The Exchanges

Q ton of the new activity that we've seen as a result of, uh, the, the new EV tax credits has brought a lot of battery manufacturing, retooled factories, new, new production factories. How has this impacted solar? So there are also specific tax credit requirements for solar cell manufacturing. Are Inflation Reduction Act incentives creating the same level of activity in domestic solar production as they are in battery production?

A That's a good question. I would say the IRA has generated a lot of interest in module manufacturing. There's, I think we're, we're tracking something on the order of over a 120 gigawatts of module manufacturing announcements. Not all of those will materialize of course, but that's, you know, 10 times what the U S currently has today. I think the difference with the, uh, potentially a difference with the battery manufacturing industry is that The U.S. would virtually have to build cell manufacturing, which is just, you know, modules made up of, um, a bunch of cells. They'd have to build a cell manufacturing, uh, industry basically from scratch. There's no real, there's, there's no cell manufacturing in the U.S. to speak of. There have been some announcements as a result of the IRA, but we expect it'll probably take at least another few years for that to actually manifest. And without cell manufacturing here in the U.S., it makes, you know, building out that domestic, that fully domestic supply chain and truly taking advantage of some of the domestic content incentives in the IRA a lot harder.

AI assessment note: “I would say the IRA has generated a lot of interest in module manufacturing.”

Q So that, that's a good point. When you get to the flatter part of the curve, what are the contributing factors that, um, slow growth down? Is it the grid constraints? Is it, um, the amount of solar that markets can handle? What are those factors that are causing that flat growth rate?

A Well, the biggest markets that are leading to the flattening are definitely Uh, China and Europe and kind of secondarily the U.S. And I would argue that in all three of those markets, you're seeing slowing growth because of grid capacity constraints. This could be an issue in, in, in the future, a little bit more so than it is today, but cost competitiveness doesn't really seem to be holding back solar. It's, it's very cost competitive. It has, you know, high demand. There would be more solar installed if it wasn't for some of these other bottlenecks and challenges for the industry. So thinking about China specifically, despite the fact that the capacity doubled in twenty-twenty-three, a lot of that was due to government procurements in, in locations that they call energy bases. So sort of like renewable energy locations throughout China that the government sort of designed and designated as places where renewable energy projects could get built. But as a lot of that's come online, Um, we, you know, we anticipate that that same, that capacity won't be at, you know, exactly the same growth rate as it was the year before, doubling again. That would be, that would be quite astounding. And then furthermore, grid constraints are starting to limit project potential in a place like China. The land capacity and grid capacity constraints are, are starting to, to actually limit installat…

AI assessment note: “in all three of those markets, you're seeing slowing growth because of grid capacity constraints.”

Q Yeah, so what does that mean for production capacity, for module supply? We are now entering a period of module oversupply again, and we're seeing pricing fall substantially week over week. Um, what does pricing look like right now in 2024, and what does that say about the market dynamics of, of module supply?

A Well, in terms of pricing trends just for Chinese modules, we do expect some further declines throughout twenty-twenty-four. Depending on what module technology you're talking about, um, modules can be, you know, 15 to 18 cents, and we expect that they might go down a couple more cents, maybe, you know, 12 to, to 14 or 15 or something in that range over the next year. We anticipate that that will be the floor. Uh, that will sort of be the, the trough in module pricing because markets are going to respond. The, you know, current situation is that lots of factories are operating at somewhat low utilization rates, and the fact of the matter is that as, as we continue with pricing being so low, some factories are either going to close certain lines or close entirely. Planned expansions aren't going to actually manifest. There will be sort of consequences, and that's something that we, uh, we've started to write about a little bit more at Wood McKenzie is That there will probably be a certain level of market correction. And so by, you know, 20, 25 or so, we do anticipate that the pricing will start to go up a little bit more. Not a whole lot. Um, but basically 20, 24 should be the floor for some of those module prices.

AI assessment note: “modules can be, you know, 15 to 18 cents, and we expect that they might go down”

Q So that brings us into some bigger tech trend questions. I mean, what, what do you think the most important technology trends are in solar right now? Both it could be in, in manufacturing or in power electronics or in, in downstream.

A Yeah, I think there are two that I think are important to touch on. One is, is definitely module technology. One of the reasons for the massive expansion of manufacturing in China is, uh, not just obviously increasing the amount of manufacturing of different solar components, but also the type. So we're, we're going to witness over the course of the next three, four years A pretty big shift from mostly P-type modules, which is just, you know, a cell technology that's mostly the older technology, to predominantly N-type modules, and particularly technologies like TopCon and heterojunction. And those are just, you know, those are just names for different types of cell technology that are slightly more efficient than the older generations. So just in a, you know, a few short years, manufacturing is going, manufacturing of solar is going to completely change in terms of, uh, the technology that's spent, that's being produced. Those N-type module technologies are a little bit more expensive, but it's usually made up for with higher production, um, of those modules. And that's really, that's a, a big reason that there's going to be sort of this market correction and supply chain like we've been talking about. There's, You know, it's going to be a bit of a, it's a, it's a big race and competition to produce the best, most cutting edge technology, and that's really going to create a lo…

AI assessment note: “I think there are two that I think are important to touch on.”

Q And on the IRA generally, what do you think the impact on the solar industry will be over the next few years, both in terms of production and installation? What do we expect to actually play out?

A When the IRA was first passed in, uh, August of, you know, we, we modified our forecasts, and we anticipated that over the next five years, the IRA would increase installations in the U.S. by, like, 40%. Pretty, you know, pretty big impact from a very historic piece of legislation. We still anticipate that that will, that that will pretty much play out. The Timing has been slower than folks had anticipated. There's, you know, it's taken over a year for different programs and rules to be published by the IRS and other government entities, and no one was really expecting, and there's still more to come, frankly, and no one was expecting it to be quite this long or arduous to kind of, like, ramp up a lot of the new stuff in the IRA. Yeah. So that's sort of, that's installations, uh, on the one hand. On the other hand, with manufacturing, I think the IRA will have a notable impact on the manufacturing sector. Again, like I said, we don't anticipate all of that. 120 gigawatts of module manufacturing is going to get built. We expect it'll be more like, you know, 50 or so over the next, uh, you know, four or five years. But if, you know, assuming that that plays out, That will be one of the biggest expansions of manufacturing capacity for solar that, uh, that really the US has ever had. One really huge benefit of all that is that it will bring a lot of diversification and more reliabi…

AI assessment note: “we anticipated that over the next five years, the IRA would increase installations in the U.S. by, like, 40%”

Q solar systems installed, and half of capacity, according to Wood Mackenzie, was installed since twenty-twenty. In this, this, so this period was marked by really strong growth, but also all sorts of havoc in supply chains, um, labor shortages, Uh, shutdowns that contributed to, um, all sorts of problems with equipment availability, and so it's been a very chaotic story. How would you describe this post-COVID growth period in solar?

A Yeah, I think the way that I would describe it is that the industry was sort of preparing to be at this level of growth. But then in 2020 and 20 21, COVID kind of like put it on pause. So the levels of growth that we started to see in, you know, 2021 and 2022, especially in distributed solar, you sort of have to make a distinction between distributed versus utility scale. That Was always set to happen. There was just a little bit of a blip because of the challenges related to COVID and a lot of the supply chain constraints that were experienced. A couple of different things happened sort of under the surface. First, you know, solar costs were coming down quite a lot in the lead up to COVID, and they actually sort of flatlined, or in many cases, increased as a result of the pandemic. Obviously, that's, whenever costs go up, that's challenging for an industry, but there was also a lot of, uh, demand, uh, there was flexibility on the part of, of off takers, particularly for utility scale. They, you know, there was still a lot of demand for solar, uh, And offtakers were willing to go with increased prices for the most part. Um, so that sort of was a resilient aspect of the industry. In distributed, the loan market really has pushed a lot of the momentum in the residential solar industry for the last four or five years. And in the pandemic, interest rates had been low for a long tim…

AI assessment note: “I think the way that I would describe it is that the industry was”

Q There are a bunch of other challenges in the U.S. Um, grid constraints are a huge problem, uh, major interconnection backlogs, um, you have this major policy change in the top solar market in California that is gonna cause, um, residential installations to crash, and, um, there are of course still equipment shortages. What are the strengths and weaknesses in the U.S. market right now?

A One of the just immediate strengths, I would say, is, is just the strong demand for solar. The primary drivers of utility scale solar procurement, at least, are corporate buyers signing contracts and voluntary procurement on the part of utilities. That's where the majority of utility scale solar, or how the majority of utility scale solar is procured in the U.S. That's compelling. That basically is saying that most utility scale solar in the U.S. comes from utilities and corporate entities saying, we need more clean energy. The weaknesses in the U.S. are definitely, you know, all of those things that you, that you, uh, touched upon. The sort of unfortunate nature of the way that our governments are set up in the U.S. mean that there's all these levels of bureaucracy when it comes to building transmission and distribution capacity. You know, democracy has lots of benefits, but, uh, that might not be one of them. Um, and we need more, we need more grid capacity in order to have this net zero future. Lots and lots of studies show that, you know, a doubling or a tripling of transmission and distribution capacity. There's similar things at play with interconnection queue issues. You have, you know, FERC regulations and different ISO regulations and lots of potential changes that are taking place, um, within those processes. There's just multiple different layers that developers have…

AI assessment note: “One of the just immediate strengths, I would say, is, is just the strong demand”

Q energy included. Uh, I'm wondering, uh, What are the big stories for the reorientation of supply chains coming out of COVID? Like, did everything go back to status quo? Were there some fundamental changes that have reshaped the industry? China, of course, still dominates every part of the solar supply chain, but, um, I'm just wondering, have there been any real material changes that have come out of this period?

A I think the most material changes are in procurement behavior. Folks in the industry prior to the pandemic typically would just procure equipment in a just-in-time type of manner, and historically that worked and was appropriate for the industry. Now I think everybody thinks about it a little bit differently. They want to make sure that they line up equipment and they procure equipment in advance. You know, you don't want to Risk buying too much, too much equipment or paying too much for that equipment, but developers definitely have a bit of a different attitude about procuring way in advance. They also consider different factors in terms of reliability of when it will be delivered. Um, so people might be willing to pay a higher price if it means that they get some of those items. Whereas, you know, before price competition was kind of You know, the, the main thing dictating procurement in the solar industry.

AI assessment note: “I think the most material changes are in procurement behavior.”