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23 June 2022

Buyers club waves $6 billion of deals at US solar supply chain

If you ask the question of just what will happen after Joe Biden’s 2-year moratorium on import duties for solar cells and modules imported from Southeast Asia – for some the answer is “We’d better make our own solar panels by then.”

So it doesn’t come as too much of a surprise that a leading group of solar renewables players – AES, Clearway Energy, Cypress Creek Renewables, and DE Shaw Renewable Investments (DESRI) – have formed a buying club, to guarantee anyone who wants to build US factories – as much business as they can handle in two years’ time, as long as supplies are fully domestic. This sends out a clear message to the investment community to back the expansion of solar supply, because “we have the work for them.”

We suspect that this is with the encouragement of the White House and the is triggered by the fear of what happened just prior to the Biden invoked the Defense Production Act, to accelerate government purchasing of solar components. The Department of Commerce began a full investigation of solar supplies and their providence to determine if the supply chains that were supposed to start in Cambodia, Malaysia, Thailand and Vietnam, do in fact actually start there and are not, in fact, built around Chinese imports.

With that move some 80% of US solar imports were frozen and a majority of solar projects were put on hold. The implication of Biden’s moves is that in two years’ time the US will return to that situation unless it can sort out a 40 GW and rising supply chain for the entire US.

This single consortium can promise $6 billion of spending to a US Supply Chain, if you get two or three more such buying clubs, that should invite enough manufacturing capacity to go for broke and start up tomorrow. It is like a guaranteed order book for any solid US solar company, but those companies MUST start building factories now, and it’s already too late for building a polysilicon factory – unless, like one or two, you have already started.

When Biden involved the defense supply act he also said that he would put the full power of federal procurement to work spurring additional domestic solar manufacturing capacity, which is going to amount to a whole lot more of guaranteed supply contracts.

The issue here is price. If this buyers club and the US government think that an entirely US supply chain can supply this amount of solar for the same price as their Chinese counterparts, that would be insane. A bit of latitude on price at first and a promise of rapidly growing cuts in price as these manufacturers go through their learning curve, may well swing enough interest to get the ball rolling.

Rethink Energy believes that suppliers from Cambodia, Malaysia, Thailand and Vietnam are unlikely to be comfortable with supplying the US over the next two years, knowing that at the end of that time the Commerce Department could be on their tails again, with the protection from retrospective tariffs subject to legal contest – at the very least, they would be back to square one looking for customers for their panels. Some may believe that the Commerce Department complaint will simply go away, but that is unlikely – it will have to run its course and its likely outcome will be negative. Some suppliers from ASEAN will no doubt offload some panels, on the buyers risk entirely during the next two years.

And let’s face it if we were advising the US President, this is what we would tell him to do – build a solar industry, introduce some form of carbon market, and a carbon border adjustment mechanism, and then US panels would cost a little more, but be made without coal-based electricity, and bunker fuel transportation emissions – so that Chinese panels would suddenly be at a price disadvantage commercially.

The Consortium has launched a competitive RFP to search for qualified manufacturers who are aligned with the consortium’s goals and can commit to a long-term strategic partnership to supply up to 7 GW of solar modules per year starting from 2024. The group said that increasing domestic US solar supply chains would create lasting resiliency and alleviate industry constraints.

“Our group of companies comprise industry leaders that are committed to delivering cost-effective, renewable power for our customers. Our joint commitment to procure at this scale can provide the certainty suppliers need to ramp up capacity and overcome current supply chain constraints,” said David Zwillinger, DESRI’s CEO.

Rethink Energy has been asked a number of times what should solar firms do for immediate solar development– well now suppliers are off the hook for the next 24 months and can buy from anywhere in the world – but they will have to think about the acceleration in solar that the US needs – the Rethink Energy forecast for US solar installations has it going from 21 GW in 2022 (which it will fall short of) to 44 GW and 50.6 GW in 2023 and 2024 – something that will need all the domestic supply arrangements that US investors can muster.

The consortium says that promoting on-shoring of module supplies will create 250,000 permanent jobs and 50,000 new construction jobs by 2035.

As we said, if you are in solar development and you are NOT in a buyers club like this – either join one or start one now.

“The Consortium has a large and growing pipeline of solar projects in the United States, and we are committed to supporting America’s clean energy transition,” said Andrés Gluski, AES President and CEO. “We’re working together with customers of all kinds to decarbonize their operations and the grid.”

“Today’s announcement from the Consortium is just one step toward bolstering America’s solar supply chain,” said Craig Cornelius, CEO of Clearway Energy Group. “With legislation pending before Congress, policymakers can scale our domestic manufacturing workforce and restore our country’s legacy as a manufacturing leader. We appreciate the Biden administration’s commitment to invest in American workers and urge lawmakers to seize this opportunity.”