US solar factories: from announcements to reality

From pv magazine 24/10

The administration of outgoing US President Joe Biden has put infrastructure financing and job creation in the manufacturing sector at the center of its policy messages. The government is beginning to see the fruits of its labor in the form of legislation such as the Bipartisan Infrastructure Law, the Creating Useful Incentives to Produce Semiconductors Act, and the 2022 IRA move from interpretation to action.

The IRA created both supply and demand side incentives for clean energy producers, 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 will receive a 10% tax credit that is fully transferable to other tax-prepared entities in exchange for cash. The law also created significant supply-side tax incentives associated with the production of various components in the solar energy supply chain. For example, PV module manufacturers will earn a tax credit of $0.07/W on panel generation capacity through 2029, while residential inverters will receive $0.065/W.

Carrot and stick

The Biden administration has used both the stick and the carrot in its effort to encourage domestic clean energy production. The United States has sought to create a more level playing field for domestic solar producers through a multi-pronged crackdown on imports from China. The government has done this in several ways, including through investigations into alleged violations of anti-dumping and countervailing duties, allowing importers to impose tariffs ranging from 50% to 250%. The government is enforcing the Uyghur Forced Labor Prevention Act, cutting off supplies from one of China’s prominent polysilicon producing regions. The Biden administration has also increased direct Section 301 tariffs on Chinese imports — citing a clause in the 1974 Commerce Act — including doubling the solar cell tariff to 50%.

All told, the carrot-and-stick approach seems to be working to achieve the goal of bringing good-paying manufacturing jobs back to America’s shores. More than $5.1 billion in solar energy production projects were announced in 2023, according to the National Renewable Energy Laboratory (NREL). That represented 470% year-over-year growth. In the first quarter of 2024 alone, U.S. solar panel production 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 the United States could meet about 30% of demand with domestically made solar panels by the end of the first quarter of 2024. But while solar panel production is going well, the supply chain is still not well served. Many factory announcements have come true, 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 also comes from Canadian Solar (with 5 GW more annual module production capacity), Longi and Invenergy’s Illuminate USA joint venture (5 GW, modules) and REC Silicon (6 GW, polysilicon), according to Reuters.

Despite the increased number of factory announcements, there have also been a number of cancellations. The US Energy Information Administration has reported that imports of solar panels rose 82% to 54 GW in 2023 as prices fell rapidly. That market oversupply has challenged equipment manufacturers as they prepare plans to free up capital for a footprint in the United States.

Looking ahead, analyst Wood Mackenzie expects the gap between announced and realized projects to widen. In 2024, WoodMac expects 38 GW of the 53 GW of announced module production capacity (71%) to come online. By 2026, approximately 66 GW of the 141 GW of project plans (46%) are expected to be realized.

While suppliers that are already “well-known and affordable” in the United States are expanding, others are unable to secure offtake for their products, said Elissa Pierce, research analyst at WoodMac. Major brand names, including JinkoSolar, Qcells and Canadian Solar, have successfully established operations in the United States.

Other companies have had to halt or cancel plans. In February 2024, CubicPV revealed 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 worth about $1 billion to become the first U.S.-based customer of South Korean silicon maker OCI’s low-carbon, U.S.-compliant silicon.

Under the terms of the agreement, OCI would have started supplying polysilicon to power CubicPV’s planned wafer plant in 2025. CubicPV has since said it will now focus on manufacturing tandem solar panels.

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 Colorado Springs plant was no longer financially feasible and the company’s board of directors also directed management to establish a comprehensive restructuring and cost-cutting program for the company. A planned 700 MW expansion of Meyer Burger’s 1.4 GW module manufacturing plant in Goodyear, Arizona, has also been put on hold.

The European manufacturer had sought a debt financing package, backed by monetization of tax credits available through the IRA. When 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 debt financing on a smaller scale by monetizing the tax credits available for its U.S. module manufacturing facility. It added that financing needs will be “significantly lower” as a result of the shutdown of the Colorado Springs plant.

CubicPV and Meyer Burger’s decision to cancel multibillion-dollar projects is a testament to how quickly the dynamics can change as the energy transition moves toward full maturity.

Sustainable prices

Opening a solar energy manufacturing facility in the United States is no small feat. The largest and most comprehensive project announced since the IRA came into force is Qcells’ vertically integrated manufacturing facility in Georgia, which includes an expansion of annual production capacity of ingots, wafers, cells and modules by 3.3 GW. This project is expected to require approximately $2.5 billion in capital investment.

Many NREL production cost analyzes use a bottom-up modeling approach. The federal laboratory individually models the costs 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 delivers a minimum return required in a given sector to sustain a sustainable business in the long term. The figure is calculated based on production and overhead costs plus other financial considerations such as finance, discount rates and tax benefits. Solar energy has seen many shifts in such financial considerations, both headwinds and tailwinds. Supportive policies like the IRA drive the business case for some, while high borrowing costs damage the model for others.

After adding up production and overhead costs, a manufacturer can arrive at an MSP by assuming an operating margin that is typically desired when pricing products in a particular industry. That operating margin is responsible for interest payments, profit and the corporate tax rate.

Average operating margins for U.S. solar manufacturers have shrunk for three consecutive quarters during the first quarter of 2024 as falling prices and low demand hit profits, according to NREL. The government lab also notes that operating margins have ranged from near zero to around 10% as of September 2022. In a notable exception, First Solar’s operating margins remained above 30% for the third consecutive quarter during the first quarter. Despite recent margin declines, most major 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 NREL assess project viability in several ways. First, an MSP allows for direct comparison of the costs of different technologies. Market prices are not ideal for such a comparison because manufacturers can sell well above or below their production costs, according to the federal agency. Additionally, an MSP can provide a way to estimate what prices and margins might be for manufacturers when public information is not 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 can be achieved with a given technology; only a minimum at that time and location.

NREL has also developed a detailed cost analysis model (DCAM) to support the review of manufacturing projects. The model, located on the U.S. Department of Energy’s Open EI website, is a cloud-based tool to calculate the costs of manufacturing components and installing power systems. DCAM supports many of the NREL solar production cost analyzes and is publicly available.