The fast-growing energy storage sector, which increasingly sites batteries alongside solar projects, could learn a lesson or two from the solar sector, especially when it comes to clearly understanding and documenting supply chain details.
That’s according to Paul Wormser, vice president of technology at CEA, a solar PV and battery storage quality assurance, supply chain management, and engineering services firm.
Wormser said that much of the solar industry was surprised in late June when U.S. Customs and Border Protection action targeted a little-known player far upstream in the module supply chain with a Withhold Release Order (WRO). That order stemmed from what customs officials said were credible reports of the use of forced labor.
Both the House and Senate had taken action during 2020 related to forced labor allegations coming from the Xinjiang Autonomous Region in China. A paper known as The Sheffield Report laid out damning details. And the Solar Energy Industries Association warned its member companies in late December of potential problems in the industry’s supply chain. (Read “Solar companies pledge to oppose forced labor in the supply chain.”)
So, although the WRO was not unexpected, its focus largely was a surprise.
That’s because Hoshine Silicon Industry Co. Ltd., the focus of the WRO, is far up the supply chain at the raw metal stage of polysilicon production. The order instructed personnel at all U.S. ports of entry to “immediately begin to detain shipments containing silica-based products” made by Hoshine and its subsidiaries.
‘Shocked the world’
U.S. solar players had generally expected Customs enforcement action someplace in the production midstream. Before the June 24 WRO announcement, there had been little need for solar companies to know where their suppliers’ suppliers had sourced their silicon metal.
“Customs shocked the world by focusing on Hoshine,” said Wormser. “There was not a single person expecting that.” He said that to date, no modules that have been detained at U.S. ports have been released.
As part of its work within the Department of Homeland Security, Customs and Border Patrol enforces forced labor prohibitions through Section 1307 of the Tariff Act of 1930 (19 U.S.C. §1307). That Act, which was passed into law back when Herbert Hoover was president, bars the import of any product that was mined, produced, or manufactured wholly or in part by forced labor, including by forced or indentured child labor.
What took the solar sector by surprise was the decision to target the WRO at Hoshine and its role at the very start of the solar supply chain. For their part, Chinese officials deny the existence of forced labor in the country. As a result, Chinese anti-sanctions laws penalize domestic companies for following U.S. regulations that are opposed to Chinese law. In this case, China’s denial of forced labor makes it difficult if not impossible for related supply chain inquiries to move forward.
“It’s virtually impossible to prove there is no forced labor” in the supply chain, Wormser said.
Now, CEA is raising a warning flag that similar scrutiny could be trained on energy storage technologies. To be sure, no such action has yet been taken by Customs and Border Protection. But the complexity of the energy storage supply chain may be greater owing to the sheer number of components involved and the wide range of raw materials that are mined, refined, and processed.
Shawn Shaw, director of energy storage at CEA, said that China accounts for around 13% of global lithium mineral supply, but produces around 70% of the world’s lithium-ion batteries, with most headed for export. South Korea also is a large battery producer and exporter.
Once manufactured, an energy storage device may contain hundreds of individual components. If an enforcement action were to take place, importers would need to provide evidence Customs officials to prove that no forced labor was used at any stage of production, including all the way to the mine.
Not surprisingly, lithium supply chain issues are being asked about with more frequency by players in the energy storage sector. So is cobalt, Shaw said. And graphite that is used in anodes “comes from lots of different places” and could come under scrutiny, he said.
From a practical point of view, having greater insight into the supply chain can be a benefit should a product defect or failure occur. The challenges of root cause analysis can be eased somewhat if documentation is available that can point to how a component was fabricated, he said.
Financial institutions that put up money for energy storage projects are aware of the risks that a WRO action may pose. As part of their loan due diligence they may ask challenging questions about product origins, Shaw said. As a result of the lessons learned from the June WRO, supply chains are becoming “more thoughtful,” he said. And he added that supply diversification “is a good idea.” Besides possible trade action, energy storage customers are becoming more attuned to the carbon footprint of their supply chains.
“There’s growing consumer interest in ‘where was my product made’ and ‘how was my product made,'” Wormser said. At a minimum, he said all companies should review and update if necessary their forced labor code of conduct.
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