There was a time in the solar industry when developers could sign a contract one day and virtually get equipment shipped the next. However, a net of contributing factors have been squeezing the supply chain hard over the past year, and things may get worse before they get better, say various attendees of the recent 2022 Intersolar North America trade show in Long Beach.
Talk in the aisles of the exhibit floor included assertions that some equipment suppliers, like inverter and battery companies, now have new order backlogs that could take over a year to fill. Some raw materials — including plastic resins from grid-challenged Texas — are still slow to ship, delaying battery and other manufacturing. And the cost of transportation of a 40-foot container from China to U.S. shores is still off the nautical charts, they say.
Overall, the temporal lag in the supply chain seems to be about 2x what it was pre-pandemic, and we’re far from being out of the woods, various solar execs suggest. “We still don’t anticipate overall improvement in the supply chain until after second quarter of this year,” says David Dunlap, the VP of operations at BayWa r.e. Solar Systems USA, one of the largest U.S. solar equipment distributors.
Shipping rates off the charts
Major kinks in the supply chain include transportation costs and delays, on sea and over land. “Over the last few weeks we’ve heard that some rates for transoceanic shipping have increased, not decreased,” says Dunlap.
Others echo the problem, which is aggravating solar project costs across the boards. “China shipping costs used to be a few thousand for a container, but now are up about 7x to $14,000 to $15,000 each,” laments Michael Fakukakis, CEO of Mechatron Solar, a U.S. manufacturer of dual-axis trackers.
Once the meandering containers arrive in the United States and run the long gauntlet through the ports and tax collector offices, the continuing domestic truck driver shortage is adding time and money delays to the solar supply chain.
The transportation impact is large within solar market, dampening growth. The Solar Energy Industries Association (SEIA), observed in its Q4 2021 Solar Market Insight: “Supply chain constraints and logistics challenges, including months of disrupted shipments due to the recently dismissed AD/CVD petition, are expected to lower the 2022 outlook for U.S. solar by 25% or 7.4 GWdc. Projects that have already procured their equipment are the most likely to be built next year.”
Similarly, Rystad Energy analysts are even more sober about the supply chain outlook, reckoning that rising shipping and equipment costs are “threatening to postpone or cancel 56% of worldwide utility-scale solar projects planned for 2022,” reported the World Economic Forum in November.
Labor shortage impact
Trucking is not the only segment of the solar supply chain under pressure by labor shortages. Warehouse software provider 3PL Central recently conducted a 2021 survey of member warehouses and found that “With finding and retaining workers ranking in the top three challenges for 3PL warehouses, labor emerged as a considerable area of concern this year. Nearly every supply chain publication has highlighted concerns about supply chain disruption and the worker shortage,” the company reported.
“It’s no surprise that this has impacted the 3PL warehouse industry severely. Fifty-seven percent (57%) of 3PLs cite that labor makes up 40 percent or more of their total costs, while 18 percent say it accounts for 60 to 75 percent of total costs,” 3PL adds.
Whipsaw supply changes
Steel prices in China and Europe have stabilized at about 40 percent over pre-pandemic levels, according to Fakukakis. “Except in Mexico, where steel prices are still very high for unknown reasons,” he notes. Such price factors have forced his company to double the number of global suppliers it now uses and has encouraged greater geographic diversification of international sourcing.
Others agree that sourcing strategies have changed — at least for the near term.
“We are always looking at alternative suppliers and it is prudent to have multiple sources; over the past year we have accelerated the pace of that process,” says Aric Saunders, EVP of sales and marketing at Electriq Power, a storage system integrator, which showcased its latest PowerPod updates at Intersolar. Having flexibility in times like these is part of the reason Electriq focuses on software and outsources its hardware.
Dealing with more suppliers can have its own challenges though, points out Dunlap. “If you now have two main suppliers and two new backup suppliers, you still have to give enough business to the backups in order to maintain the supply relationship,” he says.
Sheer new growth demand is also pressuring component manufacturing like a whipsaw now, after many companies scaled back production as Covid worsened last year. And as solar manufacturers and EPCs seek out more diverse supplier chains, the lead time to scale up is a major factor, observes Dunlap.
“In a situation where a manufacturer was supplying 20% of global demand and now is being asked to supply 80%, they can’t turn on new capacity overnight. It typically takes 3 to 12 months to gear up most production lines, and for electronics, the timeframe can be longer,” Dunlap says.
Learn to adapt, deal with delays
As prices swing, transportation lulls and production lines expand, delays in availability have doubled, solar execs say.
“We used to publish 90-day lead times for quotes, but have had to go out to 180 or more,” says Saunders. “We’ve had to shift ordering further down the food chain for better forecasting. These days, you have got to be realistic; no one is sitting on huge supplies and at the end of the year, a lot of companies’ supply shelves were pretty bare.”
Longer lead times are also aggravating competition for equipment, encouraging some companies to over-order as they plan for growth. “If you forecast 1,000 parts and only buy 200, then your future forecasts for 1,000 will likely get downgraded, unless you can provide more confidence in your intended commitment through that supplier,” notes Dunlap.
Contracts are becoming more flexible in terms, with longer delivery times for multiple equipment configurations so that buyers can take advantage of what is actually available when a planned project takes off.
“Project designers need to be more adaptable when it comes to a project so that they aren’t stipulating the use of a particular type of equipment that may be backordered, while another suitable type is available,” suggests Steve Higgens, the technical services managers at Rolls Battery Engineering.
“Sometimes developers will opt for lighter batteries in series, since they are easier to lift, passing the extra cost on to the customer, rather than scaling battery size appropriately,” Higgens says. This practice can clear out one size in a warehouse, ironically leaving shelves full of another.”
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