I was talking with a friend in the solar industry last week. He asked, “Given the situation with the coronavirus, where in the world can you secure quality solar modules now?”
My answer: Geography doesn’t define quality. With business again growing across Asia, solar sourcing can still be accomplished by applying some basic rules to find reliable suppliers regardless of location.
Supply chain status
Due to the COVID-19 global supply chain disruption, solar developers may experience unforeseen delays in module deliveries for their solar projects. We’ve heard of some module suppliers communicating potential force majeure actions, and fewer sending actual FM notices to individual buyers. We have confirmed that some suppliers had to temporarily shut down manufacturing (notably in Malaysia) due to restrictions on travel and assembly.
Nevertheless, most of the supply chain in China is up and running. Reuters reported on May 15 that factory output there rebounded in April to 3.9% above a year ago, over twice what had been expected after a 1.1% fall in March. The China National Bureau of Statistics reported even higher production numbers, and a 3% uptick in exports in April. We hear that overall manufacturing in the solar sector has returned to above 90% of factory capacity.
Following last year’s tremendous growth in demand for solar, particularly in the United States, 2020 was shaping up to be another year of strong demand. That put upward pressure on prices. Module manufacturers have been enjoying a significant backlog. Some booked most of their 2020 capacity, and some have already booked some of their 2021 and 2022 capacity.
Well before we heard of COVID-19, suppliers were establishing new OEM relationships, notably in Vietnam. This was driven, in part, to avoid or reduce tariffs. Modules assembled outside of China, without cells made in China, are not subject to antidumping or countervailing duties. As a result, module assembly capacity in Vietnam has grown, and now more than a dozen of the most-known solar brands use OEMs there to make modules. Recently, we have seen growth in OEM capacity extending beyond Vietnam to Cambodia, and we see more brands looking to new OEMs.
There is no “best country” from which to buy solar modules.
If you’re sourcing modules for 2020 (and beyond), rather than selecting a module based on the location of the factory, consider first your product requirements.
Once you’ve determined which suppliers produce a module to meet your needs, among other factors, consider the history of the brand, the module design and bill of materials, the quality history of the factory, and price. It is also important to consider the factory’s available capacity to meet your schedule. But there isn’t any particular country of origin that should be excluded from consideration based on location.
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Site by site basis
For now, the upstream impact of the COVID pandemic has been limited to delays measured in weeks. We might see extended shutdowns of individual factories that lead to suppliers exercising other factory locations or hurriedly establishing new OEM relationships. Caution is due.
Selecting your supplier based on their designation as a Bloomberg New Energy Finance Tier One supplier, for instance, misses out on many of the elements that you are likely to find important, including module quality.
Under “normal” conditions, through the eyes and reports of our quality assurance engineers who are in factories around the world, we see a variation in quality from one supplier to the other and from one factory to another. From time to time, we see factories tackling the challenge of new module architectures and bills of materials – but not without quality issues as they ramp up.
As suppliers introduce new products, expand their capacity – either internal or via OEMs – and deal with their own upstream supplies that may also be impacted by COVID-19, the importance of being onsite and in the factory during production has never been greater.
Future COVID-19 restrictions are unpredictable. While we hope there is not a new wave of the outbreak in China, and that other nations cope with strategies to contain the spread of COVID-19, we see substantial noise in the system.
There are new and unprecedented pressures to ramp up production to meet demand in light of a potential stoppage in some areas of critically needed supply. Adding to this is an unprecedented degree of innovation, from wafer size to cell process to cell-to-cell interconnection and more. On top of that, with the ongoing use of OEMs, you end up with a risk around your supply timeline and a risk of product underperformance. Due diligence can build trust: trust but verify.
How to evaluate new solar module suppliers
At a minimum, due diligence of a factory supplying your firm includes:
● A technology and product evaluation by independent and experienced technologists/engineers;
● A manufacturing facility audit by an independent quality assurance entity with specific expertise in solar;
● A historical review of past products and recalls;
● A commercial review, including supplier financials; and if necessary,
● Finding alternatives that can meet your requirements for specifications, bankability, warranty, time frame, and logistics.
CEA is fortunate to have years of manufacturing facility data from around the world. As part of our audits, for many suppliers, we review the historical factory performance. We often know key members of the supplier’s organization, their past relationships with customers, and their degree of cooperation with our factory audits and quality criteria.
This commercial and technical due diligence, including factory audits, can require several months to complete. Often, the due diligence includes setting up face-to-face meetings between the buyers and the suppliers; sometimes these meetings take place at the suppliers’ headquarters, often in China.
COVID-19 supply constraints will hopefully end soon, but tariffs, pricing, and other challenges will always affect quality and supply. As new constraints emerge, a robust quality assurance program sets you up to weather the storm.
Paul Wormser is Vice President, Technology at Clean Energy Associates. Paul has 40+ years of solar industry experience with management roles in solar technology and business development for the world’s largest solar companies, including SunEdison, First Solar, Sharp, Konarka, Mobil Solar and Exxon Solar.
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