Solar and Battery Storage Supply Chains Present And Future
Solar Media’s Solar and Storage Finance USA Summit on Supply Chain Risks and Opportunities
Solar Media’s 2021 Virtual Conference on Solar and Storage Investment Finance included this expert session presented by CEA’s Director of Market Intelligence, Ravi Manghani, examining solar and storage supply chains.
In this recording, Ravi discusses:
the current state of solar and storage supply chains through recent commodity price hikes, logistics challenges and other policy overhangs
the emerging concerns of supply chain traceability
an overview of promising solar module and lithium-ion technological innovation
Webinar Transcript
Solar Market Overview
2021 Supply and Demand Decreased From Prior Forecast Due to Polysilicon and Logistics Price Hike; Future Demand Increased
Ravi Manghani:
We are in the midst of a significant tightness across the polysilicon, wafer, cell and module supply chain.
Now, with new capacity slated to come online, starting as early as late 2022 and to 2023 and beyond, CEA anticipates a return to a more stable supply demand balance of phase by mid to late 2023. As a result of the current tightness, we have seen something that we hadn't seen in the last 15 or 20 years, which was module prices started to go up instead of your typical trends of going down. In fact we are, if you look at the chart here, currently at sort of a peak, if you may, or a curve that's peaking upwards. We expect that to be the case for the next few quarters as well.
And it's not before mid to late 2022, which is again the next 12 to 18 month timeframe, when we expect to see prices start to sort of resume the downward cross trajectory. A couple of drivers that have caused this price increase is the polysilicon prices as I mentioned earlier have been at historical levels. To just give you a sense of comparison, back in January of 2020 polysilicon spot prices were somewhere in the $6 to $7 per kilogram. Versus today we are seeing prices approaching, or as high as $30 per kilogram which is, if you do the math, it's about four X increase in polysilicon prices.
Secondly, we also went through a phase of metal commodity price increases, although some of those have started to stabilize. And last but not least logistics continues to surprise a lot of us in the industry as well as other industries, and we only expect that the logistics costs will return to the normal fee sometime in 2023. So the price decline that you see on the chart going from end of 2021 through end of 2022 is primarily a result of somewhat of, sort of a return to normalcy for both the polysilicon prices, but more important, the logistics prices. And then, going forward 2023 and beyond, we get back to sort of the expected improvements in polysilicon efficiency or other cell efficiency that results in load polysilicon consumption ,as well as more manufacturing capacity coming online. And last but not the least, as some of the smaller suppliers and OEM producers actually being pushed out of the market.
So again, to recap, we expect to see module prices return to the cost of the price decline sometime in the next year or so. And by the end of year 2024, we would be somewhere in the range of 23 to 24 and a half cents per watt prices, which are effectively where we would have been dried with the recent upswing in the commodity and logistics prices.
PV Landscape Policy / Trade Headwinds
While the global supply trends are certainly moving the right direction, if we just look at sort of pure economics. However, there has you know certainly not been a lack of any policy headwinds. The three major contributors to policy headwinds in the recent months for the US markets, specifically have been the section 201 extension, the AD/CVD extension tradition, or the anti-dumping countervailing duty extension petition, as well as the more recent initiative by the Customs and Border Protection agency that issued a withhold release order on anything that contains metallurgical silicon or silicon metal produced by Hoshine, which is a manufacturer based in Xinjiang province in China.
So let's go look at these three individual policy slash trade headwinds separately.
Section 201 Extension
So the Section 201 that as some of you may know, are set to expire in February 2022, but there has been a petition filed by two sets of companies recently, local manufacturers recently, to extend the 201 tariffs. The likelihood of the tariff extension is currently uncertain, however there is a possibility that the tariff would be set back to up to 18% level, which is what they are at today. And then of course they're set to expire or set to decline over the next four years, from February 2022 through February 2026.
AD/CVD Extension
The second one being the AD/CVD extension petition, which actually was filed not too long ago, only a few weeks back, and most recently the Department of Commerce actually has asked for further information from the petitioners before it even looks at the merit of the petition. So to recap the petition actually asks for inclusion of modules that are being imported from Vietnam, Malaysia, and Thailand to do anti-dumping and countervailing duty tariffs. The rationale that's been shared in the petition is that since the Chinese-made wafers are being used to manufacture the cells and modules in those three countries, the petition has basically said or suggested that most of the high value manufacturing and the content of modules is already being delivered through the wafers that are manufactured in China. Again, let me remind you at this point, it's uncertain that what the Department of Commerce may do, even to the extent that we don't even know if they would be even considering the merit of the application. But if they do, there is a chance that there might be duties placed on modules that are imported from those three countries. And if that happens that they might also be retroactive in nature. We’re already hearing some news that are rumors that suppliers, one supplier at least, has stopped shipping to the US and set up across the board. None of the suppliers are willing to take the risk, which means that we are seeing some module contracts being renegotiated that are factoring in the potential inclusion of these tariffs in any kind of future trade.
Withhold Release Order (WRO)
And lastly, that has the potential to have a much longer term and long lasting impact on the solar industry is the recently issued Withhold Release Order that impacts all imports that contain silicon metal from Hoshine.
WRO Timeline
Let's go through the sort of the timeline for the WRO in slightly greater detail. So almost everybody in the industry had been expecting some kind of action from the Customs and Border Protection Agency since the Congress started to look at policy actions related to imports from Xinjiang almost a year ago now. Since the relaease of the Sheffield Hallam University report in May 2021, there has been definitely an acceleration of actions from various federal agencies. The CBP’s issuance of WRO probably being the most direct action that was issued back on June 24th, 2021. Since then, the Senate has also acted, it has passed S.65 bill, that includes Xinjiang-produced polysilicon as a material of concern.
And as far as we can tell, there are going to be ongoing investigations and the likelihood of further legislation is also very high.
The 3.5 Trillion-Dollar Infrastructure Bill Continues to Develop
While the policy headwinds exist, there's also Biden's administration's climate change agenda that tips the scale in favor of federal action that should or could incentivize solar as well as storage installations. That $3.5 trillion infrastructure bill that has been making rounds in Capitol Hill has several provisions for de-carbonizing the power grid extension of ITC or PTC as well, as well as the clean electricity program, a performance program, or CEPP are being touted as vehicles that will accelerate solar, storage and wind deployments.
Additionally, there could also be incentives for domestic manufacturing. Some of you may have seen Senator Ossoff’s bill that had put additional ITC value of as much as 11 cents per watt to locally manufactured modules, as compared to 4 cents per watt effective tax credit that would be available for imported modules. That is essentially 7 cents per watt. That could be a 7 cents per watt incremental incentive for locally manufactured solar panels.
Battery Storage Market Overview
So we've covered the solar markets. Let's quickly jump onto the storage market trends and run through them very quickly.
Future Battery Supply Expectations Continue to Increase with New Capacity Announcements and Megafactory Expansions
So the lithium-ion battery manufacturing capacity continues to grow, not just in China, although China is the largest manufacturer, as you can see by the dark green bars on either chart. We also expect to see, and continue to see actually, manufacturing capacity from Europe, North America and other parts of Asia as well. So China will continue to be the largest player in lithium-ion battery manufacturing through the forecasted window.
China’s 2060 carbon neutrality targets and strong support from the government agencies in securing critical raw material supply will help China to maintain its share of battery manufacturing through 2030.
Europe is predicted to expand in the fastest manufacturing growth as automakers are looking to localize factories and manufacturing closer to other plants, as well as their end customers in the European markets.
EV Battery Demand Will Continue to Outpace ESS Battery Demand in Both Medium- and Long-term
As I said, continuous sort of investments that are going on in the EV manufacturing, supported by strong government policy that China, the US and Europe are expected to sort of support the growing demand for lithium-ion batteries.
There are a few important observations when we compare the supply story with the demand picture. First of all, we have been and will continue to see, being a supply rich environment, some of you may have sort of seen the charts earlier where we projected that there could be as much as 3.9 terawatt hours of manufacturing capacity by 2030 as compared to roughly 2.5 or so terwatt-hours of demand by 2030, if you add up the EV and ESS demand on the left and right chart.
That doesn't mean that the stationary and the storage market will be a beneficiary or a primary beneficiary of supply availability, or even the economies of scale rate at pricing discounts. Given the huge gap between the EV and ESS market demand, ESS market will continue to be a price and supply taker, and nothing has sort of proven that thesis more though than the recent ESS battery price hikes that a lot of you must have seen.
LFP Pricing Set to Decline Over Next Five Years, 2021 to Have a Brief Pause
Talking of price sights, our price forecast calls for the resumption of Lithium-ion phosphate battery prices in 2022 timeframe after a brief pause this year, as more manufacturing capacity comes online and COVID-19 related impacts on the supply chain are in the rear view mirror. However, it is worth noting that sort of due to the uptake in EV battery demand, as well as the automakers shifting their preference back to the LFP batteries. There will be constant price pressure on ESS products. And in fact, we've already seen some ESS project bids or procurement bi[ds that are already having battery prices, LFP battery prices that are much higher than what we show you for the years 2023 and 2024, primarily because a lot of the battery vendors are not currently in the mood for being price competitive, given the supply shortages that we've been talking about.
China Has a Large Presence in the Battery Market from Mineral Extraction to Cell Manufacturing
Now, similar to what we've seen in the solar manufacturing space, China also holds the key to battery manufacturing, at least for now. Even through China does not contain vast amounts of cobalt, nickel and lithium reserves, heavy investment by Chinese companies in mining activities in Australia, the DRC and Latin America, help China to secure all material inputs across the state of the battery value chain.
China's lack of battery raw material production is sort of compensated by its heavy presence and investment in the midstream supply chain, whether it's for precursors or other battery raw materials, such as cathodes, anodes and electrolytes.
Most of raw battery material refinement takes place in China. 80% of that market is in China, compared to single digits in other parts of the world. So for instance, the capital manufacturing capacity in the US is only 8% compared to over 50% in China. And literally no commercial scale anode manufacturing in the U S compared to 87% in China.
All this is to say that the race to control the battery supply chain is very much on. And it's not beyond an event's imagination that there may be future trade decisions that could impact the industry and demand uptake in some negative ways, at least in the interim.
Technology Outlook
Like I had promised at the beginning of the presentation, I’ve offloaded all the risks and uncertainties about the markets. It’s time to sort of move on to some of the happier themes and talk about sort of the technology and the innovation that we see in the industry.
Product Level Comparison: PERC, TOPCon, HJT
So I’ll start with solar. With the PERC, all set to sort of reach the efficiency ceiling in the next two to three years, technology such as TOPCon and HJT are now being pursued by several manufacturers, since they can potentially offer cell efficiencies up to 27% with back contact.
So in addition to the higher cell efficiencies of 25-26% that we currently see in R&D lines or small pilot scale projects for both TOPCon and HJT technologies. As I said, it might take a few years before these champion sort of efficiencies are fully translated into manufacturing efficiency that’s acceptable cost. That, along with larger wafers that we already have are seeing in the market, the shift away from M2 to M6 to now M and G12 wafers, we are starting to see modules that will have power ratings as high as 700 Watts and beyond. However these products are still not in mass production stage, meaning the power bins of these products are bound to further increase our suppliers, continue to optimize cell and module technologies.
The efficiency gap between the n-type technology and PERC will widen significantly as the PERC efficiencies are starting to flatten out, whereas n-type products still have a lot of running room in terms of improvement in cell efficiencies, as well as the module level optimization.
So now, as I said, but several sort of suppliers already sort of featuring products that contain TOPCon as well as HJT. We are starting to see TOPCon emerging as the most preferred n-type technology solution as opposed to HJT. The reason behind that is fairly simple, right? It's because TOPCon is essentially an upgrade from port manufacturing which can be achieved at significantly lower CapEx cost. But as HJT requires new manufacturing lines, and as a result of that, significant amount of CapEx investments compared to Topcon.
Overview of Key Post-Lithium-Ion Battery Technologies
Moving on from the world of solar technology innovation to lithium-ion battery innovation. So, ever since sort of the first generation of lithium-ion batteries that had energy densities of 80-watt hours per kilogram or so, the energy density has improved by a factor of 3. And within sort of 30 years, the whole lithium-ion battery manufacturing industry and the value chain has matured enough and grown significantly. In the meantime, organic chemistries are still being researched.
We are seeing recent announcements of SPACs and investments into companies that are researching on and trying to commercialize these alternate or post-lithium-ion battery technologies. Things all the way from Na-ion batteries, which is SIB, to LSB, which is lithium sulphur batteries, to solid-state batteries and finally lithium-air batteries, which are LABs.
So a couple of things to keep in mind, right, the SIB or the sodium-ion batteries have fairly similar working mechanisms as compared to lithium-ion batteries and take advantage of sort of the good reserves that we have for sodium element, as well as the lower cost compared to the LFP batteries. And likewise on the anode side, weare expecting to see innovation that will enable, lead to metal being introduced as anode and thereby again open up the world of solid state batteries. Again, bearing in mind though, that almost all these batteries are being currently resourced for commercialization in the EV market, and it's likely that the entry into the stationary energy storage market space might still be another three to five years out. So with that, I am happy to take any questions that we may have received in in the next six or so minutes that I have left.
Q&A
Does the module price factor in policy headwinds and logistics issues?
Jenny Arnau:
We do have a couple of questions. And the first one said, you mentioned that the module price will be in the range of 23 and 24 cents per watt by the end of 2024. Does this factor in the policy headwinds as well as logistics issues you mentioned?
Ravi Manghani:
No good question. So it does not factor in any policy headwinds. In other words, we are not factoring in any potential extension of section 201 tariffs or any AD/CVD tariffs imposed on module that are being imported from the three countries that I mentioned. But the logistic issues are seen to be have resolved by 2023 and beyond. So yes the answer is yes to logistics, no to policy headwinds
How has the instability in the commodity market impacted ESS battery pricing?
Jenny Arnau:
Okay, good. Another question. How has the instability in the commodity market impacted ESS battery pricing? Are module cells being impacted? Are BESS containers being impacted? So lots of questions in one question.
Ravi Manghani:
Yes, yes, yes, and yes. No, absolutely. So I know we showed some of the recent price trends in polysilicon in the presentation. I did not get a chance to actually go through the commodity prices that also had been climbing and silicon in decline, particularly for lithium but also if you're thinking about NMC batteries and also for nickel and cobalt. So all in all, all these commodities have seen a price update in the last 12 to 18 months. And although the battery, as expected, anything that's downstream of these commodity market will have a lag in terms of when it starts to see the impact to the end customer. And now finally, we’re starting to see that impact playing out in terms of cell and battery pack prices that have gone up in the past six or so months.
Jenny Arnau:
What other lithium-ion chemistries can rival LFP pricing?
It's good to hear. And actually Ryan, who's the one who asked that question also had another one. LFP has become the go-to chemistry in the utility scale ESS industry. NMC has seemingly become obsolete. So what other lithium-ion chemistries can rival LFP pricing in the next three to five years?
Ravi Manghani:
Oh, great question. And I hope I touched upon that towards the very end of the presentation. We certainly see a potential for sodium batteries in the NAT storage space. I'm sure a lot of you actually saw CATL’s announcement back in June where they publicly announced that they are looking to commercialize a sodium-based architecture. Now, the advantage that sodium batteries have come back to LFP are that they pretty much work on the same platform. You’re essentially just swapping out lithium with sodium. And as a result of that, the speed to market is going to be likely faster compared to solid state or lithium-air or lithium-sulphur, or any of the other chemistries. And last but not the least, while sodium batteries may not have the same density as lithium batteries do, the good news is that, as Ryan may know, that the stationary storage application does not necessarily rely on or need the same level of gravimetric and volumetric densities as the EV markets do. So there are some ways through which sodium batteries may in fact accelerate and commercialize faster in the ESS market compared to their path to commercialization in the EV space.
Module Prices Now Compared to January 2020
Jenny Arnau:
And we actually got two more questions, but we have two minutes left, so a bit hard. But a follow up question on the first question I asked is, what is a module price right now? And what was it in January 2020 when the price hikes began?
Ravi Manghani:
Yeah. I thought that was clear from my screen, but let me quickly go back. I think to answer the question there, the module prices back in January 2020 were in the mid- to low- 30 cents per watt. Versus effectively we are flat or maybe a few cents higher. Today, the module prices in the mid to high 30 cents per watt range.
Jenny Arnau:
Okay. Good to know. And then really well, unfortunately we can't really come back to any more questions, but I don't know if you've got any closing statements that you'd like to make Ravi.
Ravi Manghani:
No, I think closing statement is that, we are certainly in very unpredictable and unusual times, not just because of COVID, there are certainly COVID overhangs on what's happening with supply chain. But the fact of the matter is the market is growing and will continue to face some of these growing pains, as any industry that has to mature have had in the past.
Jenny Arnau:
Great, great, well, that's a great way of ending it. I'm sure if we were back to our usual lives, you'd get a round of applause at this time, so feel the virtual love, and thanks for that presentation, Ravi, I'm sure they all found it quite insightful.
