Rebuilding domestic solar supply chains will hinge on incentives, not tariffs, experts say

To be sure, falling prices led to a lot of solar being built: The U.S. went from 2.5 GW of utility-scale solar capacity in 2010 to 38.7 GW in 2020. Price declines fueled by Chinese subsidies for its own manufacturing capacity helped the U.S. solar industry expand and greatly contributed to grid decarbonization goals.

Rhone Resch

U.S. tariffs that were placed on Chinese imports in 2012 and 2015 threatened to slow solar's momentum. And it did for about two years, only to see the industry come roaring back.

All the while, the U.S. solar industry knew deep down that its growing dependence on China left the supply chain vulnerable. Auxin Solar's tariff petition in February magnified that point, but arguably does little, if anything, to fix the problem.

A recent report from the Ultra Low-Carbon Solar Alliance found that Chinese producers hold 83% of global capacity for polysilicon production, 96% for wafers, 79% for cells, and 70% for modules.

Developing a domestic supply chain is paramount to the evolution of the U.S. solar market, Resch said as part of the third installment of a four-part Factor This! series on the Auxin Solar tariff petition.

Resch said he doesn't agree with Auxin Solar's petition. But he does believe the trade case demonstrates the urgency for building out a domestic supply chain.

"From my perspective, I think it's absolutely critical that we do focus on bringing (solar) manufacturing back to the United States." He said the U.S. can successfully compete with Chinese suppliers "as long as the right mechanisms are put in place."

One such mechanism would incentivize domestic manufacturing throughout the solar supply chain.

Sen. Jon Ossoff (pictured) and Sen. Raphael Warnock, both Democrats from Georgia, sponsored the Solar Energy Manufacturing for America Act to incentivize the domestic production of solar modules. (Photo courtesy: Sen. Jon Ossoff's office)

Sen. Jon Ossoff (D-GA)'s Solar Manufacturing for America Act (SEMA) is supported by domestic manufacturers, Auxin Solar included, and utility-scale developers alike. The bill passed the U.S. House of Representatives but has yet to garner a vote in the Senate.

The bill would create tax incentives of 11 cents/watt for integrated modules, 4 c/w for cells, $12/sq. m. of wafer, and $3/kg of polysilicon. Production of non-integrated solar modules would receive 7 c/w. Production of solar trackers and inverters would also receive credits.

Martin Pochtaruk

Martin Pochtaruk, CEO of North American solar module manufacturer Heliene, has been a vocal supporter of the SEMA Act since it was proposed. Incentives are crucial, he said, for domestic manufacturing to survive razor-thin margins.

Following factory expansions in Florida and Minnesota, Heliene has about 900 MW of manufacturing capacity. The company plans to reach 1.3 GW of capacity by early 2023, even without new incentives. But, if the SEMA Act is approved by Congress, Heliene could also invest in domestic cell manufacturing, Pochtaruk said on the Factor This! podcast.

Pochtaruk said that without incentives like those included in the SEMA Act, domestic manufacturers like Heliene will "continue to limp through."

"I think, personally, that it's very exciting and involved on something that is positive, that will promote change, and that will create employment," Pochtaruk said of his advocacy for the SEMA Act.

Heliene, founded in Canada in 2010, has expanded its footprint in the U.S. largely due to safeguards implemented in 2015.

In 2017, Heliene took over the Mountain Iron, Minnesota, manufacturing facility previously occupied by its partner Silicon Energy. The company made additional investments as a direct result of the so-called Section 201 safeguard import duties that were implemented the following year.

Still, Pochtaruk isn't supportive of additional tariffs -- Auxin Solar's petition could also hurt Heliene's operations in Canada. He said the focus needs to be on establishing tax credits for every stage of the domestic supply chain.

"Any incentive that is brought forward, we will take it and run with it," said Pochtaruk. "It's better than the kick in the butt that we generally get."

Heliene's heterojunction solar cell module manufacturing facility in Riviera Beach, Florida (Courtesy: Heliene)

Along with the renewed push to develop a domestic solar supply chain, there's an increasing focus on the carbon content of solar manufacturing that could also help the Made in America effort.

Michael Parr

Michael Parr, executive director of the Ultra Low-Carbon Solar Alliance, advocates for sustainability issues to be considered in solar module procurement decisions while working to decarbonize the solar supply chain.

Modules produced in Southeast Asia arrive at ports laden with around double the carbon content than modules manufactured in the U.S., he said. Parr is developing a sustainability label for solar PV that includes embodied carbon criteria for purchasers to specify ultra low-carbon solar requirements in their requests for proposals.

All of that could work in the favor of U.S. solar module manufacturing and efforts to combat climate change.

"We have this situation now where the supply is increasingly unreliable because it's so heavily concentrated -- whether it's labor issues or power issues or shipping issues or tariffs -- every time there's a little bit of a disruption, we suffer a supply shortage," Parr told the Factor This! podcast. "There's increasing awareness that the concentration of our most important energy supply chain on the electricity side in a nation that is not our dearest friend is a strategic risk."

Parr said he doesn't agree with using the "blunt instrument" of tariffs to re-establish a domestic supply chain. But he says the anti-dumping, countervailing duties investigation, and investments in polysilicon and cell production that are already being made, could lead to a doubling of U.S. solar manufacturing capacity over the next year. Passing the SEMA Act, he said, would lead to even more growth.

Rhone Resch  00:00

I think there were creative things that we could have done and should have done as an industry to prevent it. And unfortunately now we're stuck in the midst of it.

Host: John Engel  00:19

In many ways we owe the rapid deployment of solar in the US, and our current supply chain vulnerabilities to China, the Auxin Solar tariff petition and the Department of Commerce investigation only magnified the point. Whether you agree or not with oxygens approach, one thing is clear: the US became addicted to Southeast Asian solar modules and the reliability of year-over-year price declines. Is it too late or can targeted policy decisions create a lasting solar manufacturing market in the US? All that on this episode of Factor This I'm John Engel from Renewable Energy World. This is Factor This! -- a podcast designed specifically for the solar industry. This is the third episode of a four part series on the Auxin Solar tariff petition. And this time, we'll be focusing on solar supply chain and domestic manufacturing ambitions. First up in this episode, a conversation with Rhone Resch, who led the Solar Energy Industries Association from 2004 to 2016. He shares his biggest regret as China cemented its control on the manufacturing supply chain and his hope for the future. Then Martin Pochtaruk, CEO of North American Solar manufacturer Heliene on what it'll take to get domestic manufacturing from around 10 gigawatts a year to 25 gigawatts to meet President Biden's goals. And finally, we'll talk to Ultra Low-Carbon Solar Alliance Executive Director Michael Parr about how a closer look at the carbon footprint of solar manufacturing could boost domestic production. Now, Rhone Resch.  Most of you probably already know Rhone Resch for his role leading SEIA as the CEO from 2004 to 2016. He's been involved in solar and DC politics for two decades and remains closely involved as the CEO of Advanced Energy Advisors. I've been looking forward to this interview since we launched the Auxin series. So thank you so much for joining us, Rhone Resch.

Rhone Resch  02:54

My pleasure, John, thanks for having me.

Host: John Engel  02:55

Of course. Well, let's start high level before diving a little deeper into this. What's your initial reaction to the Auxin Solar tariff petition and how it's played out?  Well,

Rhone Resch  03:04

Well, I mean, I think first I gotta say, it's, it's a huge impact on the industry, right? I mean, it was immediate, it was painful across all market segments. And, and it's a very blunt instrument. So unfortunately, it is affecting pretty much every company in the solar space. So at least the intended consequence, I think, was for there to be some action to prevent some of the modules coming in that were at very, very low prices, so it would basically support Auxin. The truth of the matter is, it's shut down all imports, and it has decimated project development, for resi, C&I, and utility-scale.

03:49

scale.

Host: John Engel  03:50

So can you take us back then, and walk us through how you and SEIA in the industry at large approached that first round of tariffs and how that really shaped the industry going forward over the next five and 10 years?

Rhone Resch  04:00

Yeah, when the first trade case came up and it was really started in 2011.... It was it was new to the industry, we really hadn't dealt with trade issues. So we lawyered up, we figured out what was going on and, and did the best we could as an industry to try to respond in a very positive way. That, you know, the trade case wasn't necessary.  Clearly it went through the impact was was significant. It did slow down the industry's growth in 2012. And a little bit in 13. In the same way, we saw that again in 2015. So the process by which a trade case impacts the industry is significant. I think we realized as we went through this, that we had to be much more aggressive as an industry in trying to support domestic manufacturing and trying to make sure that those bad actors who are out there dumping into the US market are held accountable. So it's a tough balance, John, where you want to, you know, make sure the rule of law is applied. But yet you still are able to grow an industry which is so important in addressing climate change.

Host: John Engel  05:16

So fast forward to now obviously, when we're talking about the Auxin Solar case, we are also speaking more broadly about the need for domestic manufacturing. Though, as we know, of Commerce levying tariffs will not in itself create a domestic supply chain. But take away the Auxin case, is the pursuit of domestic manufacturing, knowing our reliance already on China and Southeast Asia, is it worth it? That's obviously one of the important questions we have to answer as we emerge from the Auxin case, regardless of how Commerce rules.

Rhone Resch  05:48

Yeah, it absolutely is. You know, we, as the United States invented solar energy at least photovoltaics. We were the largest manufacturer for a long time. Granted, the industry was small, but certainly the roots were here in the United States. And for us to just let it go to China, I think is a shame. One, because there is a tremendous amount of intellectual property that gets developed when you are developing solar, right. And both the research but also in the manufacturing, it's also a huge economic engine, both in terms of the polysilicon manufacturing, the glass manufacturing, obviously cells and modules. And those have real positive impacts in local communities throughout the United States, if we can support it.  And so from my perspective, I think it's absolutely critical that we do focus on on bringing manufacturing back to the United States. And I actually believe that we can compete with the Chinese as long as the right mechanisms are put in place, so that we're supporting domestic manufacturing. And we haven't really done a very good job of that historically. You know, I think the Chinese have always made efforts to prioritize certain industries that fit into their five year plan, and then subsidize them in order to grow those industries. You know, when when they first started focusing on solar, their factories were really inefficient, and so was their product. And, you know, the solar cells were literally hand tied, and there was 1000s, and 1000s of people working at these plants. So it was a jobs program, and probably more ways than it was a focus on climate change for the Chinese. But I think from where we are, as a country today, the need to bring manufacturing back from just, you know, an economic growth perspective, but also to reclaim the technical leadership is critical. And I truly believe that we can do that, John.

Host: John Engel  07:51

I used this terminology in the setup but was there a moment where you realized the industry had become addicted to those low prices coming out of Southeast Asia?

Rhone Resch  07:59

Yeah, I mean, I think that there's so much of the solar industry's business model was focused on declining prices over time, right. So you'd go out and sign a PPA agreement that would be half a cent lower than anybody else on the market, with the hope and anticipation that panel prices and to some extent, inverter prices, were going to continue to come down. So that in a year's time, when you start building the project, it was actually economic to do it. And so that business model really did ensure that we became addicted to lower pricing. And we lost track of prioritizing domestic manufacturing and some of the technical capabilities that happen when you have local manufacturers and suppliers. And instead, we just went with, frankly, the lowest cost product. And we're starting to see that right now, in the market, where you have Chinese companies who manufactured sold in the United States very cheaply, who then went bankrupt, or completely out of business, whose products in the field right now and it's failing. Who's supporting that? Nobody. Right? So there are there are hundreds and hundreds of plants out there that are suffering, and they're grossly underperforming. Because you have these quality control issues from the cheapest modules that were manufactured back in 2012 and 2015, and 2018 and beyond. I mean, if you look at kWh Analytics, they go through and analyze utility scale assets. And they have calculated that on average utility scale assets are underperforming by 6.3%. Well, that's on average. What about that lowest quartile? You know, it's even more significant and you know, I hear time and time again. Unfortunately,just failing product in the field with no ability to you know, to have the warranties honored.

Host: John Engel  09:59

As an industry and as a country, we could have clearly addressed the supply chain vulnerabilities sooner. This transition didn't come out of nowhere. Is there anything you regret given your time leading SEIA and the industry?

Rhone Resch  10:11

Yeah, I would, I would definitely agree that I think my biggest regret is the fact that we didn't prioritize domestic manufacturing in a way that we should have. And, and there's multiple repercussions from that, that we're feeling today. You know, one, obviously, it would be the economic growth, we'd have jobs, that would be fantastic. The second is, you'd have technological leadership, we'd be continuing to advance cell technology to increase efficiency, which of course drives down cost as well. And then the third is, we would have the ability, at least, to ensure that the product that was put into these early solar farms actually performed, and it worked, and it was honored with warranties and that we as an industry, ensured that the products that we were developing, actually performed. And we run a real risk is the solar industry right now for underperformance of having a reputation of kind of works, but it doesn't work as well, as everybody talks about and the economics aren't as good as you know, everybody forecasts. And so the industry ends up getting a black eye because of real issues, both in the form of manufacturing, quality engineering, design, etc. And so as I look back and say, Gosh, what could we have done? You know, better, I think it would have been to emphasize the fact that if we're installing something for 30 years, we have to make damn sure it's going to last and it's going to work, and we're going to build it here in the United States. Now, having said that, John, it's important to point out, we did a lot to support domestic manufacturing. We had, obviously, the Loan Guarantee Program, we had the 48 C manufacturing tax credits, we did a lot with DOE on advanced manufacturing, and the SunShot program, all that stuff was kind of in ARA back in 2009, the American Recovery and Reinvestment Act. And so I think it's important to say, hey, we didn't ignore it. But maybe we didn't do enough to really support it in the long run, because just building a factory doesn't ensure that that factory is going to continue to operate in four or five years. Right.  And so I think there's structural elements that we could have done in the tax code to incentivize and prioritize domestic manufacturing. You know, we were always obviously pushing for the tax code to be improved, to be extended to be expanded. But one of the expansions that we could have done is just to boost it up for domestic manufactured goods, right, make it a 40% make it a 50% tax credit, if, if you're using a US supplier, and I think that would have gone a long way to ensure that we were building factories in the United States that provided product into the US solar market.

Host: John Engel  12:52

And you mentioned that support for domestic manufacturers. We'll be talking a little bit more later in this episode about the Solar Energy Manufacturing for America Act, the SEMA Act, which would do that. And, you know, as they say, it's never too late to jump in.

Rhone Resch  13:05

I mean, SEMA is the kind of structure that fundamentally changes, the decision making process of manufacturers. You know, where a trade case is, again, it's a very blunt instrument that, you know, prevents product from coming into the United States, what makes it so damn expensive, that nobody can afford it. So it shuts down the industry. What SEMA does is it actually encourages the construction of new manufacturing facilities, and lowers the price ultimately to the end user for the solar product. And so just looking at SEMA right now. And the combination of SEMA the Loan Guarantee pProgram, there's more than 20 gigawatts of projects that have been identified in the US for new manufacturing capacity. Some cases, it's just modules and other cases, it's cells, it's all the way upstream to to ingots and wafers. And so if something like SEMA were to pass, I think the reaction from the industry would be incredibly powerful, and very quick too.  And so you end up having two different pieces, you have to see what provisions which are encouraging manufacturing, and then you've got the trade cases, which are frankly, just penalizing people. But the truth of the matter is, that's the law on the books. And that is the mechanism that Auxin decided to use to try to protect their company. I don't support it. But I can understand when a company is is really unable to compete due to both scale but also subsidies that other countries are providing that they have to take whatever actions they can in order to protect their company. Unfortunately, the mechanism is very painful on the entire industry.   I think the other piece to look at here, John, is how long is this gonna last? You know? Well, that was gonna be my next question. Oh, perfect. Perfect segue. Because you know, when I look back at 2012 and 2015, yeah, it was really painful when those tariffs were applied, and companies had to scramble and open up new factories. And it really did impact the industry, but only for a couple of years. And don't get me wrong. I'm not saying I support this mechanism. But what I am going to say is that the solar industry is very innovative. And we're gonna find ways of manufacturing in different places in new business models, and ultimately, in lowering our costs as an industry, even if the Department of Commerce comes out with an adverse ruling. So while it will be painful, it won't be permanent. It's a couple of years. And I think what's key is, if it goes through, we have to make sure that the Investment Tax Credit is expanded and extended, we have to make sure that commence construction definitions are refined in order for these projects to still utilize this 30% tax credit, we have to make sure we've got direct pay, we've got to make sure that we can kind of keep this industry going through this, this this very difficult couple of years until there is a real solution in place.

Host: John Engel  16:05

We've spent a lot of time on this podcast trying to diagnose where the anger comes from for the industry. Is it what we've been telling the public that the Biden administration has turned its back on the renewable energy industry? Is it Auxin being able to take advantage of a piece of trade law that's nearly 100 years old? Or is it this combination of things that, you know, we didn't prioritize investments in the domestic supply chain soon enough? And we find ourselves in this vulnerable position? What is it?

Rhone Resch  16:33

Well, yeah, I think it's a little bit of both, right? I mean, there's no question that one company can bring down an industry is it's outrageous, right? It really makes no sense whatsoever, especially when this industry is so fundamental, to our country, both for economic reasons, as well as for addressing climate change. And let's just say, moving towards greater energy independence in the United States, and then offering those solutions to your so I think there's no question the reaction is real. And, and it's correct. But the truth of the matter, when you step back, it all makes sense.  And I think, you know, what, what the industry should have done differently is actually talked to Auxin. We had fair warning that this case was going to come right, the original case was filed with five no name companies, and, and so that was out there, it didn't take a lot to figure out who those five companies are in the United States. And so what the industry should have done, is actually sat down with all of them and said, hey, let's work this out. What is the what is the underlying problem? And how can we resolve it through policy or through finance, or, frankly, you know, one of the the options should have been by Auxin. Get a company, you know, get five companies together and buy them and, and actually resolve this issue through acquisition. And then you're, you know, you're using Auxin as a manufacturer, but you're saving the industry, hundreds of millions, if not billions of dollars, that it's going to be lost going through this case. So I think there were creative things that we could have done and should have done as an industry to prevent it. And unfortunately, now we're stuck in the midst of it. So I my personal feeling is, you know, there's just no question, my moon did what he needed to do to try to save his his company.  The other key piece is I don't think we can blame the Biden administration. I think, you know, the process itself is fairly clear. It is an ajudicatory process. And so once it's in place, it has to play out. But this is Washington. And there's no doubt that politics will become involved. And I think the industry has done a great job in pressuring the administration to pull back on the case they really have.

Host: John Engel  19:04

Well, I want to ask you about that. Because just like Heather Zichaal in the last episode of the podcast that you do know, this White House very well. So what are you hearing from inside about how they're receiving that backlash from the solar industry?

Rhone Resch  19:16

Yeah, I do. It's brutal. I mean, the Department of Commerce staff, these are career staff, people are under a huge amount of pressure. They see all the articles, they hear all the complaints, they go to, you know, their kids schools, and they're hearing about it, it's a tremendous amount of pressure on them as career, you know, government employees. Clearly, it's also a tremendous amount of pressure with all of the politicos, and there's just no question that the response I think, has been changing constantly in with the as the pressure continues to increase. And there's a lot of I know, there's conversations internally, like how do we get rid of this? How do we address this? I think there's also still a very big piece that we as an industry haven't, again, fully discussed, which is that Joe Biden is a manufacturing guy. He wants manufacturing facilities in the United States. He knows that SEMA can provide that, and they're very supportive of it. He also knows he needs to be very tough on on China. And, and this in particular is, is an area that is very high profile. And so he I don't think he's using the solar industry as a lever against China. But I think because this case came up, it becomes one more, you know, tool that he has to put pressure on China on a couple of different other things, you know. I mean, just just look at the Uygher Forced Labor Prevention Act that's going to be implemented starting in June, June 23. Coming up here in a couple of weeks, that's going to have a huge impact on the solar industry. And I know we're doing everything we can to try to, you know, address it. But that is another tool that that that Biden has. So I think it's important to kind of recognize there's bigger political issues with respect to US-China relationships that are playing out. And that although this case is unfortunate, and is very painful, and it should not go forward. It is also one of the tools the administration has to lever against China on forced labor in some of these other issues that are so important.

Host: John Engel  21:21

Where do you think we are in a year?

Rhone Resch  21:22

You know, it really depends on the outcome of the case. But if the case does come back with tariffs, then I think what you're going to find is there's a range, there's going to be some companies that don't have to pay tariffs or pay a very, very low rate, and they'll continue to import into the United States, they'll continue to build out their factories to service the US market. There'll be other companies that, frankly, did circumvent and maybe have to pay a much higher tariff rate, where at least that country rate will be very much higher, and subsequently, they'll be blocked from the US market. But what is going to happen is that companies are going to find a workaround, they're going to find another option, a different country, maybe they go to, you know, a country where we have a trade agreement, or they go to Mexico or the United States. So it will address itself and it resolved itself in a in a relatively short period of time. It's painful. And I'm certainly not saying it's a good thing. But within two years, I think most of this ends up getting resolved even though the tariffs will still be on the books. It's just that the industry will have found a way to be able to import modules that are tariff free.

Host: John Engel  22:30

Rhone Resch. Thanks for joining us.

Rhone Resch  22:32

Thank you, John.

Host: John Engel  22:36

You heard the SEMA Act referenced briefly in the last interview. It's a huge piece of this story that really has nothing to do with the Auxin case. A bill by Senator Jon Ossoff of Georgia would provide incentives for domestic manufacturing at every stage of the solar supply chain. Heliene CEO Martin Pochtaruk has been a big proponent of the bill, which he said is crucial for North American module manufacturers like him to stay in business given the industry's razor thin margins. Here's Martin Pochtaruk.  Martin, can you start by telling us a little bit about Heliene.

Martin Pochtaruk  23:07

We started this company back in 2010 in Canada, so right now I'm sitting in a small town that is called Sault Ste. Marie, which is in in Ontario in the former French side of the province, so the north of the province, not more than a half a mile from the US board. Back in 2015, we started selling into the US exporting from the Canadian facility and participating as well in what it was the Made in Minnesota program. The Made in Minnesota program had a requirement of modules being finished in Minnesota and for that, we were working with a Minnesota manufacturer that that was called Silicon Energy. They had a factory in Montain IronMinnesota and around early April 2017 I received a phone call saying, you know from Senator David Tomassoni, a state politician, very well known and respected, saying Silicon Energy is about to close. The City of Mountain Iron and will end up owning the facility. Why don't you come up I'm sure you will be able to negotiate a lease agreement with with the city and run it provided that you're able to maintain the level of employment.  So May 1 we took it over so you know, within three weeks, we had a company incorporated and you know, hired the necessary people. So we started to operating in that factory as it was. Early 2018, the 201 safeguard import duties were imposed. So then we decided to make an investment. Got out what was in that building and install what was at that point the first manufacturing facility to make certain modules in the US as a result of the safeguard. So, you know, whoever says that the safeguard didn't produce the results would not be recognizing that several manufacturers Hanwha QCELLS, Silfab in Washington state, the restart of Mission Solar, you know, several factories were set up because of this safeguard, and the market circumstances that that created.

Host: John Engel  25:29

What happened to prices, when those safeguards went into place?

Martin Pochtaruk  25:32

Prices did not go up. Even with a 30% import duty, you may remember that pricing in 2018 and 2019, stayed at the same absolute number in a sense of dollar per watt, because overall, the global market had cost reductions and price reductions that literally did offset any possible pricing freezes that such import duty would have brought.

Host: John Engel  25:57

So with your original facility in Canada, the Minnesota facility and the expansion that's underway there right now, as well as that plant, you're taking over in Florida, you're at about 900 megawatts of capacity. And you've been very vocal about what you think it will take to scale domestic manufacturing in the US and don't believe that happens through additional tariffs. Tell us about the SEMA coalition and why you have gotten so involved.

Martin Pochtaruk  26:21

I think, personally, that it's very easy to get excited and evolved on something that is positive, that will provoke change, and that will create employment. So, I will say it was around May/June of 2021 that I got involved by the invitation of my colleagues at Hanwha QCELLS and then you know rapidly met with the other companies that do what we do know manufacturing modules, but you know, wafer manufactures Wacker Polysilicon which is the company that are extracting polysilicon and exporting it, because again, there is enough capacity of polysilicon which is the base initial material, where we start in the US to have ingot making wafer cell and module. However, today, the US is exporting it to have it processed in China.  What the Solar Energy Manufacturing for America Act could bring is a series of monetary incentives to offset the operation cost of manufacturers. There is be no another piece of legislation that sometimes is less known but it was also included in the formerly known Build Back Better Act that is called bill 48C. Bill 48C is not new, it has been in the tax act for decades. And Bill 48C provides instead reimbursement on capital expenditure of 30%. So that is what today, right, is a different tax code. But basically, it comes from the same origin Bill 48C is where solar developers and wind developers are getting a reimbursement of their capital expenditure, the original the original initial investment in infrastructure. So the applicability into manufacturing capacity, and equipment could be possible. If you choose that, then you cannot use the SEMA possible incentive, you need to choose which one, of course you're gonna kind of double dip. If SEMA never happens, then hopefully Bill 48C does happen.

Host: John Engel  28:44

And so within the SEMA Act, the bill would create tax incentives of 11 cents per watt for integrated module manufacturing domestically, four cents a watt for cells, $12, a square meter of wafers, and $3 kilogram of polysilicon. And then production of non integrated solar modules would receive seven cents per watt -- production of solar trackers and inverters would also receive credits. Would this all be enough to level the playing field for our manufacturers in the US?

Martin Pochtaruk  29:12

I would say...yes. Because we've never had any incentive of any sort. So any incentive that is brought forward, we will take it and run with it, and we'll make the best out of it. So suddenly is better than a kick in the butt, which is what we generally get.

Host: John Engel  29:35

So what happens if SEMA doesn't pass?

Martin Pochtaruk  29:38

Right. So we are installing this line in July/August. We plan on adding another line in the spring of 2023. So we will be, without SEMA at 1.3 ish gigawatts of capacity by early 2023. With SEMA that, you know, might change and will change for everybody. Because you will see, you know, sort of cell manufacturing... you cannot continue increasing solar module manufacturing without having certainty on the origin of the cell. The natural thing would be an investment into cell manufacturing and working with someone to to have a long term agreement for the supply of wafers.  I don't think that there is any justification for a punitary measure, you know, as an importer myself because you know, we've made modules in Canada and we import them into the US is money thrown out the window.

Host: John Engel  30:32

So you're not behind the Auxin Solar petition, it's SEMA or nothing?

Martin Pochtaruk  30:36

It's SEMA or continue limping through.

Host: John Engel  30:42

Thanks to Martin Pochtaruk, CEO and founder of Heliene, a North American solar module manufacturer. When we come back, we'll finish with a conversation with Michael Parr, Executive Director of the Ultra Low-Carbon Solar Alliance. Michael Parr is the executive director of the Ultra Low-Carbon Solar Alliance. He is an expert on the global solar supply chain, and I'm so happy to have him joining Factor This! to discuss not only how we boost domestic manufacturing, but how that goes hand in hand with decarbonizing the solar supply chain. Michael, can you start off by telling us a little bit about what the Ultra Low-Carbon Solar Alliance is doing?

Michael Parr  31:43

Thanks, John, it's pleasure to be on with you. So the Ultra Low-Carbon Solar Alliance is comprised of solar manufacturers, it spans supply chain. And our goal is to create market demand for solar modules with lower levels of embodied carbon manufacturing emissions and in so doing use that market signal to drive decarbonisation into the industry as the industry grows. As you may have seen, there are very, very high levels of carbon emissions in much of the current supply chain, particularly in East Asia. And we don't think that's right growth trajectory going forward.

Host: John Engel  32:22

So then when does this conversation about the carbon intensity of the solar supply chain intersect with whether or not we should build out a domestic supply chain and also the the security that comes with that?

Michael Parr  32:33

Well, on the first part on carbon intensity, it's actually pretty straightforward that even though China has been making some progress on decarbonizing their overall grid, it is still roughly twice as carbon intensive as the US grid, and even more so than the EU grid, for example. And so solar manufacturing that occurs in lower carbon economies is just going to be inherently less carbon intensive. Add to that, that Western manufacturers really have to focus on energy efficiency as part of their cost structure in ways that Chinese manufacturers don't because of the subsidy regime. And we tend to see a lot more new technology development in the lower carbon economies, such as some of the new low carbon wafering technologies that are just starting to commercialize. And all those things together mean that generally, a solar module made in low carbon economy is going to have about half of the embodied carbon as a solar module from the Chinese supply chain. And on reliability, these two things are really closely linked. If you think about the current supply chain heavily concentrated in China with these very high carbon emissions and of course, forced labor as well, buyers are starting to seek some distance from some of these unsustainable practices. And at the same time, because of this high concentration, every time there is any little hiccup either within China, in the energy supply, labor supply, in shipping, and so of course, in tariffs, which we have been experiencing now for over a decade, we see a supply shock, in solar supply in the US and EU. And so buyers are increasingly trying to de risk their purchasing portfolios, both around sustainability but also around supply.

Host: John Engel  34:35

When it comes to the commodities that are necessary to build out a domestic supply chain the polysilicon wafer cells... how far are we away from where we need to be?

Michael Parr  34:45

So the good news is, they're almost 80 gigawatts of low carbon poly capacity outside of China today, roughly equally distributed US, EU and Malaysia. As you are aware, the choke point is supply chain has for longest time been in wayfaring because about 98% of the wafer capacity is in China. But markets respond to these kinds of risks and this market is responding.  So we're seeing wafer capacity expanding on multiple fronts. So Jinko is building a seven gigawatt wafer fab in Vietnam. And they've made clear their intent to buy Western poly for that, as they tried to develop at least a portion of their supply chain that does not pass through China, in order to serve Western markets. Cubic PV, which is one of these new technology, low cost, low carbon intensity wafering technologies. They are building the first gigawatt scale commercial facility in India, in a deal with Waaree and that'll scale up pretty quickly. And then Hanwha recently dumped a bunch of money into REC Silicon in the US to restart the Moses Lake plant. And that's a pretty big chunk of poly. And there wouldn't be a business rationale to restart that without having some wafering capacity. And so we know that Hanwha is talking to looking at some acquisitions, potentially in South Korea for wafer capacity. I also suspect they may be investigating some potential US wafer capacity additions. And so the the choke point is loosening pretty quickly. And in fact, today, the Bank of Mariska security's solar analysts put out a report in which they say they think wafering is going to come up fast enough that by 2024, there'll be on the order of 20 gig of low carbon module capacity globally, we think that are a little bit more is likely. And the wafering is actually, particularly when you look at the cubic stuff, pretty cost effective on a CapEx as well. And so you can pretty quickly build enough wafer capacity to take care of the big chunk of that 75/78 gigawatts of clean poly in the world and cell and module are lower capex yet and can follow along pretty quickly.  So my anticipation is even even with the likely additional anti dumping tariffs that are going to come in on some of the Southeast Asian producers, the slowdown is temporary. And in the next few years, we should have adequate ex-China low carbon manufacturing capacity to meet demand in both Europe and the US.

Host: John Engel  37:44

We talked about how certainty is so important in the marketplace, are there standards or a way of certifying that a module has that low carbon intensity or was ethically sourced, and what would that mean for the broader market as we're talking about this reorganization of the supply chain?

Michael Parr  37:59

So we think getting really clear market signal about demand for sustainably produced solar is critical to de-risking investments in low carbon economies and driving us capacity expansion that we all need. We absolutely think policy is important as well. And so we would really like to see Congress passed the Solar Energy Manufacturing for America Act. But whether that happens or not, a demand signal will play a really big role. And so we've been working with the Global Electronics Council who have for over a decade been producing eco labels sustainability eco labels for electronics products. Think office electronics like copiers, faxes and whatnot. And they have got an eco label for sustainably manufactured solar that covers a very broad array of factors -- energy use, water use, toxics use, labor standards, ESG broadly -- and they are using a multi stakeholder process involves industry experts, NGOs, government officials and academics to build ultra low carbon solar standards into that. They're taking advantage of work that's been done in France and elsewhere to develop the sort of algorithms to do this based on lifecycle studies. And they anticipate wrapping the development of the criteria up by the end of July, and then they would incorporate it into the underlying standard. And then companies, module makers will apply the GEC to demonstrate they meet all these criteria, that the relevant third party verification old things they need to do to demonstrate that they are in fact sustainably produced and have a low carbon footprint. So we think there's sufficient market demand growing for low carbon solar that the module companies are going to want to do this and we think it's not just going to be Western producers, I strongly suspect Jinko will be early in line, given what they're doing to the Western market demand.  And so the goal, frankly, is to make it really easy for anybody to specify ultra low carbon solar in an RFP, or PPA, and have a very high level of confidence that that's what they'll get into project.

Host: John Engel  40:25

Michael, I've posed this question to a number of people on this podcast, but how do you think this all shakes out over the next year or so?

Michael Parr  40:31

If we kind of pull the lens back a little bit, this conversation is going on in a quite a few industries. That for the longest time, when manufacturers developed their supply chains, they did a lot of work on supply chain risk management, which meant you didn't get all of your critical raw materials from one plant or one producer because that was just too risky. If they're plant blew up, you were in a world of hurt. And so we tended to have diversified suppliers to to make sure we can continue to serve our customers. Over the last 10/12 years, we've lost some of that discipline, as the rate of Chinese manufacturing just exploded. And that certainly is true and solar that now we're just overly overly dependent on one geography. I think writ broadly across manufacturing, people are rethinking these strategies. They're recognizing the inherent risks now and they're seeking ways to de risk supply chains. And so my anticipation is it'll take a couple of years, couple of years transition are going to be a little bumpy, we won't deploy as much solar. Certainly in utilities, we would like to in the next few years, any resi, okay. But after that, what we're going to see is a much more diversified supply chain, and not just the US, but it will be the US EU, it'll be parts of Southeast Asia that have good hydropower I think India, they can figure out how to decarbonize solar manufacturing as they expand. And I know that a lot of US producers are they're trying to figure that out, that will be another good source of low carbon supply. And so if you know if you asked me to sort of prognosticate, I think five years from now, it's a very different industry, much more sustainable, much more reliable supply. And my long term goal is that we move enough of the global market... not just the US and EU, but Latin America and others, that Chinese producers see that the their sound business practice is to build all of their new capacity as low carbon as they can. So stop pouring money into polysilicon in Xinjiang and Inner Mongolia to take advantage of fairly bad coal.  So near term, I am quite comfortable that the West is going to have good access to low carbon solar, long term I am... our goal is and I'm hopeful that the globe will have access as well.

Host: John Engel  43:13

Next time on Factor This!

Sheldon Kimber  43:15

There are reasonable positions on all sides of this and there's a very, very clear path down the middle where everybody can agree. And it's just so tragic to me that we are where we sit right now.

Host: John Engel  43:25

We wrap up the Auxin Solar series with Intersect Power CEO Sheldon Kimber on the path forward for the solar industry. Plus....

Leo Moreno  43:33

People are concerned but their need for renewables remains the same.

Host: John Engel  43:36

Corporate buyers of renewable energy have been quiet on the tariff case. But Leo Moreno, president of AES Clean Energy, the largest seller of renewable energy to corporate buyers last year takes us behind the scenes of those conversations. John Engel you can find me on LinkedIn and Twitter. Factor This! is a production of Clarion Events and Renewable Energy World. Please subscribe wherever you get your podcasts and leave a review. We're excited to see what you think. Show notes, episode transcripts, and source materials from Factor This are available at RenewableEnergyWorld.com. We'll see you next time.