Global consulting, engineering, quality control and testing firm, Enertis Applus+ provides supply chain and quality control and quality assurance (QA/QC) inspection services for about 2.5 GW of PV projects throughout the United States (Texas, Ohio, Illinois, Louisiana, West Virginia, New York, and Maine) with a range from 50 MW to 600+ MW.
Through risk mitigation of long-term PV project predictability, Enertis Applus+ QA/QC services focus on preventing the procurement and commissioning of non-reliable components to protect client profits and ensure safety. For Module Month, we wanted to pick their brain on the PV module QA/QC process and the related supply issues. Thanks to James Whittemore, QA/QC senior manager at Enertis Applus+, for the insight.
Ideally, when should an EPC reach out for QA/QC services related to an upcoming project?
Whittemore: EPCs and any project stakeholder should reach out for Quality Assurance and Quality Control (QA/QC) services prior to selecting the PV/BESS (Battery Energy Storage System) equipment, technology or Bill of Materials (e.g., in case of PV modules), and before negotiating the supply agreement. If not written well, a supply agreement can block a purchaser from assuring the quality of his/her purchased assets.
If you have no input on the quality of your purchase early on, then you are taking an expensive gamble.
If you are reading this right after inking a contract, then contact someone about QA/QC services now. This way, the contract can be reviewed early and you can develop a strategy to protect your assets within the bounds of the contract.
If it is not possible to do QA/QC on the front end, then at the very least, conducting statistical sampling and testing on receipt will keep suppliers motivated not to “pass the buck” on to you.
What is the negotiation process like right now? Are terms becoming more or less favorable for buyers?
Whittemore: The PV modules market continues to give sellers the advantage. The negotiation process is becoming less combative compared to some chaotic months in 2022.
However, we are seeing suppliers initially agree to terms that afterwards they fail to honor. This is because they are not financially motivated. The buyer’s only recourse is to end the contract and take on the financial risks by delaying the project(s).
We suggest tying liquidated damages or penalty clauses to the terms, which can give suppliers more motivation to keep their contractual conditions. This will motivate suppliers to be more realistic about what they can and cannot agree to during contract negotiations. At the least, you will know what to expect during contract execution.
What are the looming supply/component issues in 2023-’24 that EPCs should be most concerned about?
Whittemore: Early booking is key in the case of transformers.
The lithium-ion battery inventory has all the ingredients of a tighter supply. Also, it’s important to order these early and reference the penalty clauses above to keep suppliers motivated to fulfill realistic delivery commitments.
The supply chain will not have shifted enough by June 2024 to ease market constraints that we will experience when the Antidumping and Countervailing Duties (AD/CVD) cash deposits kick in.
When selecting manufacturers, you should look for those who have been found not to be circumventing AD/CVD or who already have been assigned a low AD/CVD cash deposit rate.
Ironically, the preliminary ruling – and later clarification about the scope of the ruling – is an attack on the current U.S. domestic module-assembly business model. The Inflation Reduction Act (IRA) will give those brave enough to start factories in the U.S. some extra financial incentive by making it easier to get into the black, but sourcing cells to feed those factories will become more of a constraint than they already are.
Also, it’s important to stay abreast of any enforcement changes in the Uyghur Forced Labor Prevention Act (UFLPA), which is subject to open criticism and political influence. Any change could pressure the Department of Homeland Security to initiate sudden, more aggressive, and wide-reaching enforcement that will require greater transparency, even when a shipment is thought to be exempt from UFLPA enforcement.
Finally, there is some risk that the additional legal actions from Auxin Solar‘s petition to the Department of Commerce will result in an early collection of AD/CVD cash deposits on imports from the four Southeast Asian countries, Malaysia, Thailand, Vietnam, and Cambodia.
Are you monitoring any emerging component or manufacturing breakthroughs?
Whittemore: There always seems to be a new mousetrap in the racking sector.
Keep watch for a global shift in PERC (Passivated Emitter and Rear Cell) to TOPCon (Tunnel Oxide Passivated Contact)-based PV modules, as a result of organic or artificial market incentives, just as it happened in 2018 with Al-BSF (Aluminum Back Surface Field) and PERC.
As the lithium cell supply becomes more constrained by a race for raw materials or by getting swept up into forced labor enforcement, the incentives help non-lithium BESS products suppliers (iron flow, zinc, salt, etc.) to grow their market share in standalone and PV-tied projects.
Do you see module supply beyond Tier 1 brands becoming more prominent, given today’s supply issues? Or are Tier 1 brands maybe more valuable than ever?
Whittemore: The equivalence between Tier 1 as “Quality 1” is ceasing to be a paradigm in the market. Lesser-known suppliers in the global marketplace have seized this opportunity to take market share, especially within the United States. Despite the fact that some of these players are not accustomed to pressure from technical advisors and factory auditors, their adaptation has been mostly satisfactory.
Even though supply chains are more stable than they were months ago, the market is still limited by manufacturing capacity. This means the lesser-known manufacturers will continue to be relevant in the suppliers’ race to meet the demand.
Whether manufacturers are Tier 1 or not, they will all race to bring new suppliers into their supply chain and to bring new factories online. This kind of brisk acceleration in manufacturing capacity raises the probability of acute and chronic quality failures. Proper oversite can help to mitigate these additional risks.