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With the incentives of the US Inflation Reduction Act (IRA) now well known, global manufacturers are announcing US factories to form a large part of the solar supply chain. Although some plans have already been scrapped and more cancellations are expected, the overall trend is one of unprecedented growth.
The outgoing administration of President Joe Biden has placed infrastructure funding and manufacturing job creation at the center of its policy message. The administration is beginning to see the fruits of its labor as legislation like the Bipartisan Infrastructure Act, the Creating Helpful Incentives for Semiconductor Production Act, and the Inflation Reduction Act (IRA) of 2022 move from interpretation to action.
The IRA created both supply- and demand-side incentives for clean energy manufacturers, and global investors have taken note. Clean energy projects installed in the United States that source at least 40% of their equipment from domestic manufacturers receive a 10% tax credit that is fully transferable to other tax-hungry entities in exchange for cash. The law also created significant supply-side tax credits tied to the production of various components along the solar supply chain. For example, PV module manufacturers get tax credits of $0.07/W of panel generating capacity through 2029, while residential investors receive a $0.065/W credit.
The stick and the carrot
The Biden administration has employed both carrots and sticks in its attempt to encourage domestic clean energy manufacturing. The United States has attempted to create a more level playing field for domestic solar manufacturers through a multi-pronged crackdown on imports from China. The government has done so in a number of ways, including investigating alleged violations of antidumping and countervailing duties , which can impose tariffs of 50% to 250% on importers. The administration is enforcing the Uyghur Forced Labor Prevention Act, cutting off supplies from one of China’s main polysilicon-producing regions. The Biden administration has also increased direct Section 301 tariffs on Chinese imports — a reference to a clause in the 1974 Trade Act — including doubling the tariff on solar cells to 50%.
Overall, the carrot-and-stick approach appears to be working to achieve the goal of bringing well-paying manufacturing jobs back to American shores. In 2023, more than $5.1 billion worth of solar manufacturing projects were announced, according to the National Renewable Energy Laboratory (NREL). This was a year-over-year growth of 470%. In the first quarter of 2024 alone, solar module manufacturing in the United States grew by 71%, from 15.6 GW of annual production capacity to 26.6 GW, according to the Solar Energy Industries Association (SEIA).
According to SEIA, by the end of the first quarter of 2024, the United States could meet about 30% of demand with domestically manufactured solar modules. But while the solar module manufacturing business is booming, the upstream supply chain remains underserved. Many factory announcements have come to fruition, but some plans have already been scrapped.
Since September 2023, Qcells has expanded its Georgia module factory to 8.4 GW and First Solar has increased production in Ohio to 6.3 GW. Also announcing new capacities are Canadian Solar (with 5 GW more annual module production capacity), Longi and Invenergy joint venture Illuminate USA (5 GW, modules) and REC Silicon (6 GW, polysilicon), according to Reuters.
Despite the surge in factory announcements, there have also been a number of cancellations. The US Energy Information Administration has reported that solar module imports have increased by 82% to 54 GW in 2023 due to rapidly falling prices. This oversupply in the market has posed a challenge for equipment manufacturers preparing plans to invest capital in the US.
Looking ahead, analyst Wood Mackenzie expects the gap between announced and built projects to widen. By 2024, WoodMac expects 38 GW of the 53 GW of announced module manufacturing capacity (71%) to come online. By 2026, some 66 GW of the 141 GW of project plans (46%) is expected to be realised.
While suppliers that are already “well-known and bankable” in the US are expanding, others are struggling to secure purchases of their products, according to Elissa Pierce, a research analyst at WoodMac. Major brands such as JinkoSolar, Qcells and Canadian Solar have successfully established themselves in the US.
Other companies have had to halt or cancel their plans. In February 2024, CubicPV revealed that it had scrapped plans to develop a 10 GW silicon wafer factory in the United States. This decision came just two months after Massachusetts-based CubicPV signed an eight-year deal, valued at around $1 billion, to become the first US customer of South Korean silicon manufacturer OCI.
Under the terms of the agreement, OCI would have begun supplying polysilicon to feed CubicPV’s planned wafer fab in 2025. CubicPV has since said it will focus on tandem solar module production.
In August 2024, Meyer Burger announced that it would cancel plans to open a 2 GW solar cell factory in Colorado. The Swiss PV manufacturer said that building the plant in Colorado Springs was no longer financially viable and the company’s board also instructed management to develop a comprehensive restructuring and cost-cutting program for the business. A planned 700 MW expansion of Meyer Burger’s 1.4 GW module production plant in Goodyear, Arizona, has also been put on hold.
The European automaker had sought a debt financing package backed by monetization of tax credits available through the IRA. Announcing the Colorado production facility in July 2023, Meyer Burger had said it planned to monetize up to $1.4 billion in tax credits from the start of production in 2024 through the end of 2032.
The company said it will continue to seek scaled-down debt financing by monetizing available tax credits for its U.S. module manufacturing facility. It added that its financing needs will be “significantly lower” due to the idling of the Colorado Springs plant.
The decision by CubicPV and Meyer Burger to cancel multi-billion-dollar projects demonstrates how quickly the dynamics can change as the energy transition moves into full maturity.
Sustainable prices
Opening a solar manufacturing plant in the United States is no small feat. The largest and most comprehensive project announced since the passage of the IRA is Qcells’ vertically integrated manufacturing facility in Georgia, which includes a 3.3 GW expansion of annual ingot, wafer, cell and module production capacity. This facility is expected to require a capital investment of about $2.5 billion.
Many NREL manufacturing cost analyses use a bottom-up modeling approach. The federal laboratory individually models the cost of materials, equipment, facilities, energy, and labor associated with each step of the production process.
NREL uses a “minimum sustainable price” (MSP) model to understand the viability of manufacturing facilities. The MSP is the value that provides a minimum rate of return needed in a given industry to maintain a sustainable business over the long term. The figure is calculated from manufacturing and overhead costs, plus other financial considerations such as financing, discount rates, and tax incentives. Solar has seen many changes in these financial considerations, both for and against. Supportive policies such as the IRA are driving business for some, while high borrowing costs are hurting the model for others.
Once manufacturing costs and overheads have been added together, a manufacturer can arrive at a PSM by assuming a typically desired operating margin when pricing products in a given industry. That operating margin takes into account interest payments, profits and the corporate tax rate.
According to NREL, average operating margins for U.S. solar manufacturers have shrunk for three consecutive quarters through Q1 2024 as falling prices and weak demand have eaten into profits. The government lab also notes that operating margins have ranged from near zero to around 10% since September 2022. In one notable exception, First Solar’s ??operating margins remained above 30% for the third consecutive quarter through Q1. Despite recent margin declines, most large manufacturers have remained profitable since Q2 2019.
With an operating margin in hand, an MSP can be determined, and this minimum sustainable price helps NREL assess project viability in several ways. First, an MSP allows for a direct comparison of the cost of different technologies. According to the federal agency, market prices are not ideal for such a comparison because manufacturers may be selling well above or below their production costs. In addition, the MSP allows for estimating manufacturers prices and margins when public information is not available.
Another important aspect of the PSM is that this floor price will adjust over time as costs change. The resulting figure is not the absolute minimum sustainable price that could be achieved with a given technology, but only a minimum at that time and place.
NREL has also developed a Detailed Cost Analysis Model (DCAM) to support research into manufacturing projects. The model, which runs on the U.S. Department of Energys Open EI website, is a cloud-based tool for estimating the cost of manufacturing components and installing energy systems. DCAM underpins many of NRELs solar manufacturing cost analyses and is publicly available. |
