The recent swathe of announcements from US policymakers – coupled with growing geopolitical unrest regarding Chinese manufacturing dominance and the role of solar PV from an energy security standpoint – has the potential to redefine PV technology, manufacturing and component supply chains in a way that the industry has never seen before.
This article outlines how the Inflation Reduction Act, or IRA (albeit in its infancy stage) could re-shape, re-order and re-invigorate PV value-chain manufacturing in the US; at the same time as the industry moves from single to multi-junction, and technology shifts to an altogether different phase of growth and innovation.
In particular, I discuss below what additional steps need to be taken in order to fully realise this ambition, and the importance of creating an entire US-based eco-system (including PV equipment and material suppliers across the value chain) that could be the envy of the global PV sector well into the 2030s and beyond. And in the meantime, solving the traceability and ESG dilemma – currently plaguing the sector – once and for all.
A reminder on why PV matters now, more than ever
Timing is everything. And while the US has long craved for a sustainable and profitable manufacturing ecosystem, such ambitions were largely held during times when solar PV was broadly seen as desirable, but not essential.
During the past two years, all this has changed, and the rate of change has been breathtaking. In fact, the PV industry is still largely working out how to play in what is now a sector driven by national economic interests and global corporate investment responsibility.
The sequence of events that changed the PV industry forever started with the corporate world galvanizing around the timing of COP26 at the end of 2021 to proclaim their allegiance to net zero fulfilment. This catapulted demand for PV, alongside institutional investors allocating budgets to enable multi-GW scale pipelines of solar PV farms globally.
And just as this was taking shape (driving demand way above supply in 2022), the war in Ukraine brought reality to previous rhetoric surrounding the importance of energy security.
Furthermore, while all this was happening, the global community started grappling with the Xinjiang issue; a topic that has now snowballed into a growing discomfort with Chinese-funded manufacturing dominance, going back decades. The PV industry is just one part of what is now a major sea change in manufacturing diversification out of Asia.
This series of events has placed a new level of scrutiny on all investments going into PV manufacturing and deployment (upstream and downstream), and has truly shaken up the PV industry’s somewhat prescriptive growth trajectory of yesteryear.
Any long-term strategy today for PV manufacturing, investment, deployment and asset ownership should be based upon the fundamental reshaping of the sector that is now in full swing: not looking at how the industry operated before and simply tweaking around the edges.
Home-grown product for domestic consumption
The challenges and attempts by different countries over the past couple of decades to create a sustainable and profitable upstream PV manufacturing segment (to supply downstream deployment channels) sadly reads like a litany of failed starts, with the Chinese sector managing on every occasion to find a workaround. By far, the best thing is to draw a line through all legacy efforts here, and focus on what a successful strategy could and should be, given the existing and future landscape that the PV industry will operate under.
As highlighted in the title of this article and the opening narrative, the current legislation being worked through in the US, under the aegis of the IRA, has the potential to finally change the global manufacturing landscape for PV manufacturing. However, what is currently being proposed is possibly just the opening gambit in a sequence of events that could lead to the US being in a truly dominant position as the role of solar PV simply moves to the next level and beyond.
Let me try to explain this now.
Every attempt so far by countries to thwart Chinese companies from dominating domestic PV module supply has been overly focused on a defensive-type approach; namely, how to stop the flow of incoming product or place additional duties depending on the country of origin (AD/CVD, Section 201, etc.). Getting domestic manufacturing stimulated and differentiated should be the main driver.
This is where the IRA changes things, and is fundamentally different to some of the other ideas that linked energy yield incentives for solar farms with the use of domestic product. Linking these two does not work. Again, the priority should be to stimulate domestic manufacturing only. And here the IRA is posited as offering that route.
The world is not a level playing field; never will be. But what is the price of not having energy security, especially as the world moves inevitably off fossil fuels? So, if an economy can bankroll this to get things moving, who in the world can possibly object?
Having attractive incentives to make value chain components (currently polysilicon, ingots, wafers, cells and modules, or thin-film modules) is the only way here. Kudos on the IRA until now. But as I mentioned earlier, this is just one step and probably needs another two or three more to really hit the end goal.
But knowing the real end goal is key. This is the next topic I address and is possibly the most important one to consider, but also an extremely delicate one for policymakers to openly admit.
Eradicate currency conversion to overseas countries
Currently, the IRA creates a great starting point for someone to set up PV manufacturing in the US. Rather, as configured, ‘someone’ is ‘anyone’ from almost ‘anywhere’.
Let’s park this for a moment. Consider this scenario of events unfolding under the IRA.
A Chinese company sets up a facility in the US, buys the manufacturing equipment from China (cell tools, module assembly components, glass, etc.), makes profits on module sales within the US (by IRA funds) and then ships the US dollars back to China, converted into RMB. And as part of the whole exercise, the Chinese equipment and materials supply sector get purchase orders for the manufacturing lines and operations.
This cannot be the end goal. Nor does this do anything other than clone the current state-of-the-art Chinese PV manufacturing template in a state within the US desperate to show renewables job creation. If this unfolded, it would simply send policymakers back to the drawing board and another few years of trouble-shooting of incentive conditions being redefined.
The end goal has to be US-financed activity, US profit-making, and the full benefit of this feeding directly into the US economy. If we start here – and accept this – then it is actually much more useful and way more beneficial than anyone is realising today. Again, I will try to explain.
Being a technology leader in PV is cornerstone
What concerns me now about the immediate plans, post-IRA announcement, is that US PV stakeholders appear to be fixated about debating which ‘Chinese-promoted’ cell technology they should adopt, most notably “is it TOPCon or heterojunction”. This is so short-sighted.
These technologies are simply what have evolved as the next generation of p-type mono PERC cells that was a concept fast-tracked by China once the industry had made the move fully from using casted multi c-Si bricks to pulled mono c-Si wafers. In short, why are so many people looking to see which is the best current Chinese cell technology to clone? This is surely a naïve and misplaced thinking that needs to be corrected quickly.
Innovation in manufacturing needs to be stimulated. For example, having one IRA incentive rate for cell efficiency levels up to the current state-of-the-art levels of circa 22-24% and then a much higher one for production based on 27-30%. Make copying existing Asian manufacturing something that is unacceptable, not desired in the long run.
Just an idea, but hopefully you get the picture.
But making technology leadership a key linchpin of the policy has to be the priority. Create an environment that rewards domestic funded activity to set the new standards in manufacturing.
And in this respect, the timing has never been better.
The PV industry is now going through the final phase of cell architecture iterations based on the single-junction concept. This is where TOPCon and heterojunction fit in. Each is simply a near-term evolution of mainstream PV manufacturing that got the industry to the point it is in today. The PV industry will move to hybrid and multi-junction concepts in low-cost mass production in the coming years that will make all existing PV installations short-lived propositions in the field.
In this respect, it makes the move even more valuable. Once multi-junction (or an advanced hybrid concept that moves average cell efficiencies in mass production north of 27%) takes over the manufacturing landscape, almost everything installed before gets fast-tracked for repowering. Forget existing solar plants with current technologies laying static for 30-40 years. They will be repowered well before this. As such, observers should stop talking about 20-40GW annual demand figures in the US, but rethink the opportunity based on repowering the entire installed fleet over the next 15 years. (And as a result, remove legacy non-US-made product from the field.)
There are several other major benefits to this thinking.
Another topic doing the rounds now is ‘number crunching on manufacturing cost competitiveness’, even with current IRA levels proposed. Again, I think this is missing the point.
Having a technology-differentiated approach changes the boundary conditions, and ultimately the current Asian-dominated way of making ingots, wafers and cells becomes obsolete. In fact, so too for modules. Silicon module assembly is still an archaic stage in the value chain, virtually decoupled from cell factories and often in different locations altogether.
Incentivisation should be founded on changing virtually everything, compared to how the PV industry manufacturers components today; pulling ingots in factory A, shipping them for wafer slicing in factory B, and so on.
If this full value-chain approach is done, then it has one absolutely critical side effect: the creation of a domestic equipment supply chain and specialised materials availability. It allows the best of US advanced technology manufacturing to set the benchmarks for PV production going into 2030 and well beyond. It is the game-changer that removes the whole question of where the equipment comes from.
Capital equipment suppliers driving technology sectors is critical. You can see that across adjacent technologies such as semiconductors and displays. And here, the US has leadership in abundance, almost ready to be re-awakened in the next phase of solar manufacturing advancement.
Remember PV equipment supply 15 years ago? Global PV manufacturing initially moved to mass production based on the know-how and expertise of the best of European, Japanese and US equipment manufacturing. However, most of these companies exited when China started buying likewise (or cloned) equipment (PECVD, screen-printers, etc.) from domestic suppliers. In fact, incentives to stimulate this were massive in this regard within China, not to mention efficiency-based incentives that were the basis of the Top Runner programmes.
So, the key to a wholesale shift to a US-owned ecosystem is creating a landscape for equipment suppliers as true technology leaders in PV again. But compared to the threat of losing IP control, there is a fundamentally different backstop there to help equipment suppliers. I will explain this now.
When PV equipment manufacturing became largely a Chinese-owned industry (with the exception of some European companies like Centrotherm, Schmid, Semco, Rena, Baccini-AMAT that held on to business within China), the PV industry was very different to today. The end market was small; the users were largely homeowners. The only way to seek IP protection was to file claims in China directly against Chinese equipment suppliers: basically a losing game.
Now things have changed. IP infringement ultimately should and will sit with the ultimate owners of solar farms – the institutional investment community. Buy a solar module that had any of its components used by equipment that infringed upon Western patents, and you are ultimately infringing the patent – not the tool supplier in China. Until now, this paradigm has not existed within the PV industry. In ten years, it could be commonplace. No longer will panel buyers be able to turn a blind eye to how the product was made. But this only works if the ingot-to-module components are made with next-generation tooling and related IP, outside of China.
There is also another benefit to having differentiated domestic equipment supply and PV technology: traceability. And here the stakes are possibly even greater. I explain below.
Traceability and ESG needs a Ctrl+Alt+Delete approach
Today, much of the PV module buying world is grappling with traceability and ESG constraints when securing PV module deals. From thinking only about lead-time/price five years ago, buyers today need an audit trail that shows who-made-what-where all the way from polysilicon to module, and including key raw materials. It has turned the sector upside down, overnight. And the worst affected by a long way are buyers of PV modules in the US.
The c-Si PV industry has operated largely in a versatile, dynamic and fluid mode when it comes to the use of third-party suppliers of cells, wafers and polysilicon. In fact, this goes for everything else in the bill of materials (BoMs) for ingots, wafers, cells and modules.
Now remember what the PV module supply landscape looks like today: 60 companies supply 98% of the world with modules. About 20 of these can make the cell, but often don’t. About half a dozen of them can make a wafer, but again, often don’t. And nobody – except the thin-film custodian First Solar – can say they make everything in-house all the time.
The current c-Si supply chains often resemble the wild west. And now we have downstream investors and developers trying to get rock-solid guarantees from module suppliers that BoMs are fully traceable and ESG compliant, now and in two to three years.
It is like trying to complete a jigsaw blindfolded with a quarter of the pieces.
Having a full domestic ecosystem (value chain manufacturing, equipment and materials supply) largely kills off this problem, almost as a byproduct. If ever there was a motivation for downstream investment in upstream manufacturing (alongside supply lock-out), it is truly now. Investing pennies to save pounds.
Controlling PV manufacturing and technology is a gilt-edged security
Ultimately, if one believes that solar PV will be the dominant energy source come 2050, then going the extra mile today can only have dividends in the long run that are unimaginable today.
In this respect, creating the perfect domestic ecosystem today is just the first part. Global leadership going forward then becomes a market opportunity beyond imagination, with export opportunities in abundance.
And at the heart of this is the ability to deploy massive capital while retaining technology leadership – two factors that the US is the global leader in, without question.
Mapping out how this unfolds now is the real challenge; and in this respect, both government policymakers and leading commercial stakeholders urgently need to make bold and ambitious decisions, looking only at the long-term payback and removing themselves from the here-and-now of PV manufacturing and state-of-the-art production as of February 2023.
If this thinking unfolds, then the future of the PV industry will look entirely different to today, and will definitely have a domino effect across other regions globally. This has to be a positive – a world in which manufacturing and technology benefits from global ideas and innovation.
How wonderful would that be?