How the IRA is changing the U.S. solar manufacturing landscape

The Inflation Reduction Act (IRA) includes $600 billion in spending, $370 billion of which is dedicated to supporting renewable energy build out. Now just over a year later, the build out has begun. At RoundtablesUS 23, pv magazine USA spoke with four experts in solar manufacturing to discuss U.S.  solar manufacturing, potential supply chain gaps, uncertainties around domestic content, guidance and more.

Panelists included Mark Delaney, senior vice president of global sourcing at Invenergy LLC;  Eli Hinkley, a partner in Baker Botts, Washington DC office;  Christian Roselund, who leads policy research and communication at Clean Energy Associates (CEA); and MJ Shiao, vice president of supply chain and manufacturing for the American Clean Power Association.

Setting the stage for the discussion of U.S. solar manufacturing, Christian Roselund said that CEA is tracking 120 GW of crystalline silicon module announcements, which does not count thin film. He said that in addition, CEA is expecting First Solar’s U.S. thin film module manufacturing capacity to expand from 6 GW to 15 GW in the United States by the year end 2027. From that 120 GW of module announcements and around 70 GW of crystalline silicon cell announcements, CEA is expecting only 50 GW of module capacity and 18 GW of cell capacity by year end 27, or about 40% of the module capacity and about a quarter of the cell capacity for ingot and wafer.

When asked how many cell and module factories are under construction, Roselund admitted that it’s tough to know for sure, but one indication is to look at the factories for which production equipment has been delivered. Right now there are seven new module factories with production tools being put in place, but there is no record yet of any cell factories being equipped with production tools, he said.

Continued reliance on imports

Understanding that it will take some time for U.S. cell and module manufacturers to ramp up and begin delivering product, a looming question is where the product will come from in the meantime. MJ Shiao suggested that we look at two scenarios. One is what we think will happen or what will happen in a business-as-usual way. And the other is what we think should happen with the supply chain. He referred to Roselund’s CEA summary, which expects the U.S. to be heavy with downstream solar manufacturing, and we’ll have to continue to rely on imports from foreign partners for polysilicon, ingots and wafers to the U.S. Shiao noted that we can do that, but that we should also look at the opportunity to build out a supply chain for new energy. “We certainly have done that with traditional energy sources,” he said, adding that we have a lot of catching up to do.

While the demand for U.S.-made solar grows it’s more necessary than ever to have patience, because growing a supply chain takes time. Shiao estimated that it can take from three to five years to build new polysilicon manufacturing, for example. One challenge for the manufacturers, however, is that the clock is ticking on the credits offered in the IRA. By the time a new polysilicon plant gets built, he said, they’re already halfway through the incentive period and the credit continues to step down.

Modules first

The first step is to concentrate on building manufacturing facilities to meet the downstream demand, ensuring that we have the demand, and start filling the demand in terms of executing on these module facilities, Shiao advised. He emphasized that we need to make sure we have a core set of competitive, stable module manufacturers, and then start to look for more of the upstream part of the supply chain for ourselves.

Filling in the gaps in the supply chain, however, is a tall task right now, but not insurmountable. Over 95% of production capacities of ingots and wafers are centered in China. While over-reliance on any one geographical area is not wise in general, we also have the tariffs that resulted from the Auxin investigation. And then we have the Uyghur Forced Labor Prevention Act (UFLPA) that aims to prohibit goods from being imported into the U.S. that are manufactured with forced labor in the People’s Republic of China, especially in the Xinjiang region.

The concern now is whether non-China polysilicon capacity will actually be enough to source long term to fulfill U.S. capacity needs going forward. According to Shiao, the American solar industry has to think of ways to give more market certainty and provide a better economic environment for non-Chinese polysilicon producers to expand.

The U.S. as an exporter

With the understanding that the build-out of U.S. solar manufacturing will take several years, Mark Delaney noted that it’s going to take more than the IRA’s 10-year window to get to the point where the U.S. is not dependent on other countries. He pointed out that, while we don’t want to be beholden to any one geographical area, that notion works both ways. Delaney said that, for example, “the companies that are making heavy capital investments in U.S. manufacturing are going to want exportation opportunities in the event of softness in the U.S. market at a particular time.” He added that he thinks the U.S. solar market is also going to want to continue to rely on importation in case we have a year of very high demand that can’t be met through U.S. made capacity.

The solar industry is known for changing market conditions, which Roselund pointed out creates a big risk for manufacturers to take.

“I think this is part of the unanticipated and unappreciated dangers of trying to sort of ring-fence off the U.S. market from the rest of the global supply,” said Roselund.

In the past decade or more, the U.S. has used tariffs as a method of spurring domestic manufacturing. Shiao pointed out that this approach increases the cost price of serving the U.S. market. What happens, Shiao said is that the competitors that are able to build and sell into that market have a higher cost structure and they’re not competitive outside of the U.S. market.

“What we need to do is to build through a combination of investment incentives, trying to take more control the supply chain, the IP itself and where the technology is headed,” Shiao said. “Build and encourage more competitive manufacturing in the U.S. that can also be competitive outside of the U.S. in order to have a sustainable manufacturing landscape.”

Carrots and sticks

A continued supportive environment is key to building out the domestic supply chain. Roselund said the IRA is just that.

“The IRA is a sea change in that we’re using industrial policy for the first time. Words that were not even spoken in DC, five, six years ago, “ said Roselund. “We’re suddenly talking about using industrial policy to provide carrots and not just sticks to do things in the United States, because the record of sticks in the form of trade barriers, did not result in significant additional U.S. manufacturing capacity.”

According to Hinckley, the tariffs are having an effect because both a carrot and a stick are necessary to drive U.S. manufacturing. Tariffs push up the cost of imported products and gives U.S. manufacturers an opportunity to become competitive with their domestically sourced products.

“Then if you can subsidize that domestic product, presumably underneath that price point, you break things down,” Hinckley said.

Coming to America

For a manufacturer looking to set up shop in the U.S., Hinckley advises that the first step is to identify a geography that makes sense from a cost structure standpoint for each product. And then from a logistics standpoint, manufacturing near the point of deployment makes sense. And then there’s the challenge of understanding and taking advantage of the support structure landscape.

Included in the IRA are two different advanced manufacturing tax credits. One is production based and will “catch a lot of your solar production” Hinckley said. He cautioned, however, that it’s limited. If it takes between two and five years to get a manufacturing facility up and running, the value of the tax credit diminishes pretty quickly, he warned.

The other credit is 48C, which is an investment-based credit that offers a 30% credit against the investment. However, as Hinckley noted there is a competitive application process with a limited pool of dollars.

After figuring out which way to go on tax credits, which Hinckley admitted is no simple task, the next step for manufactures is to look at other programs that can support the capital structure. This includes things like the loan guarantee program where a manufacturer can tap into lower-cost, longer-term capital that might have a little less sensitivity to price swings. Hinckley noted that one challenge here is that a manufacturer will “probably need quite a bit of scale for that program to make sense”.

The third step is being able to tap into the domestic content adders, which Hinckley called “a significant sort of bump in the value of the tax credits for the project side.”

From a developer’s point of view, qualifying for the domestic content adders is complex. For example, just looking at the module alone is complicated, according to Delaney, because a module has multiple manufactured product components or MPCs. To know whether it qualifies for adders, the developer has to add up all of the domestically produced MPCs. It also becomes significantly more difficult to meet the domestic content threshold as time goes on because that threshold increases over time.

Referring to challenges with the current guidance, Delaney said that the questions around how you can really show that something is domestic or not still needs to be ironed out. He sees this as one of the greatest impediments of building out a holistic supply chain in the U.S. He stressed the level of diligence and risk required of a purchaser in this market.

Matching opportunity and risk

Finding a way to navigate the uncertainties will help both buyers and sellers in this market, Hinckley said. “Understand that it’s going to take you some time and work to get to a place where you’ll have comfort, that you understand what your opportunity and risk matches.”

Stepping back and looking at the big picture, it’s understood that we have this dependence on China globally for certain parts of the supply chain. According to Roselund, the tools we have right now do not allow us to release our dependence on China, even though, as he noted, there’s impatience among policymakers to just move the full supply chain here. But the fact of the matter is that our dependence on China and Chinese companies in Southeast Asia will continue for the foreseeable future, and Roselund thinks that that fact needs to be taken into account when policies are made.

“Some of the policies that we’re putting in place now, instead of supporting that goal of trying to re-onshore in the United States, they’re working against it,” Roselund said. “I think that there’s a degree of nuance that I see missing in a lot of the discussions about this, not as much in this industry, but in DC.”

There is much work to be done in terms of implementing the IRA, but, as Shiao pointed out,  it’s also important to look beyond the IRA and determine how we can continue to support and encourage more domestic manufacturing.

“As an industry, we came together a year or two years ago, and we helped this government pass one of the most ambitious climate policies, tax credits and the other supports we’re talking about now,” Shiao said. “We need to continue to work together, move forward and continue that investment in this clean energy future.”

This article was amended to clarify that CEA is expecting First Solar’s U.S. thin film module manufacturing capacity to expand from 6 GW to 15 GW in the United States by the year end 2027, not just solar in general, as was originally implied.