The solar industry had many big storylines in 2022, but nothing was perhaps more pressing than solar module supply. We have clarity on AD/CVD. Next up to figure out is the Uyghur Force Labor Protection Act (UFLPA). Reuters reported ~1,000 module shipments had been detained this year under the act, but some of the backlog is starting to breakthrough. ROTH Capital Partners mentioned in an industry note that: “JKS modules with Wacker poly may have just been released. We believe this could result in a ramp up of volume and imports.”
How reliable is supply right now and going forward? In our State of the Solar Industry episode of Power Forward!, David Dunlap, VP of product strategy with U.S. solar distributor BayWa r.e., discussed all the key challenges in the market. You’ll want to hear the full, wide-ranging episode below, but here is part of the transcript concerning module supply.
David Dunlap: In terms of headwinds, in no particular order we’ve got the WRO hangover which became the UFLPA; we’ve got continued COVID impacts and port shutdowns; the threat of retroactive tariffs; the AD/CVD case; global supply shortages on polysilicon, semiconductors, other materials and components; labor constraints; threats of rail strikes; actual trucker and port strikes; severe weather events and catastrophes; inflation and rising in interest rates; and now we’ve got a Dec. 15 decision around the Californian NEM 3.0 which is expected to pass. A lot of challenges; a lot of bad news.
And I think the takeaway, despite all of those headwinds and challenges is we know demand remains strong. We have price parity for solar. Our industry is thriving, and I think, as a whole, we’re all sort of leaning into and embracing resilience and showing our maturation as an industry.
You mentioned the WRO and UFLPA … let’s dig into those a little bit more. … The module issue is still lingering over everything. How do we expect them to impact the industry going forward?
Dunlap: The Withhold Release Order (WRO) was an initial attempt to restrict imports of products from the Hoshine companies, which were alleged to be committing human rights violations against the Uyghur people in a region of China. That was sort of the first step of a human rights issue that the American government thought was important to take a stand on, and I think what we sort of forget is how that was just a first step.
Then Congress passed the Uyghur Force Labor Protection Act (UFLPA), in December of 2021 but it didn’t go into effect until June 21 of this year, and that really replaces the WRO.
I think we all have to keep in mind that this is, at its core, a human rights issue and not an anti-solar policy. But it does create a very real challenge for us in our industry, and what the Customs and Border Protection (CBP) has been tasked with doing is preventing any importation of products, components or sub-components that are believed to have had some form of human rights abuse or forced labor in their supply chain. The importers actually have to demonstrate or prove the negative, if you will, that their products and the supply chain are free from forced labor. That’s a really high bar.
What we have to take away from that is that resiliency and flexibility is going to be key to mitigating this risk. We have to keep up with where CBP is in their attempts to stop product and inspect and demand that compliance documentation. And that may mean that what is available and being imported today won’t be tomorrow. So, we have to keep up with that and be willing to change, be flexible in our product specifications.
Obviously, BayWa is here to help with that. We’re keeping close tabs on it, and our line card is designed to run through that sort of complexity and offer alternatives so that all the eggs aren’t in one basket.
We’ve seen the numbers – the thousand shipments of modules that have been detained under the UFLPA and however many GWs, and in my mind I think of that as more utility scale kind of solar business. You mentioned BayWa’s role in making sure that all of your customers can meet their own demand with module supply that’s available. With those numbers I just mentioned, and with the customers that you serve, have there been issues? Or are you pretty confident that the demand for residential and commercial is pretty much being able to be met by the module supply that we do have available?
Dunlap: I think if you had asked me that question three months ago, I’d be giving you a different answer than I am today. Absolutely there has been disruption to the supply chain and lack of reliable supply with a number of our vendors that had some detentions and were able to successfully import the product subsequently. The delay, the time it took, to run the gauntlet and provide that documentation — six to nine months, and in the case of one vendor it’s still ongoing. That insecurity, that unknown time horizon makes planning a real challenge.
What we’re seeing right now here at the end of November is an interesting influx of what I’ll call tier one-and-a-half or tier two module supply that are coming in under the radar of CBP. They’re not the big names that were first on the list to get inspected and detained. They’re able to bring in product and they’re being able to push it into the channel because the demand was there. They’re actually offering it at a lower price than some of those other players, and we believe that the current market demand is being met with adequate supply.
That being said, we were way behind all the way up until this point, and so where are we on the demand curve for current installations versus the sales pipeline? That’s a little harder to say because really the only measure that we have in our position as the distributor is the sales out that’s feeding the install rate.
What we know from talking to our customers is that their demand really hasn’t slowed too much. There’s been a little bit around the change in cost of money and loan prices, but they’ve got a pretty robust sales pipeline. They’ve still been limited as to exactly how many jobs they can install every week or every month, and that run rate has been relatively consistent against an inconsistent supply chain. But I think we’re getting closer, at least in the DG market.
[And then regarding the future of UFLPA-related module detentions]
Dunlap: Unfortunately, I think my prediction here is it gets worse long before it gets better because according to the law — the act — Customs Border Protection is mandated to ban the import of these products, and the way in which they decide what products are non-compliant is murky at best, and they can’t ban everything all at once or our economy would collapse. Because, like I mentioned before, this isn’t just about solar. This is anti-tomatoes and clothing and fibers, and there’s so many different impacts of this, that it’s just not realistic for them to stop everything 100 percent. But they do have to work their way through and enact the ban across different industries and across different manufacturers and imports over time.
My caution to any listeners that are on the manufacturing side is if you haven’t already figured out your documentation paperwork, get it figured out, because your day will come, and you need to be able to produce that. On the installer side, again, I think it’s just important that we understand that safe today doesn’t mean safe indefinitely, and unless and until you’ve actually proven and you have full documentation — and we’re starting to see a few partners that are capable of doing that. The Trina imports that BayWa is selling today are fully inspected and documented through UFLPA, and that’s an exciting development. I think Trina has bragging rights for the first ones to be able to do that.