By Andy Klump, CEO and founder, Clean Energy Associates
It seems like whenever unexpected events rock the stock market, some pundit declares that the result will be a “flight to quality.” They usually mean switching into blue-chip stocks.
As the scope of the pandemic became clear, two stock pickers writing in Marketwatch predicted that a new normal of sustainability will cause a “flight to renewables.”
We’re currently experiencing real obstacles in the solar supply chain, from canceled meetings and closed borders to logistics challenges and factory lockdowns. These disruptions cause buyers to question their supply decisions and are producing a flight to quality suppliers – those already at scale, with localized supply chains and better balance sheets.
But what if there aren’t enough well capitalized suppliers at scale to go around? Will there be an increase in price to a low volume of “quality suppliers”?
I don’t think so, as the industry does not have the budget to pay premium prices, nor the patience to rely on unproven business partners with uncertain quality.
End owners of solar assets can continue to scale up rapidly if they think in terms of a flight to quality assurance (QA), which means applying tried-and-true techniques to sift out components that could otherwise arrive underperforming, unusable, unsafe to workers or as a fire hazard.
The previous disruption that forced diversification to new suppliers was the trade war between the U.S. and China, which of course is still ongoing. Much of our equipment, including subcomponents for racks, inverters, transformers and batteries, still originates in China. But due to the tariffs, many solar modules are now manufactured elsewhere across Southeast Asia, South Asia, and Korea.
Increased quality assurance oversight has been the solution. We’ve seen broader use of quality assurance engagements such as factory audits, in-line process monitoring and pre-shipment inspections across a new base of U.S. clients who are IPPs, developers and EPCs discovering the importance of quality assurance for the first time. If we compare the U.S. solar market with India, for example, we estimate that only 25% of buyers use a QA program versus an adoption rate of 99%+ in India.
Using electroluminescence imaging equipment as well as visual assessments, our inspectors monitor dozens of potential defect types such as microcracks and soldering defects. These defects would otherwise lead to hot spots and snail trails across solar modules, which lower performance and shorten panels’ life spans, and also could cause severe fire and safety risks, which may give the solar industry a bad reputation or cause harm to system operators. By ensuring more stringent testing levels, we can avoid safety and reliability defects and protect the end owners of the assets, who care about consistent, reliable and optimized performance.
Everyone should be aware that not every B-grade or rejected panel gets reworked in the factory or sold at a discount to a non-standard emerging market – in some cases, these rejected modules are relabeled as an A-grade product and repackaged to another buyer that lacks sufficient quality assurance oversight or testing programs.
Many factories operate at or near their utilization limits even in “normal” times, pressured by heavy market demand, the PV industry’s rapid expansion, the constant evolution of our products and intense price competition. Our firm has been involved in 55 GW of PV projects across 55 countries – and more than 30 GW of that volume includes an onsite factory assessment.
To audit an entire factory, we send in a team of experienced engineers and factory operators with a comprehensive checklist that covers more than 1,000 points. They classify their findings by the risk potential into critical, major or minor defects. Continuous monitoring of factory lines involves another 260-point checklist for inline quality control. Over time, the resulting data allows us to benchmark supplier and factory performance from exceptional to below-average.
Building and maintaining strong relationships from the executive suite to the factory floor has helped us overcome obstacles, such as being blocked from entering certain factories because of the coronavirus outbreak or a manufacturer’s desire to avoid continuous oversight and scrutiny of their quality level.
At one locked-down factory recently, our inspector videoconferenced a line worker inside the plant on their respective cell phones in real time, allowing an inspection to proceed. The inspector was able to verify that correct processes were being followed, due to the fact that our team has detailed records from past inspections. While this approach wasn’t ideal and is not what we recommend, our team had to be flexible given the unusual circumstances, and we were able to help our client ensure that they obtained a better performing product.
Nonetheless, we always obtain and archive electronic images and data from the manufacturer and from inspections throughout the process. Using this approach, if there is a contract dispute, the parties can document where the materials were mishandled and quality standards broke down.
Transportation is another major challenge to maintaining solar module quality – within a factory, to the warehouse, to and from international shipping, and then to the jobsite. Modules bound for the United States typically arrive in the ports of Los Angeles, Houston or the Carolinas, and then proceed by truck or train to where they’ll be installed. Increasingly, developers and EPCs are engaging us to complete onsite receiving inspections to verify that the modules are in as good a condition when they arrive as when they were packaged from the production line at the factory.
My work across the solar supply chain has given me the chance to get to know many of the global suppliers of this fast-growing industry. Since 2008, I’ve been deeply engaged with manufacturers and their factories in South Korea, Vietnam, Malaysia, Thailand, the Philippines, Cambodia, India, Canada, Mexico, and the United States.
As the solar industry has skyrocketed in the last decade, this diversifying supply chain has helped drive down prices to undreamt-of levels. Managing all those suppliers successfully has become a critical building block of industry leaders’ success. Quality assurance will help sustain our success even in uncertain times due to COVID-19.