Addressing ESG in an ultra-low cost environment

pv magazine: The PV module market has recently been characterized by very low prices. How is Longi doing in this environment?

Haimeng Zhang: Prices are our biggest priority at the moment. If people continue to rush to produce more while demand remains the same, the price becomes unsustainable. If everyone is losing money, a correction may not be far away. We are looking very closely at where each of the players are, how much pain they can still tolerate and when we might start to see signs of sanity. The sector needs to correct to something from $0.12/W to $0.13/W. If you only hit $0.15/W you have a pretty good margin to invest in R&D, but $0.12/W to $0.13/W is all you can get by with.

A colleague from another company recently asked me, “Why are you selling for $0.11/W when you could sell the exact same volume for $0.20/W?” This has stayed with me. High costs used to be a barrier to solar energy adoption. We were able to reduce those costs over time and Longi played a key role in that. And now this over-competitive pricing makes no sense; it does not expand the market. The costs of solar energy are no longer a barrier. Barriers now include energy storage and the electricity grid, yet we continue to drive down the price of solar energy. It helped in the past, but now it doesn’t help anymore. And some people still think this way: if we lower the price, we will get more demand. But that is no longer the case.

What needs to happen to get back to this level from $0.12/W to $0.13/W?

At least some players need to be weeded out. Some capacity must go offline, especially in the polysilicon segment. Those factories rely on huge furnaces, processes that can’t be easily stopped and started, so they don’t want to reduce production. They’re losing money and building up inventory, and that can’t last forever. Even in the coming weeks, things could change. Once some polysilicon manufacturers start thinking, “Forget it, I just don’t have the money to lose,” it will start a chain reaction.

Buyers and regulators are increasingly concerned about ESG practices. How will this affect Longi’s business?

Expectations are rising. US and European stock exchanges, as well as the Hong Kong Stock Exchange, have mandatory ESG reporting. Longi is listed on the stock exchange in China, so there is no mandatory reporting for us yet. Nevertheless, we have our annual sustainability report that essentially covers all ESG facets. Investors expect this, as do regulators, especially in the US and Europe. And our customers are increasingly doing the same.

One area we look at a lot is the carbon footprint and environmental impacts. We have our first, what we call, ‘zero carbon factory’ in China. The idea is to use hydropower and solar energy on site to completely decarbonize the production process. However, we have encountered a challenge with some certification bodies: China’s hydroelectric power plant is not counted as carbon-free energy. They work based on the average energy mix for the region and not on project-specific data. We would like to push for some change in that methodology. We also want to work with the utility company that supplies us with the hydropower and convince them to obtain certification. But as a local Chinese company, they are not strongly motivated to work towards certification by European entities that their electricity is green.

We have these challenges, but the direction is clear. We need to decarbonize our production. The plan is to come up with a very low-carbon product in the very near future, especially for the European market. Zero carbon would be an exaggeration, but it is a significant reduction in the scope 1 footprint [direct] and range 2 [energy supply] emissions and we don’t just buy carbon credits to offset them. Scope 3 [emissions from other suppliers in the value chain] is more difficult, but we work with suppliers and train them to understand our customers’ needs.

Is there a cost associated with something like a low carbon module? How will this product compare to others on the market?

Decarbonisation must happen at a system level and we will take this step by step, starting with our own factories and then working with our suppliers. We will demonstrate with a product that solar energy production can be effectively decarbonized. This may initially mean higher costs and we will also need to work with our customers on how we share these costs. It is a collective effort across the supply chain.

Currently, the energy used to produce a solar panel is approximately 0.4 kWh/W. During its lifespan, a solar panel generates an average of 40 kWh/W, based on 1,500 hours per year for 25 years. That’s 100 times the benefit.

About 90% of the entire solar energy production value chain is in China, and China represents half of the world’s PV energy demand – meaning almost half of that production is sold abroad. Those emissions from production are counted in China, while the benefit goes to another country.

The next step is to clean up this 0.4 kWh, because China wants to become less CO2 intensive. A few years ago we said we wanted to do ‘solar for solar’. But solar energy does not give us energy 24 hours a day. To achieve this, hydropower, nuclear energy or energy storage are required.

Incorporating recycled materials is also an important part of sustainability in production. Has Longi made any progress here?

For now it’s just the module frame. We work with suppliers to use recycled aluminum materials for this. There are also some good recycled material options available with lightweight steel frames.

There are other smaller impact areas. Recycled material can be integrated into some metals used in cell processing. But it is very difficult for us to use other recycled materials and very difficult for recyclers to extract materials from waste modules and achieve the required purity. This has to do with the design of the modules and the easier recycling of products is a driver to further reduce the CO2 footprint.

In our opinion, recycling is not a good thing because the module is used for 25 years or more and the amount of metal, especially precious metals such as silver, in a module decreases, so the value of recycling that module is limited and at a very very long time horizon.

We also realize that it is something we have to do. Maybe not for decarbonization, but it’s required by regulation and that’s what our customers care about. That is why we are coming up with measures to make recycling our modules much easier. Makes it easier to disassemble [products] is the main driving force. Because before, when you try to take apart a module, many components get damaged and it becomes difficult to restore anything useful.

We work with industry to come up with design standards to make it easier for recyclers to process the modules. Currently this is largely focused on avoiding hazardous materials or substances that will have an impact on the environment when the module is decommissioned.

Now can we talk about the ‘social’ part of ESG?

The biggest problem here concerns forced labor in the supply chain. This is a very sensitive topic and different governments in China, USA and Europe have their own views and demands on PV module suppliers like us.

As a private company, it is a lot of work to comply with these different rules. What we do is segment our practices for different regulators and clients. When the United States says ‘we don’t want certain material,’ there is always reasonable doubt because despite the traceability documentation, you can’t tell the difference between this silicon and that silicon. They all look the same.

The burden of proof is on us and it is not always provable. That’s why we’ve built an entire supply chain outside of China, starting with polysilicon produced in Europe. Then there is no doubt whatsoever. This means higher costs, but if US customers are willing to pay it, then so be it.

That segment is also available to customers elsewhere, but as far as I know none of our European customers are willing to pay that extra cost. They prefer to opt for traceability. We take care of the complete documentation: where the silicon comes from, where it is processed. We ensure we have certified, audited documentation that covers all of this.

For the time being, we provide full traceability documentation to customers who request it. The next step is to offer it automatically, so the customer doesn’t even have to ask for it. We plan this for all customers in Europe. They scan a QR code and have the complete documentation. This comes at an additional cost and we have considered charging a fee for customers who require this, but with our scale it doesn’t make sense. Once you amortize that over the volume we ship to Europe, the cost is very small, so we offer it for free as part of good customer service.

Those are the three most important segments. Other regions also have some requirements and we ask them to choose the level of traceability they need.