Catalyst with Shayle Kann - Building out a U.S. solar supply chain

Episode Date: June 22, 2023

Everything, everywhere, all at once—that’s the state of the U.S. solar industry right now. Suppliers are rushing to take advantage of the Inflation Reduction Act’s generous domestic-manufacturing incentives. Major manufacturers like First Solar and Enel have announced billion dollar investments in places like Tulsa, Oklahoma and Lawrence County, Alabama. But tariffs on the import of some Chinese-made parts may resume at the end of 2024; and the industry still faces supply chain shortages and permitting backlogs. Meanwhile, the stakes are high. To reach net zero carbon emissions by 2050, the U.S. needs to install 100 gigawatts of solar per year by 2030, according to a report from the REPEAT Project of Princeton’s ZERO Lab, up from about 30 gigawatts this year.  Is that achievable in this chaotic environment?  In this episode, Shayle talks about the state of the U.S. solar industry with Ethan Zindler, head of Americas at BloombergNEF. They cover topics like: Generous manufacturing incentives in the Inflation Reduction Act  Conditions to qualify for the incentives, such as meeting prevailing wages, building in “energy communities,” and sourcing domestic content The saga of solar tariffs Looming competition from manufacturers in Southeast Asia How supply chain bottlenecks have eased up Recommended Resources: Canary: Can the US manufacture enough solar panels to meet its surging demand? Canary: In Biden solar tariff compromise, installers win Princeton ZERO Lab’s REPEAT Project: Preliminary Report: The Climate and Energy Impacts of the Inflation Reduction Act of 2022 Catalyst is a co-production of Post Script Media and Canary Media. Support for Catalyst comes from Climate Positive, a podcast by HASI, that features candid conversations with the leaders, innovators, and changemakers who are at the forefront of the transition to a sustainable economy. Listen and subscribe wherever you get your podcasts. Catalyst is supported by Scale Microgrids, the distributed energy company dedicated to transforming the way modern energy infrastructure is designed, constructed, and financed. Distributed generation can be complex. Scale makes it easy. Learn more: scalemicrogrids.com.

from the studios of PostScript Media and Canary Media. I'm Shale Khan, and this is Catalyst. This really is not about being the lowest price competitor who wants to add capacity. It's whether you can get interconnection and get onto the grid. That is going to be really the limiting factor going forward. So all these other things are really cool, but you can add them, you can stack them,

you can get a lot of benefit, but if you can't actually, you know, get on the grid, you're not doing a project. 100 gigawatts of solar per year this decade in the United States. Can we do it or will we get in our own way? When utilities need flexible capacity they can count on, they turn to Energy Hub. Energy Hub works with more than 170 utilities, coordinating over 2.5 million devices to manage 3.4 gigawatts of flexibility built for the moments when utilities can't afford uncertainty. Energy Hub builds and operates virtual power plants that utilities actually stake their grid planning on,

coordinating EVs, batteries, thermostats, and more through a single platform built for utility scale. Predictive, verifiable, and designed to perform when it counts. Learn more at energy hub.com. Trillions of dollars are flowing into clean and critical infrastructure, but those investments aren't driven by technology alone. They're shaped by markets, by policy, by capital, and by the institutions that connect them. I'm Alfred Johnson, CEO of Crux, and host of a brand new podcast, Critical Capital. Each episode, I talk with people deploying capital, shaping policy and building the clean economy. Tune in as we unpack how progress is actually made. Listen to Critical Capital on Spotify, Apple, or wherever you get your podcasts.

I'm Shail Khan. I invest in revolutionary climate technologies at Energy Impact Partners. Welcome. So you may recall when the information. inflation reduction act had just been introduced. I had a conversation on this podcast with my friend Jesse Jenkins from Princeton to review the analysis that his team at the repeat project did to try to project the impacts of the bill on energy and emissions and industry. And there was and remains lots to talk about in that bill, as we have done since and will continue to do. But the thing that has really stuck with me from that analysis kind of more than anything else is just the amount of solar it projects we're going to be building in this country over the next. next, I don't know, five to eight years.

Just as a refresher, here are the numbers. We installed about 10 gigawatts of utility scale solar in the U.S. in 2020. We'll do maybe 30 to 35 gigawatts of solar total this year. And according to the repeat project, we may hit almost 50 gigawatts by 2025 or 2026. By the end of the decade, we'll be doing over 100 gigawatts a year, potentially well over 100. And 100 gigawatts per year of solar in the United States is just a mind-boggling amount, if you ask me. But I do see the logic.

Thanks to the IRA for the first time, we have long-term certainty on the tax credits, along with a bevy of other boosters for solar components and products to ensure that the cheapest kilowatt-hour around is going to be a solar kilowatt-hour. So let's call that the medium-term picture, which is quite robust. But in the short term, the story is a little bit more complex, because In addition to all the nuances of the IRA, there are also a bunch of other political, economic, and supply chain factors that are kind of toying with the solar market. So, time to unravel that knot that is the current state of U.S. solar and its role in geopolitics. For this one, I brought on Ethan Zindler.

Ethan is the head of Americas for Bloomberg New Energy Finance, where he's been since the U.S. was installing less than 100 megawatts per year. That's megawatts, not gigawatts. In other words, if he sticks around at BNF for the rest of this decade, he may just over the course of that job, see the scale of the U.S. solar market expand by about 1,000x during his tenure. Before we begin, just a reminder, you can always send us topics for what we should cover on this show or give us feedback. You can leave us a voicemail if you're the kind of person who still does that sort of thing at 911-808-5832. that's 911 808-5832, or you can email us at Catalyst at PostScript Audio.com. You can also tag us on Twitter.

But for now, here's Ethan. Ethan, welcome. Thanks for having me. Let's unravel some complex threads of things that are affecting the solar market in the U.S. today. And I guess first, you know, the premise for me, the reason to have this conversation was it feels to me sitting on the outside like,

it's both a very exciting time for solar in the U.S. right now, but it's also like a particularly weird time when like the market is being pulled by a bunch of different factors simultaneously. And so it's kind of hard to figure out what's actually going on. You're definitely closer to it than I am. Does that feel true to you as well or is it just me on the outside being confused? No, it is a lot. There's a lot going on. And there's a lot of different sort of cross currents and things to try to unpack.

And hopefully we can try and go through some of them. But yeah, it's a particularly difficult, I'd say not difficult, but sort of maybe slightly confusing time. It's sort of everything, everywhere all at once. We have the most important piece of legislation ever passed to support the solar industry that is being rolled out and implemented now with a lot of open questions around that. We have an ongoing long-term, to be clear, trade, sort of dispute that's been going on between the U.S. and China, which is an interesting sort of interregnum at the moment with some tariffs coming back. And then we have a lot of

interesting dynamics in the global market that really go beyond policy, which is that the era of COVID and the tight supply chains and the elevated prices that it created, that's easy now. And there's a lot of new capacity on the global market that is coming. And so those are really kind of at the highest level, I would say, but each one of those is a pretty interesting sub-story worth exploring. And I very well may have forgotten number four or number five. I don't know, Shale, if you can think of any others that are worth including on that list, but there's a lot going on. Yeah. Well, that's, okay, good. So that's exactly the outline of the conversation that I think we should have, because for me, at least, in terms of trying to

understand what's actually going on in this market, it's hard to, it's hard to wrap your head around it without understanding what's happening in each of those individual arenas and then putting them all, mashing them all back together and then seeing what that has done to the market. So I think we'll start with the, as you said, the mega tailwind in the market that was the Inflation Reduction Act. Maybe just start with the high level, okay, what did the inflation reduction act include in it for solar and what are the remaining open questions that we're still trying to work out. Well, okay, so maybe at the highest level,

the most important thing about, I would argue about the IRA, is that it goes across the value chain. So it provides, supports all the way down to the project developer, but all the way back up to the polysilican producer. So each segment of the value chain has been shown some love, essentially, by the law. And exactly how each one of those people,

is going to be rolled out remains to be seen. But we're getting details as we go. The other thing is just starting with the developer perspective. The developer now can claim the production tax credit in addition to the investment tax credit. The investment tax credit was awarded on a CAPEX basis at about 30% of the total CAPEX. Now projects can receive the benefit of the PTC as well.

So for every kilowatt hour... Sorry, it's either or, right? In addition, you could choose between. Correct, yeah. Well, that would be really generous if you could double them up. But no, it's just the PTC or the ITC. But that's meaningful because if you are developing a large project in a very sunny part of the United States, the PTC is a substantially more generous benefit for you as a developer.

As an aside on that, by the way, the reason we've had negative pricing in wholesale power markets in United States in some place. has been largely because of the wind PTC, where it can still be economic for you to sell power even at a negative price because you're still getting the PTC. Solar hasn't really had that historically because it had a KAPX-based ITC. So you can imagine that like wholesale market impact

of deploying a bunch of solar that is taking advantage of the PTC could be interesting. It could have that potential, although I would say I think some of the negative pricing related to the PTC in wind is that some of that really high generation was coming in the overnight hours where the load wasn't so spectacular. There is a better sync between solar and daytime demand hours. So perhaps it won't be quite as acute.

But yeah, it's a fair point for sure we could see some of that. Right. Okay. So regardless, you know, first benefit to solar. I mean, we should just talk through all the big picture stuff on the developer side because, like, there's the ability to elect the PTC, which, as you said, can be more lucrative than the ITC on its own. but there's also adders to the credits potentially. Yeah, well, first you get to the kind of maximum, you have to do some things around making sure you pay prevailing wages to your workers.

There's other benefits that you can get by locating in a so-called energy community, which is a sort of low-income community or a community that's been hard-hit by the energy transition in some kind of way. And then there is also a sort of a domestic-com. content bonus, which is that essentially that 30% for an ITC could go to 40% and the PTC could get ramped up potentially if you are using what is deemed to be domestically made equipment. And we got some guidance from the Treasury Department a couple weeks ago on what that means, although I think there's still some open questions around that in terms of exactly how to interpret that. But yeah, there's a lot of different angles to be interpreted and potentially

to be played by developers as they think about where to do projects. Overall, though, the one thing obviously the IRA doesn't address is issues around getting yourself onto the grid in terms of getting fully into ISO cues and things like that. And it does feel to us very much like we're now at the era where this really is not about being the lowest price competitor who wants to add capacity. it's whether you can get interconnection and get onto the grid. That is going to be really the limiting factor going forward. So all these other things are really cool, but you can add them,

you can stack them, you can get a lot of benefit. But if you can't actually get on the grid, you don't, you know, you're not generating, you're not doing a project. That's actually a really good point, because we haven't even talked about the manufacturing incentives yet, but even just on the project side, right, you know, you get, let's just stick to the ITC and assume the PTC value would be similar, even though you've said it could be even higher, right? You can get your 30% ITC,

potentially plus 10% if you're an energy community, plus potentially 10% if you're using domestic equipment. So it means you get half of your project paid for. It was already, in many places, pretty lucrative to build utility-scale solar. So, like, what you're saying is the economics are not the problem anymore. The economics are good, generally. And the problem is, can you connect?

Yeah, I think that seems to be, that is going to be, I mean, when we have done this in the past and modeled build levels, I mean, so we have a core forecast, which is so happy to talk about, but we also run our models as to sort of economic, just purely economic build. If in a world in which you just dispatch whatever is cheapest, you know, the solar numbers would be, you know, 10 to 20 gig, about 10 to 20 gigawatts higher per year of stuff that our model sort of spits out. And that's where human beings have to get involved and say, well, okay, no,

because we know there are hundreds of gigawatts of projects in the queues right now that aren't getting permitted and in the real world, that's going to be the thing that restrains the market going forward. Right. And so to that end, from the perspective of how much solar we're going to build, maybe it doesn't matter so much directly whether it's getting manufactured in the U.S. But as you said, there are a bunch of incentives in the IRA for domestic manufacturing of solar components of one kind or another. And I do think we should still talk about them because they are relevant in the context

of some of the things we're about to start talking about, like tariffs. Yeah, and they are, to be clear, they're quite generous. I mean, just to walk through them, and I can't remember them all, but I've got them up here in front of me, but you're talking for the module 7 cents a watt,

for the cells, 4 cents a watt, for the wafers $12 per square meter, for polysilicon, $3 a kilogram. there's inverters, there's even benefits for module backsheets, for fasteners. It kind of goes all the way up and even includes these other sort of sub-components, which are pretty important. So it is comprehensive for sure. And to be clear, you know, this is the goal of the law is to try to ramp up manufacturing in the United States.

And so, you know, this really is going to give it a go. There's no question about it. that. And I think there's, we've seen some pretty interesting announcements of new capacity that's looking to get built. To be clear, most of it so far has been module assembly. And module assembly is the last step and a sort of, quote, unquote, lowest value in terms of the, you know, the value towards the whole, in terms of the whole process and the labor involved. But we're seeing some announcements of stuff that go further up the value chain as well, including from NL and the other day from First Solar. First Solar, obviously, as a U.S.-based company is the one that

is sort of licking its lips here, looking at these benefits because they are integrated. They obviously have overseas production, too, but they've got a lot on U.S. soil as a share of their total, so they're very well positioned. Do you have an estimate just at the highest level, like stack up all the – say you had to fully domestically produced utility-kill solar project. Like, what is that all – I was trying to do the math in my head of what that all stacks up to in terms of like dollars per watt covered by the incentives? I can't do it. You know what I should have done? I have not converted the wafers and silicon

ones to dollars to cents per watt. Obviously on the sales plus modules you're talking 11 cents per watt. You know, U.S. module prices have been a good deal above the global price and they've been somewhere up, you know, closer to 35, 40 cents. But that just alone, you're talking about, you know, third to a quarter to a third of that, but obviously there's the stuff further up as well. So, yeah, it's pretty considerable. And to be clear, and this is maybe another part of our conversation, but prices for modules are dropping.

And so as that global price drops, well, these supports are not pegged as a percentage of total cost. These are cents per watt. And so their value could really rise as a total, cost of a module drops. Of course, the prices that I just talked to you about dropping are global prices, not U.S. prices. And so, you know, the real question is how much does this apply to a U.S. made module? Okay, so that's a good segue then to the next thing affecting the market, right?

So we've got, just on that, to wrap up the IRA thing, really lucrative demand incentives or project level incentives, also very lucrative manufacturing incentives, though our manufacturing base of the United States, as of today, absent a few players like First Solar, as you mentioned, not that big. And so the result is it's not like you could supply 100% of U.S. solar demand up to whatever level you want tomorrow with domestic supply anyway. And so in the meantime, there still is a lot of imports,

which is relevant because of the second thing, which is this trade dispute that you described. So Orient us there. Well, where do I start? Well, first of all, I totally agree with your point. And it's not even close, to be clear. Of the roughly 35 gigawatts of solar installed in the United States, I don't think we've got more than several gigawatts at tops, I think,

that could potentially match that in terms of being sort of sufficiently integrated through the value chain at the moment. The question is about all the stuff that's coming online. And I think we've seen about 40 gigawatts of module announcements. a much smaller percentage of that that's going to be sales. But anyway, let's talk about trade a little bit. And, boy, what a long and tortured story. You and I have both been around this for some time.

And, you know, I think for some people, they may think this is new, but it's not in the sense that, you know, the tariffs that are being talked about most of all now, a version of them have actually been in place, I believe, since 2012. and we've had various disputes along the way of various types. And I don't know how much we want to go through the whole, maybe I'll try and give the latest sort of update that I can, which is basically that there was a complaint raised

by a very small solar manufacturer in California called Oxen Solar that complained essentially that there were companies from Cambodia, Malaysia, Thailand, and Vietnam that were providing, equipment into the U.S. that was using Chinese-made cells and wafers further up

the value chain. And that this essentially constituted a violation of what were existing tariffs that had been in place for some time. In other words, what happened was we imposed tariffs on China, imports from China, and a lot of companies shifted their supply chain

from China to places like Southeast Asia, such that they would make whatever they could in China, ship it to Southeast Asia, converted into a seller module there, and then ship it to the United States. And this latest complaint, the oxen solar complaint, was basically saying this is you trying to cheat the system.

Yeah, exactly. They basically say, that wasn't the intent here. The intent here was to try and block Chinese equipment. And preliminarily, the Commerce Department, so the Commerce Department started to investigate this. The market, I think, fairly understandably

freaked out because about 80, 85% of all the equipment that was being installed in the U.S. was coming from those four countries. And given that we don't make much stuff in the U.S., imports are massively important. And so that was proceeding. And then the White House intervened last June and basically called a timeout and said, okay, for two years, we're going to suspend the outcome of this investigation

into the end of 2024. and so essentially there was a reprieve and those tariffs which could have been quite punitive were essentially would be postponed and just to be even more confusing commerce hadn't even finished doing the investigation they then trundled along and continued that and then they came up with a conclusion

I think it was in December in which they said four of eight companies that they were looking at were deemed to be circumventing the rules and that they would be applying tariffs to them starting about that point now with the timeline effectively with the start date of December of 2024. So that was sort of where we left things, which was that, you know, we weren't going to get any more tariffs. And then Congress got energized about this issue, I think about a month or two ago, and decided that they wanted to overturn what Biden had decided. And they actually

passed legislation to overturn what Biden decided with the aim of immediately putting higher tariffs in place. Biden then vetoed that. And so that brought us back to what was the status quo, which is that basically these tariffs are on hold until December of 2024. So anyway, that's a long and complicated story. But basically, and the only reason it's worth kind of talking through the story is because beyond the kind of specifics and mechanics of this, I think it's worth highlighting what the political dynamics are. And the fact that, you know, Congress went out of its way to do this. And by the way, you know, basically the entire Republican caucus and House and Senate voting for it, but some Democrats too got on board.

So, you know, it needed those votes, and it did pass. It wasn't a veto-proof pass, but the point is it represents the sentiment pretty clearly that's out here in Washington in terms of viewing China as a competitive threat. And I only raise that in sort of the broader context because I know we're going to talk about looking forward and like what strategies should be for manufacturers and, how you think about the U.S., I only raise that to make the point that, you and I have been watching as this trade war over solar has been going on for 10 years, and it's not like getting any, like the heat's not coming down, it's just going up at the moment. And so that as a dynamic is

something to factor into decisions about maybe where you want to buy your modules in the future or whether you want to put a plant in the United States to potentially sidestep all these issues that keep coming up around tariffs. Totally. I have testified in Congress one and only one time. I know you've done it many times, but I did it once, and it was in, I think, 2013, right, when there's a bunch of discussion around the first set of those tariffs, and it's astounding to me that that debate is still raging 10 years later.

It is very live. There's no question about it. Yeah. Well, that's it. So then the obvious sort of question is, okay, so you've got, super lucrative incentives, as we discussed, from the IRA to make stuff here. You've got uncertainty at best regarding import tariffs from China, Southeast Asia, for now, maybe other countries if the supply chain moves again.

Like, the obvious thing is you should just manufacture here and you should scale manufacturing. As you said, we've seen a lot of announcements of that. So is this a temporary problem? And like a couple of years from now, we're just going to be able to self-sufficiency. supply all of the solar that we need and the trade dispute will no longer be relevant and the U.S. will have succeeded in domesticating its supply chain or is that an unrealistic expectation? Well, here's the Dodge, which is, we'll see. But I do think that the, I guess I'm quite, I'm quite positive about it. I mean, look, nobody can complain that there aren't sufficient

supports out there to do solar manufacturing the United States. If you're making that excuse now, like, okay, I mean, sorry, this is not, you know, 2020. There are very generous supports. So it's really incumbent, you know, fundamentally on the private sector to go out and take advantage of these. And these, you know, each company is going to have to make their own decisions about strategically, you know, what they think is best. And, you know, I did mention earlier the Annel announcement.

of a big, fairly integrated solar manufacturing plant outside of Tulsa, Oklahoma, that they're going to do with the gigawatt capacity. And effectively, you know, that looks a lot like a sort of view of, like, hey, we want to take all these issues around tariffs off the table, and we want to have our own supply, and we know we're going to build a lot of projects, and we're going to supply, you know, and now I'll probably build a lot more than a gigawatt a year in the United States, but they know they want to supply some large chunk of that

with domestically made stuff. So anyway, I guess I'm fundamentally pretty optimistic that I think that companies will recognize this as an opportunity. The complication, of course, is that the U.S. market as a scale of the total market is about 10%. So about 35 gigawatts of demand roughly, and by our best guesstimate this year, about 350 gigawatts of build, which is pretty remarkable if you think about it. It's about a third more than last year. So we're kind of a small fish. So what that does mean is, though, that if there's manufacturing that comes online in other parts of the world, that it's a big world out there.

And if there's other manufacturing that comes on and that's low cost and can get into the U.S. and not be tariffed, and if they are doing it at scale and they can do it cheap enough, then, you know, there'll still be competition from abroad. And in fact, we see a good deal of sell and wait for manufacturing that's getting added in Southeast Asia. so that those countries, which, you know, the very countries that had been got investigated, so they could potentially be rivals of suppliers of equipment to the U.S. competing against U.S. manufacturers. And so that's probably the game that we're looking at, if we're looking three, four years down the road,

is U.S. manufacturing, competing with Southeast Asia. On the assumption, of course, everything I'm assuming is that life doesn't get any easier for importing Chinese-made equipment, which is, it doesn't look like it's going to get. Virtual power plants are becoming a reliable way for utilities to manage capacity, but enrolling devices is just the start. What really matters is confidence, knowing those resources will perform when dispatched

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We're living through a profound economic shift, and energy sits at the center of all of it. Trillions of dollars are flowing into power plants, transmission lines, battery factories, data centers, but the future of energy isn't shaped by technology alone. It's shaped by markets, by policy, by capital, and by the institutions that connect them. I'm Alfred Johnson, CEO of Crux, the capital platform for the clean economy. Join me for my brand new show, Critical Capital,

as I talk with people deploying capital, shaping policy and building projects. Together we unpack how risk is priced, how incentives are structured, and how progress is actually made. Listen to Critical Capital on Spotify, Apple, or wherever you get your podcasts. The other factor, obviously, the terms,

so in a world where there's a bunch of U.S. manufacturing capacity, but also way, way, way more internationally for the reasons you described, you know, the U.S. market is not the global market. It just comes mostly down to price competitiveness. And so then the dynamic is you've got the incentives here for domestically made stuff versus the, cost savings of manufacturing in other countries.

And I think one thing that people who are not deep in this often assume is that those cost savings, for example, for manufacturing in China or Southeast Asia, come exclusively from labor, it's just cheaper labor. But it's actually more than that. And this is one of the things that I wonder whether the U.S. can sort of pull off is like, at least my historical, my memory of this from when I spent a lot more time on it, is that a lot of the reason that it was cheaper to make wafer's cells modules, in China, for example, than the U.S. was that there was this mega supply chain that had built up.

And so every component was cheaper in addition to labor being cheaper. If we do indeed get tens of gigawatts of manufacturing capacity in the U.S., do we start to build up a supply chain that rivals some of those countries, and then that cost difference starts to erode? I mean, the short answer is we're going to have to. And I think that that would help, for sure, is to achieve those kinds of scale. kind of scale. I think, look, I'm generally optimistic that I think it can be done because I think what has long been lacking from the U.S. market was any true sort of long-term optimism, like

that this was for real, it was going to keep going. It was not contingent on an ITC on again, off again. It was not contingent on a bunch of, you know, whether the Arizona, whatever, you know, the Public Service Commission does this on net metering or whatever. And the signal has now been sent, I think, for demand longer term. And so I think, again, and this is where this is really about hundreds, thousands of decisions by manufacturers about what they're going to do next. But I think that the paradigm, I think, is shifting, and there's a recognition that this is for real. I think one other thing that's changed, again, this is part of the paradigm conversation, is just that, you know, like we're now talking real, of this market.

And, you know, like, as you and I have been doing this for a long time, it was like half the time when you would talk to someone, you had to convince them that, okay, there's going to be an energy transition, and then, like, a lot of money is going to get deployed, and it's going to be a great opportunity for you. It's like, actually, you know, you and I don't even have to make that case from the first two points anymore. Now it's really about, like, where is the money going to go

and who's going to benefit? And so I think just generally speaking, there is a more positive outlook around all this. But all the things you just said are totally valid. And I mean, I would add one more, which is, you know, I think that we in the U.S. side tend to think, oh, well, China just take stuff and they do everything at scale. And there's no question that that's part of it. But look, over 10 years, they have also, like, gotten really good at the engineering

related to building new manufacturing and doing it efficiently. And that is something that, like, the U.S., actually, we talk about imports, like we're probably going to have to import more, you know, very well-skilled and engineer folks and capable folks to do a lot of this stuff over here. So I don't, I think it's, I think China gets a bad rap sometimes as sort of simply being accused of just taking our innovations. They've done a lot of innovating too. And so the U.S. has a fair amount to catch up on.

And like I said, I think that's doable, but it shouldn't be underestimated. Totally. I think that's one of the things that also is sort of underappreciated about like how solar has developed. Because, you know, in the first wave, right, there was all this solar manufacturing in Germany and places like that, and then China just swamped all of it. And we all know the story there. And China took over the market.

And I think the view at the time was China was taking the known dominant technology, crystal and silicon. They were using equipment that they would purchase from Western equipment, manufacturing equipment suppliers. And they were just scaling it up and commoditizing it. And it wasn't about technological innovation. It was about manufacturing scale and cost. And that was, I think, true. but then what has happened since then,

as those Chinese manufacturers have gotten bigger and bigger, they've also become quite innovative. And so all of the new innovations driving down the cost of modules into the 30s of cents per watt these days versus the dollar per watt that it was back in those days, that's come from them. And so it's right, you can't really rest on your laurels and say like, okay, well, we're a Western company,

so we're going to innovate our way into, to being cheaper. They innovate too. Yeah, no, totally. I think that's absolutely real. And so we're going to do need to innovate in the U.S. and we're going to need to scale. And they have to do both. And like I said, I think there are sufficient incentives here to make that happen. But to be clear, there's going to be real competition. And actually, a lot of the competition is probably going to become more from Southeast Asia than it is directly from China. I mean, China, of course, will be a huge part of the story because they're the ones who are

driving the total scale and the whole pie getting bigger and they're the ones that are going to make it possible for manufacturers in Southeast Asia to say, okay, no, we're just going to serve the U.S. market because that's big enough because the whole pie is so enormous. But I think in our view, that's kind of where you're going to see more of the direct competition over the next three to five years. But to be clear, those countries are benefiting from the innovations that we were just talking about in China as well. So the other factor that you mentioned, I think, at the very beginning in your list of things that are complicating this market, but we haven't talked about since then, is the supply chain crunch that was not specific to solar, but it was during sort of the,

I don't know, the latter half of COVID was plaguing lots of industries, but solar was not immune to it, and it was affecting both price and availability of a bunch of things. So what has happened with the supply chain and where does it look like we're heading now? Well, to sort of vastly over oversimplify it, it feels like the fever is broken and that the challenges and the struggles that were defined by those couple of years are now really past us. And I think in our latest market outlook, we're saying we're seeing module prices now down to somewhere around 20 cents on a Chinese module, and that's down from, I think it was 28, 29 cents, sort of a year or two ago. And so there was some short-term pressure. Polysilicon prices have come down by about half from

where they were quite recently. And so the major stresses that were there on the market are now gone. And so we're back in business. And my colleague Jenny Chase, who you know, was just back from China, was telling me that she or, you know, are telling our clients that she, you know, people were trying to sell her modules for 18 cents a watt, which by our estimate would be pretty much the lowest that we've seen. I think 19 cents was about the lowest we got before. And we've been saying that we thought you'd get to 18, 19 cents somewhere around the end of this year. Maybe it's going to come a little bit sooner. So, you know, the global market is now putting real downward price pressure out there. And, hey, that's a, I think that's great for the world. It certainly means that you got to sharpen

your pencil and really go through these incentives in the U.S. and think about how you're going to try and compete with that, ultimately. But I think it's a really good thing. And then if you think about where we're, and part of this is, you know, the sort of unclogging of some of the supply chains. The other thing is that there's just a ton of new silicon manufacturing that is coming online. You know, we, like I said, we're, our middle range forecast for global installations this

year is about 350 gigawatts. there's roughly our best estimate about I think about the equivalent of 600 gigawatts worth of silicon manufacturing and I'm not giving it to it in tons and giving it to gigawatts but the main point being that it's not twice as much but whatever that is like 40% more

or something like that maybe not quite doubling but there's a considerable amount of headroom there now and that's filtering through the market in a pretty big way and it's just kind of to me as a person who's been

at this for a while. Now, you have two, historically, the numbers are, you know, they're not crazy because it's cool that this industry is growing, but like we're talking about another potentially close to doubling of installation per year by the end of this decade, something like the 600 to 650 gigawatts, something like that range. And, you know, we've come from, you know, I'm looking at the chart here,

18 gigawatts as recently as 2010. It's just an enormous amount of growth. But there's a lot of headroom. to grow into at this point. And a lot of new plants that are coming online at every segment of the value chain overall. And that's going to put good downward pressure on pricing, which coming all the way back to the U.S. does kind of bring us full circle a little bit, which is, again, this is not going to be about can you do solar cheap. It's going to be, can you get solar online? To that point, actually, I would say, from what I could tell on the, has the supply chain crisis totally alleviated thing,

The one area where the crisis seems to be raging as strong as it ever has, maybe stronger, is grid transformers, electric transformers, where there's like an 18-month wait time and supply shortage, and there's not enough electrical steel for the types of transformers that we use on the grid. So it's not within the context of the solar system itself, but to the point on getting things connected to the grid, transformers is a real bottleneck still today. Yeah, absolutely. It's obviously affecting not just solar, but kind of everybody.

Okay, so I think we've covered all the big driving forces that are affecting the solar market right now in the U.S. I think if I pay no attention to what I think is actually happening in the market and I just hear what we've been talking about, I think my reaction would be, okay, we've got IRA incentives creating these crazy tailwinds. We've got tariffs that are on hold, at least through the end of next year, unless Congress passes another bill and Biden doesn't veto it. it for some reason.

And we've got a supply chain crisis that seems to be alleviated. So it seems like it should be full steam ahead on this market right now. And like just go, go, go. Again, with the constraint being, can we connect this stuff to the grid? Am I misinterpreting it? I mean, I think it is. You know, if you look at, you know, we've seen, you know, dozens of gigawatts of module, again, module capacity that's being announced

and then a much smaller subset of cell capacity that's being announced in the U.S. And a lot of big names that are trying to get into the market. Definitely folks still looking for clarifications on different parts of the Treasury guidance. It's either come out or is due to come out on various things, and that's sort of understandable. But I mean, I have to say, you know, the questions we get from clients are just about, you know, are often fairly forward-looking about, like, you know, should we be? build in the United States and things like that. And I think that's, you know, that's a very,

those were not questions we were getting four or five years ago. And so, yeah, no, I think it's, ultimately, I'm quite optimistic. I think there's all kinds of, there are all kinds of various cross currents. And I don't think it's by any means a slam dunk that the U.S. will be the lowest cost, you know, it will, it will fight to be competitive with Southeast Asian nations to, to produce this stuff. Even with these subsidies, I don't know that that's, for certain that it's going to work. It's absolutely contingent on private sector action to take advantage of it. I'm optimistic that I think that ultimately will work,

but it is not something that you just wave a magic policy wand, and it happens. And so we're going to have to see. But generally speaking, it's quite bright. I think the area that I keep, I know I kept mentioning multiple times, but is going to be around permitting. And the other whole conversation that we haven't talked about really at all is the distributed market

and the fact that, you know, costs for doing distributed solar in the United States still are higher than they are in other parts of the world and finding ways to reduce those costs could unlock that market in a much bigger way than we've seen in other, you know, then we've seen to date in the U.S. You know, we've seen some enormous numbers in other parts of the world for distributed solar,

and we've seen how quickly it can grow, and it just hasn't taken off at quite the same pace here in the U.S. So I wouldn't say that that's sort of a negative thing. I would say that's something that potentially there's an area for more focus and maybe for an entirely separate conversation. So I guess finally, maybe looking into Bloomberg's crystal ball here, there's some people who care about solar stand alone. They just care about what's going on in the solar market.

There's also a lot of people who care about solar because it appears it may become the cheapest source of electricity to power a bunch of other things. The question that we often get, because we're talking to all these startups who are, trying to do some electrical chemical process or something like that. And they're reliant on some assumption in their techno-economic model around the cost of energy. And setting aside the nuance of, are you taking delivered electricity,

or you taking solar directly, whatever? You know, a big part of the question is, like, you have to kind of take a bet on the trajectory of cost from a dollars per kilowatt hour perspective that solar is going to be able to hit. Given all of these incentives, where do you think, the delivered cost, the dollar per kilowatt hour cost of solar, can land in the U.S. in the next, I don't know, five years or something. I wish I could come back to you on that one,

because that's definitely a question I want to ping my colleague Jenny on, to give you an exact number. But I think your point overall on it is dead on, which is that there is, when you're thinking about dedicated systems, potentially there's this potential great opportunity. of course the thing that keeps coming up is around green hydrogen potentially and using solar for that and maybe the potential to vastly oversize a PV system since the challenge with hydrogen obviously is that you want to run your electrolyzer 24-7 and that's not the output that you typically get out of solar

obviously and so maybe the economics on that start to get better. The applications for it in other areas in industrial heat and stuff like that, that unfortunately are probably fairly limited, certainly in the short run. But we'll see. I mean, there are efforts to try to electrify other types of industrial processes unclear quite how much progress

that there will be able to be made on that overall. But certainly in the context of dedicated power for green hydrogen, I do think these really low numbers are something to be thought about. And there's a whole other conversation, Obviously, there's a very live question to be determined about effectively the definition of green hydrogen. And maybe the super low-cost solar can help sort of, I don't know, uncomplicate that conversation slightly. Ethan, thank you so much for doing this.

Sheld, a real pleasure. Thanks for having me on. Ethan Zinler is the head of Americas at Bloomberg NEF. This show is a co-production of PostScript Media and Canary Media. You can head over Canarymedia.com for links to today's topics. PostScript is supported by Prelude Ventures, a venture capital firm that partners with entrepreneurs to address climate change across a range of sectors, including advanced energy, food and ag,

transportation and logistics, advanced materials in manufacturing, and advanced computing. This episode was produced by Daniel Waldorf, mixing by Roy Campanella and Sean Marquand, theme song by Sean Marquand. I'm Shale Khan, and this is Catalyst.