG as an important criteria for evaluating the provenance of the materials they're obtaining. So ESG is environmental, social and governance, and effectively is referring to how the product is manufactured; what is the impact on the environment; what's the type of manufacturing methods used; and how does this comply with industry norms? And I think there's been a particular change in the market this last year. And a lot of folks are looking forward to having more elements of traceability in their supply chain. And I think there's a lot of positive reasons for this development, but certainly one of them is the fact that the market is increasingly looking at how products are manufactured and where is the best route to get them manufactured in in a low carbon manner.

And so increasingly we're seeing demand for a low carbon product, where one can actually look upstream and say, okay, how was the polysilicon manufactured? Was it using coal or was it using hydro facilities? And there are a number of polysilicon facilities in China using hydro, particularly in Yunnan province and Sichuan province. And I think over time, we're going to see increasingly high demand for polysilicon that comes from those regions. And that will be something I think the market will shift to. There are certain countries such as France and South Korea that have actually had a tariff in the past with a heightened payout for those who manufacture a low carbon product.

The Importance of Company Culture and How It’s Implemented at CEA

Leonardo Marra:
What is the importance of company culture, especially in global teams? And, Andy, since you are a CEO, what are you implementing exactly?

Andy Klump:
Oh, we entirely believe that the culture-based method of scaling up is extremely important. And I will say once again, in my 13 years of both founding and establishing and running CEA, we've seen an increasingly high degree of cultural alignment among our team, particularly the last six years, because we have incorporated a program known as the Rockefeller Habits, which came from a book inspired by Verne Harnish called Scaling Up. And we implement a number of ongoing methodologies to evaluate how our culture is felt throughout the organization. And so we have quarterly surveys, we either have a team member net promoter score, or a team member engagement survey. And we ask this once a quarter to get a sense for where everyone in the team is at, how they feel about their culture. And we also have a number of other methods such as a QFS, a quarterly feedback session, which everyone is required to meet with their leader and discuss what are their personal and professional highs and lows this last quarter; what are their goals for this quarter; how did they do last quarter. And we specifically highlight where have you seen CEA's values in action, and also, have you seen any violation of CEA's values? And those are very important metrics. They all bubble up to myself and we have a number of ongoing mechanisms, very subtle ones, somewhat like the QFS, where we really try to measure and engage our team. But team member engagement is absolutely crucial for companies to grow in scale. I referenced the fact that we've made an increasingly high investment in our culture over the last six years. And I think roughly around that time, we were around 45 or 50 folks. And now we're over 175 professionals globally in 13 countries.

How Severe Weather Patterns are Affecting Solar Modules

Leonardo Marra:
Switching back to the energy sector. Could you dive into how severe weather patterns are affecting solar modules?

Andy Klump:
Absolutely. Severe weather patterns are impacting the entire supply chain, but it's really disrupting those who are actually installing in those regions where there's actually extreme weather events. So just as an example, we've certainly seen a number of cases of extreme hail damage that's happened in some markets that are prone to hail, certainly in the US a market like Texas sees that quite a bit. But once again, any extreme temperature change or sudden event that has not been expected, absolutely has an impact on the product if it's not manufactured properly. So part of the work that we do is we actually make sure that the product quality is actually manufactured and tested according to standard test conditions. And so extreme temperature change or fluctuation could not necessarily impact the market or the product, but it does have an impact on some extreme weather cases. And I'll also highlight, the certain extreme weather variability is just highlighting the awareness among the public eye that there is a very real threat of climate change in many geographies around the world. And so I think that's further pushing and adopting, or pushing more and more folks to actually want to adopt renewable energy, such as solar or wind.  

Business Relationship Between China and US

Leonardo Marra:
Let's broaden the picture for a moment, Andy. What is your take on the China-US business relationship?

Andy Klump:
I certainly have seen it better in my 18 years of living and working in China, but I would certainly comments that it tends to ebb and flow at various points in time. And certainly things have not been great as of the last several years, but I think there is an ongoing interdependence between the two countries, both in terms of economics, as well as overall need for cooperation to combat various changes that are happening, climate change being one of them. So while there's been some tensions in the last several months, we've also seen some positive signals, both from the US as well as China, that there's ongoing discussion and dialogue happening. I do expect that climate change is something that both countries fully embrace. I know China's made a pledge in 2060 to carbon neutrality and made a number of efforts towards that. The US similarly, certainly the current Biden administration is very committed to fight climate change. So I think there is a strong aligned interest particularly on that cause.

What is Climate Change?

Leonardo Marra:
In one or two sentences, how would you define climate change?

Andy Klump:
I think climate change is the extreme emission of gases, such as CO2 or methane, which leads to a natural heating up of the earth and results in a quite catastrophic set of events, some of which is extreme weather events.

Tesla and the EV Market

Leonardo Marra:
Still connected to the US-China topic, what can you tell us about Tesla?

Andy Klump:
So Tesla is certainly one of the leading US-based electric vehicle manufacturers, and they're also a great example of someone who's succeeded in China. I will definitely say, when I'm in Shanghai, I see a proliferation of electric vehicles, but certainly a lot of Teslas. But you know, once again, my hats off to Elon Musk for developing an innovative company and continuing to fight a number of challenging market dynamics. There’s been various ups and downs, but, you know, certainly the electric vehicle market is fully embraced, I'd say globally. And Tesla's absolutely the leader, I will say, in line with our previous theme, I'll definitely say China has been at the leading edge of EV adoption. And there's just dozens of manufacturers who've launched into this industry and picked up on this trend. I think the adoption rate within Shanghai is roughly 25% of vehicles are electric vehicles, so about one in four. The penetration rate in the US is certainly not as high, but there is an escalating interest among consumers and I expect that Tesla will certainly take advantage of that strong trend.

Outlook on Energy Storage Landscape

Leonardo Marra:
What could be the energy storage landscape five years from now?

Andy Klump:
I absolutely think energy storage is here to stay on a long-term basis. Most renewable energy projects are going to adopt some amount of energy storage. I see this both in wind and in solar, but particularly the next two to three years will be a high adoption rate of both types of technologies, both within the residential sector for homeowners, the C&I (commercial and industrial), small-scale rooftop installations on warehouses and the like, and then finally, large utility-scale deployments, which will have various amounts of energy storage. Just in line with the electric vehicle adoption curve, so too has energy storage been growing exponentially. And really, if I had to make the analogy, it's really the gnat on the back of an elephant, the elephant being the electric vehicle market and energy storage is still very very small in terms of size. But in terms of strategic significance, it's becoming stronger and stronger.

Leonardo Marra:
So EV and energy storage, they go hand in hand. Is that what you're saying, Andy?

Andy Klump:
Absolutely. And we've been watching this sector quite closely. My first engagement in energy storage, visiting a facility was in 2011 when I knew one of the investors in a small energy storage facility outside of Beijing called Prudent Energy. And since 2014, we've been getting an increasingly high number of customer calls to look at energy storage facilities. So in 2015, we set up a team focused on this. Our current head is based out of Greece, George Touloupas. He's our Senior Director of Technology and Quality and helped to build out the team within China. And then eventually we expanded the team further, actually set up a know a team lead in the US who's currently in the Massachusetts area, Shawn Shaw. So we have a strong team of roughly a dozen pure-play professionals just focused on energy storage, but we have probably another dozen or so that are cross-trained and actively involved in energy storage projects today. So to date, we have completed, in the last 13 years, 105 GW of solar PV projects, and then 6 GWh of energy storage projects. And that second half is certainly the part of the business that's growing quite dramatically.

Notable Story from Andy’s International Career

Leonardo Marra:
I’ve got one final question I ask everyone who comes on the show. Please share with us one remarkable moment from your international career, and that could be a successful or even a catastrophic episode.

Andy Klump:
Oh boy. So, I’ll definitely say, I'd have to say a slightly embarrassing story, but it was at the start of my time at Trina Solar. I was actually waiting for a meeting to start when all of a sudden, this is my early days at Trina, about 15 years ago in 2006, I was waiting for a meeting to start and I saw a Spanish woman come in and she sat at the table just kind of in the other part of the warehouse. And I should say warehouse is actually our office building, but Trina was still an early stage company, had about 500 employees, mostly factory workers. And I was the first non-Chinese member of the executive leadership team reporting to the CEO. And so she walked in and was waiting at the table. And so I went up to her and I said, are you being helped? And she said, well, I was supposed to have a meeting 15 minutes ago, but the team said they were running late, so I just am waiting here. And I said, well, how can I help you and who are you meeting with? And she said, I'm meeting with the sales team we’re a Spanish IPP, (Independent Power Producer) and we're looking to buy modules. And she said, it's fine, I'll wait here. I said, no, please let me help you. And so I started talking to her and I went looking around for the sales head and I said, well, we have a customer waiting. Why are you in here having coffee and chatting with your colleagues?

He's like, oh, there's plenty of Spanish customers. I'll get to her in a minute. I said, no, let's have the meeting together, in fact, I want to join. So we sat through a long meeting and I realized there were a lot of communication challenges. Myself being in China, now for 18 years, I speak Mandarin fluently. So I was doing translation during that session. And at the very end of the session, she was very happy. And before she left, she said, can I use your restroom? So I took her to where the restrooms were, I pointed in that direction. And she came out a minute later and said, um, is there an international toilet you have? And I said, I don't know, I've not been in the women's restroom, but I knew that there was not a Western toilet in the men's restroom. So I said, I will ask someone else and see if we have one. And unfortunately at the time, Trina Solar did not. So this was still at the very early days of the solar boom, and the factories were really quite raw. So I ended up taking her back to her hotel and sent her off, but I went back to the leadership team and I wrote a story. I announced to everyone, we must install an international toilet in the factory for customers that come in. So I actually sent an email out in Chinese and English, and the next day, my team laughed at me and they called me the plumber. So I kind of had that nickname for the starting time I was at Trina Solar. But it's, once again, it's just an example of, you can see some interesting things in China that you just don't see every day.

But there were a lot of periods during those early days of Trina where the company was not quite international, but over time, we did bring in more international talent into the company in China, actually in the factory in Changzhou. And Trina really established a strong reputation as a leading Tier 2 and eventually Tier 1 manufacturer. So Trina is certainly one of the most well-respected manufacturers today. And you certainly won't see that. I know they've now sold products over a hundred countries and are really quite global, but at those early days, I found it quite interesting because I was put in a situation, a lot of interesting situations, where I had to be the translator, I had to be a cultural ambassador and also try to move both sides forward to close working cooperation. But Trina was very successful during those early years. And I later used a lot of those experiences when I was setting up my business at CEA.

About Clean Energy Associates and Andy’s Role

Leonardo Marra:
Thank you for sharing, let's say an embarrassing episode. They usually, you know, people go forward with the successful ones. So thank you for sharing. Not a successful one, but it was good anyway. To wrap this up, Andy, after listening to this episode, who should connect with you? And tell us a little bit more about your current role.

Andy Klump:
Excellent. So I, once again, I'm always open to receiving connections from LinkedIn. I have a number of folks that I correspond with there. So I do check that daily. I'm particularly interested in connecting with international folks who are in China, whether they're Chinese but globally-minded, or they are international talent that's looking to work in the solar industry. We have a number of openings in our Shanghai and Changzhou offices. And so we're hiring not just in China, but really around the world. We have about 25 openings, so we do expect to hire a lot of folks in the US. We have roughly 85 in our team in China and roughly 55 in the US, but I'm always very keen to see internationally-minded folks, particularly those with solar or energy storage backgrounds, as those are the two industry sectors that we have the most level of professionals from.

But outside of that, to answer your second question, once again, my role as the founder and CEO is to continue to build the company towards our long-term BHAG. So we actually do believe that CEA, we have a 25-year BHAG. And a BHAG, if you're not familiar with that is, it’s the Big, Hairy, Audacious Goal. It’s from a book, Good to Great by Jim Collins. But we have our own BHAG, which states we're to be the sought-out and trusted experts in solar and energy storage solutions, supporting projects in every country. So we’re very much looking to expand our business globally. As I mentioned, we have completed projects or have clients in 64 countries. But once again, we're roughly, you know, a third of the way there. We think with over 190 countries globally, solar is the type of technology that can be deployed everywhere in the planet. And I do want to make sure that CEA is there supporting that trend, and we will see that happen over the next 25 years. But we are a very mission-driven company and have a very strong core purpose and set of value statements and culture. And so that's the type of talent that we like to attract and invite to work with this.

Leonardo Marra:
Andy, I want you to thank you for your insights. Thank you for joining us on International Business Podcast.

Andy Klump:
Excellent, fantastic. Thanks for having me on, and I look forward to staying in touch.