U.S. solar factories: From announcements to reality

From pv magazine 10/24

Outgoing U.S. President Joe Biden’s administration has placed infrastructure funding and job creation in the manufacturing sector at the heart of its policy messaging. The administration is beginning to see the fruits of its labors as legislation including the Bipartisan Infrastructure Law, the Creating Helpful Incentives to Produce Semiconductors Act, and 2022’s IRA move from interpretation to action.

The IRA created incentives both on the supply and demand side for clean energy manufacturers, and global investors have taken notice. Clean energy projects installed in the United States that source at least 40% of their equipment from domestic manufacturers are awarded a 10% tax credit that is fully transferable to other entities with tax appetites, for cash. The act also created significant supply-side tax credits tied to the production of various components along the solar supply chain. For instance, PV module makers earn tax credits of $0.07/W of panel generation capacity until 2029, while residential inverters are credited $0.065/W.

Carrot and stick

The Biden administration has employed the stick as well as the carrot in its bid to encourage domestic clean energy manufacturing. The United States has been attempting to create a more level playing field for domestic solar manufacturers via a multi-pronged crackdown on imports from China. The government has done that in various ways, including through the investigation of alleged antidumping and countervailing duty violations, which can peg importers with tariffs ranging from 50% to 250%. The administration enforces the Uyghur Forced Labor Prevention Act, cutting off supply from one of China’s prominent polysilicon producing regions. The Biden administration has also increased direct Section 301 tariffs on Chinese imports – referencing a clause in the 1974 Trade Act – including doubling the solar cell tariff to 50%.

All told, the carrot-and-stick approach appears to be working to achieve the goal of bringing back well-paid manufacturing jobs to US shores. In 2023, more than $5.1 billion worth of solar manufacturing projects were announced, according to the National Renewable Energy Laboratory (NREL). That represented 470% year-on-year growth. In the first quarter of 2024 alone, U.S. solar module manufacturing grew 71%, from 15.6 GW of annual production capacity to 26.6 GW, according to the Solar Energy Industries Association (SEIA).

The SEIA said that at the end of the first quarter of 2024, the United States could meet about 30% of demand with domestically made solar modules. But while the solar module manufacturing business is going strong, the upstream supply chain is still 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. New capacity has also come from 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 ramp-up in factory announcements, there are also a number of cancellations. The US Energy Information Administration has reported that solar module imports increased 82% to 54 GW in 2023, as prices fell rapidly. That oversupply in the market has challenged equipment manufacturers as they prepare plans to lay out capital for a footprint in the United States.

Looking ahead, analyst Wood Mackenzie expects the gap between announced projects and those that get built to increase. In 2024, WoodMac expects 38 GW of the 53 GW of announced module manufacturing capacity (71%) to come online. By 2026, some 66 GW of a 141 GW of project plans (46%) is expected to materialize.

While suppliers that are already “well known and bankable” in the United States are expanding, others cannot secure offtake for their products, according to Elissa Pierce, research analyst at WoodMac. Major brand names including JinkoSolar, Qcells, and Canadian Solar have successfully set up operations in the United States.

Other companies have had to halt or cancel plans. In February 2024, CubicPV revealed that it had scrapped plans to develop a 10 GW silicon wafer factory in the United States. That decision came just two months after Massachusetts-based CubicPV signed an eight-year deal, valued at around $1 billion, to become the first U.S.-based customer of South Korean silicon producer OCI’s low-carbon, U.S.-compliant silicon.

Under the terms of the agreement, OCI would have begun supplying polysilicon to feed CubicPVs planned wafer fab in 2025. CubicPV has since said it will now focus instead on producing tandem solar modules.

In August 2024, Meyer Burger announced it would cancel plans to open a 2 GW solar cell manufacturing facility in Colorado. The Swiss PV manufacturer said construction of the plant at Colorado Springs was no longer financially viable and the company’s board of directors also instructed management to draw up 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 manufacturer had sought a debt finance package backed by the 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 until the end of 2032.

The company said it will continue to seek debt finance on a reduced scale by monetizing the tax credits available to its US module production facility. It added that its financing requirements will be “significantly lower” due to halting the Colorado Springs plant.

CubicPV and Meyer Burger’s decision to cancel multibillion-dollar projects are evidence of how quickly dynamics can shift as the energy transition cycles its way to full maturity.

Sustainable prices

Opening a solar manufacturing facility in the United States is no small feat. The largest and most comprehensive project announced since the IRA passed into law is Qcells’ vertically-integrated manufacturing facility in Georgia, which includes a 3.3 GW expansion of annual ingot, wafer, cell, and module production capacity. That fab is expected to require around $2.5 billion in capital investment.

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 in the production process.

The NREL uses a “minimum sustainable price” (MSP) model to understand the viability of manufacturing facilities. MSP is the value that provides a minimum rate of return necessary in a given industry to support a sustainable business over the long term. The figure is calculated based on manufacturing and overhead costs plus other financial considerations such as finance, discount rates, and tax incentives. Solar has seen a lot of shifts in such financial considerations, both headwinds and tailwinds. Supportive policies like the IRA are driving the business case for some while high borrowing costs are damaging the model for others.

After summing up manufacturing and overhead costs, a manufacturer can arrive at an MSP by assuming an operating margin typically desired when pricing products in a given industry. That operating margin accounts for interest payments, profit, and the corporate tax rate.

Average U.S. solar manufacturer operating margins shrank for three straight quarters through the first quarter of 2024, according to the NREL, as falling prices and low demand cut into profits. The government lab also notes that operating margins have ranged from close to zero to around 10% since September 2022. In a notable exception, First Solar’s operating margins remained above 30% for a third consecutive quarter through the first quarter. Despite recent declines in margins, most big manufacturers have remained profitable since the second quarter of 2019.

With an operating margin in hand, an MSP can be determined and this minimum sustainable price helps the NREL assess project viability in different ways. Firstly, an MSP enables a direct comparison of the cost of different technology. Market prices aren’t ideal for such a comparison because manufacturers might be selling well above or below their production costs, according to the federal body. Furthermore, an MSP can provide a way to estimate what prices and margins might be for manufacturers when no public information is available.

Another important aspect of the MSP is that this minimum price will adjust over time as costs change. The resulting number is not the absolute minimum sustainable price that could be achieved by a given technology; just a minimum at that time and location.

The NREL has also developed a Detailed Costs Analysis Model (DCAM) to support manufacturing project vetting. The model, operating on the U.S. Department of Energy’s Open EI website, is a cloud-based tool to calculate the cost of manufacturing components and installing energy systems. DCAM underpins many of the NREL’s solar manufacturing cost analyses and is publicly available.

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