How can gaps in the solar supply chain be overcome to increase cleantech production & job growth?

Catherine: Hi, I’m Catherine McLean, Founder and CEO of Dylan Green. And today I have with me John Smirnow, Principal at Smirnow Law, and Arielle Brown, Director of Government Affairs at Wacker. Thanks for joining me.

Arielle: Thank you.

Catherine: So can you please introduce yourselves and tell us a bit about your current roles?

Arielle: So I’m Arielle Brown, Director of Government affairs at Wacker, as she’d already said. I represent all over North America for Wacker. We have four different divisions. We have our biosolutions division, which produces cyclodextrin, mRNA, pDNA out of San Diego. Then we also have our polymers division, which is more industrial applications and focused more on adhesives, and then silicones applications, which are over 3,000 different uses. So one of those uses are solar, where the glue that goes on the back of the solar panels for the applications, and then we also have medical uses, and then we also have beauty care lines, and I mean, it’s in everything that you don’t even think of.

Catherine: Maybe what don’t you do?

Arielle: A little bit. A little bit of everything. Sometimes it’s just a woman of many hats, I’d say. And then of course, for our polysilicon discussion today, we make up semi-grade and solar-grade produced polysilicon. For Wacker, we produce 50% of the world’s supply of semi-grade polysilicon. So the phones that you have in your hands, there’s a 50% chance that’s made with Wacker material. And then also for the solar grade, of course, we have our site down in Chattanooga, Tennessee. So always glad that we have a presence for all four of our divisions for Wacker here in the US.

Catherine: John?

John: Yeah, thank you. So John Smirnow, Smirnow Law. I’ve been in the industry for more than 15 years. Up until a year ago, I was Senior Vice President and General Counsel at the Solar Energy Industries Association. My practice is focused on law and policy in DC and mission oriented. I’m really passionate about using the industrial policy that is the Inflation Reduction Act to help grow US manufacturing. And full disclosure, I represent Wacker. We formed the Polysilicon Coalition. It’s an advocacy group and represents all US polysilicon production capacity, including Wacker, Hemlock, and REC.

Catherine: Before we dive into the Inflation Reduction Act, I think it’d be helpful if you could provide an overview of the current state of domestic solar production, including where the largest gaps are. For example, the extent of modular polysilicon production versus ingot and wafer production.

Arielle: I think what really would help is give context of the entire process of the solar supply chain. So polysilicon makes up the foundational materials used for the ingot wafers, which then goes to the cells and modules. And 95% of the market for ingot wafer facilities and cells and modules is based out of China, with another 5% of the market that is thin film. So China has the largest market for the PV value chain. They have a lot of production, so there is a huge concern right now with over capacity. They’re able to do that through a heavily subsidized market. They’re looking at huge investments for the polyproduction facilities in the next few years. And there’s going to be an expected oversupply of solar-grade polysilicon within the supply chain moving forward that you can see.
And right now, for the domestic production capacity for polysilicon within the U.S., we’re able to produce around 17 to 20 gigawatts. And the goal is for the U.S. PV installations around 40 gigawatts. So it’s important to make sure that we’re furthering our capacity within the U.S. and making sure we’re supporting local industry for the U.S. grade or solar-grade polysilicon within the U.S. That’s something that we’re wanting to make sure we’re preserving and focusing on as we move forward.

John: Great. Yeah, just to add to that. So global polysilicon production capacity, we also look at non-China to include Germany and Malaysia. And so between the U.S., Germany, and Malaysia, there is plenty of polysilicon capacity to supply the U.S. market. It’s an important point as we talk about Chinese overcapacity and some of the issues that arise with Chinese polysilicon and the Uyghur Force Labor Prevention Act. For looking at the full global solar supply chain in the U.S., lots of investment in modules. I think the expectation is that within a year or so, we’re going to have 30 to 40 gigawatts of U.S. module production capacity. Cell is lagging. We’re starting to see cell capacity come online. Q-cells, there’s going to be a couple of new announcements. I know of one leading module manufacturer that’s going to announce an additional five gigawatts of cell capacity. So that’s coming on.
One of the big gaps in the module value chain is ingot and wafer. We haven’t yet seen the investments in ingot wafer capacity in the United States. And we need that. As a polysilicon industry, those are our customers. That’s to whom we’re selling our product. Right now, our customer base is mainly in Southeast Asia. We’re blocked, effectively, from selling into the China market because of China’s restrictive trade policies, which maybe that surprises people, that China actually has restrictive trade policies. So in this overcapacity environment, we have to look for solutions to grow ingot wafer capacity in the United States. The Inflation Reduction Act is certainly helping that. And we think over time, it’ll get better.

Arielle: And I think one thing to add to that is China has done something, which they’re vertically integrated. And what I mean when I say vertically integrated is that they’re able to go from the beginning of the supply chain, from the solar-grade polysilicon, all the way to the modules for how they’re producing. And one of those things, to John’s point, is making sure we’re bringing more of the value chain into the U.S. for the ingot wafer facilities, because that’s something we don’t currently have for our existing market. And as we’re considering continuing to expand production for U.S.-grade polysilicon, we want to make sure we have someone to be purchasing that product U.S.-based. That’s a consideration for us.

John: Yeah, the industry’s goal, this is SEIA’s goal, is to have in the United States by 2030, 50 gigawatts of each of the key segments of the supply chain. So 50 gigawatts of polycapacity, 50 gigawatts of ingot wafer cell and module, as well as inverters and trackers.

Catherine: It’s no secret that the IRA was a historic success for clean energy, due in large part to the stackable tax credits that are now available to PPA companies and their customers. Can you provide an overview of all of these credits, including 45x domestic content?

John: Yeah, sure. So the main drivers, and I’m going to focus on the main drivers for manufacturing in the United States. The main driver for deployment is the investment tax credit. That’s the 30% tax credit. There are also two additional tax credits that target manufacturing. One thing that’s really important about the Inflation Reduction Act is that it is an industrial policy. It’s looking at not just one tool to grow manufacturing or to grow the solar industry, which is what we had before, was the 30% tax credit, but it also adds capacity support in the form of 48 seats.
So you get a 30% tax credit if you build a facility in the United States. The other manufacturing drivers are 45x. This is the tax credit.
You get 7 cents a watt if you make a panel in the United States. There’s also 45x credits for polysilicon, for wafers, for cells, for inverters, and domestic content. So you build a solar project in the United States, you get your 30% tax credit. If the equipment that is used to supply that facility, if 40% of that today, 40% of that facility is made with domestically produced equipment, then you get an additional 10%. So domestic content and 45x are really the main drivers for literally over $100 billion in new manufacturing investment capacity in the United States.

Arielle: Now, I think the IRA has dedicated $369 billion towards decarbonizing the United States.
And something that it’s the bit of the most value to our industry is to make sure that we’re investing in a way that’s going to stop the continuance of the issue for greenhouse gases. And I think that is the very important mechanism for anyone who’s looking at an investment is looking at where they’re going to be getting their subsidies and making sure they have a support system when they’re doing investments and that there’s a sound business.

Catherine: What are some of the challenges you’re both seeing with the rollout and implementation of the IRA and how are you overcoming the challenges?

Arielle: So the one thing that we’ve been looking at mostly is the IRA is meant to be, as I mentioned previously, a support mechanism. It’s essential to stop climate change. We think it’s interesting for the incentives for the wafers, cells, and modules. I think there is something to be said for a missed opportunity for supporting upstream suppliers. I don’t think that’s singular to the solar industry itself. I think that’s a lot of different industries. When you go into policies being made, they’re missing out on what’s being used for producing the raw material, like a final product. So I think that’s something that could be evaluated moving forward.
There also needs to be economic viability given it’s very capital intensive for trying to establish a vertical integration with the U.S. with not only establishing expanded production to meet the continued needs for the increasing to get the U.S. to 40 gigawatts, but also something where we’re trying to think of ingot wafer facilities. Those are all going to be needed as we continue to have a mechanism supporting ourselves and not being so reliant on external sources. John, do you have anything to add?

John: Yeah. So I think there really are two things that maybe are hindering the impact of the Inflation Reduction Act. I want to start by saying it’s incredible. I mean, the Inflation Reduction Act is the first industrial policy that we’ve had in my lifetime, and it’s really working. Just look around here. This year, there are a lot of companies that are selling inputs for factories in the United States, and that’s something we traditionally haven’t seen here at SPI.
There was delayed implementation of the rules as to how the Inflation Reduction Act is going to be implemented, particularly with respect to domestic content, just a lot of uncertainty, which products qualified. If you make a tracker in the United States, the rule says you have to make the tracker and all of its components need to be made in the U.S., but the first version of that guidance didn’t tell you what those components were, and so the industry had to make some assumptions as to what those were. Now, within, I think, six months or so, they updated the guidance to then tell you what the components are, and that really was a big improvement.
The other thing that’s really hindering is overcapacity. You’re going to hear us say overcapacity a lot, but companies that are investing billions of dollars in the U.S. at a time where you have had this huge inventory buildup in the United States, module prices falling makes it very difficult, and to Arielle’s point, it does make it difficult to go out and get private sector investments in these new facilities.

Arielle: I think, to add to what John’s saying, it’s cluster demand is going to be an important evaluation process for any company looking to invest, and if you see a huge market that has, I think this can become a game, overcapacity, then that’s going to play into your role of the viability of a future investment, and so we have to make sure that we’re preserving the existing market in the U.S. and making sure, as we continue to say that this is a need and it’s going to be the cheapest form of energy to use solar, that we protect the upstream suppliers as that’s going to be needed for the final product for the cells and modules.

Catherine: So let’s go dive into job growth, which is something that’s near and dear to my heart as a recruitment consultant. In the two years since President Biden signed the IRA into law, more than 35 solar factories have been announced, and clean energy projects are adding more than 330,000 jobs in every state in this country. Millions more will be created over the next decade as a result of the IRA. What are some examples of the impact that you’re seeing on job creation from the IRA?

Arielle: I hate to say the word.

Catherine: Overcapacity?

Arielle: Yes. So what we’re seeing is a lot of the jobs being going towards more cells, modules versus the expansion of the solar grade production of polysilicon within the U.S., and the reason why that is, is because of the overcapacity numbers for the solar grade polysilicon being produced in China, and we expect those numbers to go up. So there’s not going to be expected job growth when the industry doesn’t see the business case to continue to expand while we see that there’s going to be the need or the increased capacity to the 40 gigawatts. You also have to make sure, again, we’re matching the subsidies, which we do want to say, firstly, we appreciate the $3 a kg through the IRA. Please don’t get rid of it. But again, we just want to make sure that we have that competitive advantage as well. So, John.

John: Yeah. In the polysilicon industry, we already have existing capacity. So about $7 billion in investments exist today because of both the Inflation Reduction Act as well as the Uyghur Forced Labor Prevention Act. Hemlock was able to restart some facilities. Wacker is able to continue at its current pace. We also see REC Silicon, which had to shutter its facility, able to start up. Now they supply Q cells. So it’s not as if we’re not seeing Inflation Reduction Act growth in the polysilicon industry. It’s just not happening as quickly as the module segment of the industry is growing. But our expectation is that over time, module capacity will lead to more cell capacity, which will lead to more wafer. And then, when we see those market signals of wafer capacity being here, that’s when you’re going to start seeing the companies have customers they’ll be able to sell to in the United States.

Catherine: How is China’s overcapacity in polysilicon production impacting American polysilicon manufacturers?

Arielle: Oh, no. OK, guys. I feel like I should press record and play. So if we’ve covered it, it is fine. Yeah. I mean, it’s nothing I haven’t already said. So it’s increasing. It’s going to impact that. You have to be aware that when there’s an imbalance, there’s going to have to be adjustments from the market. And A, that’s making sure we’re addressing the imbalance with exporting all the product to China, because that is where 95% of the in-gate wafer facilities are.
So making sure we’re rectifying that we’re going to have to match the subsidies that we’re able to see with some of these investments to make the business case for there to be in-gate wafer facilities here in the U.S. And we’re just going to continue to have to work through some of those concerns. And I think it’s just going to take time. I don’t think there’s a right answer.

John: No. One word I think, one word you use I think is really important is balance. So the beginning of, I don’t know, around 2010, the U.S.-China solar relationship was in balance.
The U.S. was a leading producer of polysilicon, was able to sell freely into China. That’s where I’m at the time and today where all the wafer in-gate consumers were. So there was balance.
And then China did a couple of things. They put prohibitive tariffs in place against U.S. polysilicon, so effectively blocked U.S. companies from competing, insulated their industries, provided massive government subsidies. Companies benefited from being in Xinjiang and all the benefits that unfair and forced labor and cheap coal, cheap electricity created an environment where Chinese companies had a lot of protection and a lot of investments.
And now we don’t have balance, right? So restoring balance is going to be key.

Arielle: Yeah, very risky. So, it’s very risky to sit here and say that there’d be continued investment without adequate support. And that is also making sure that there’s the need in the market, which if there’s overcapacity, that drives down the price point, which pushes out competitors, which further creates more imbalance without a protected market. So the final question I have today is, in light of the upcoming election, we have an election coming up.

Arielle: No, tell me more. How’d that debate go last night?

Catherine: What would you tell those who are worried about whether the IRA will remain in place?

Arielle: For us, it’s making sure that there’s stability in the market, right? And that means to go with support mechanisms that are currently in existence with the IRA and making or preserving those support systems that are already in place. And then also looking at what we could be doing better. And I know that’s going to be my non-answer answer, but I mean, always looking forward to seeing how this plays out. But I think that’s what we’re keeping a close eye on. We want to make sure that whatever does happen, it’s creating stability in the market.

John: Stability and business certainty, right? People make long-term investments when they know that there’s a stable policy environment. It’s so evident that if President Harris gets in continuity. We’re going to continue to thrive, very positive development. If we see another Trump administration, it’s going to create a lot of uncertainty. It’s not going to be the end of the world though. Trump believes in US manufacturing. He’s committed to it. He’ll see that the Inflation Reduction Act is an incredible tool for any administration to create jobs, to grow manufacturing. The other thing too, to keep in mind is that a lot of these investments, most of these investments are being made in red states, Georgia, Texas, Arizona, North Carolina, South Carolina. And one thing to think about, a lot of times we’re talking about the Inflation Reduction Act as the main investment, public investment effectively in manufacturing, but the states, state economic development agencies are also, states are providing a lot of tax credits and incentives. And if these facilities don’t succeed, if you take away 45X, if you take away domestic content, these facilities are going to have, they’re having a challenge competing now with the overcapacity.
Without these supportive tools, they’ll be gone. And so all the state investments will go away as well. So there’ll be uncertainty, but the solar industry is going to, we’re going to be okay.
It’ll be a setback, but I think we, as we always do, we figure it out and find a way to grow from, the first trade show I was at was 5,000 to, I don’t know, what are we, 40,000 here today.

Catherine: Yep. Well, thank you for talking to me about this. Appreciate it.

Arielle: Thank you. Appreciate it.

John: Thank you.