“Nobody knows anything.”
Screenwriter William Goldman’s observation about the impossibility of predicting the success or failure of a movie is an apt way to describe COVID-19’s impacts on the global solar industry.
During a March webinar, the CEOs of large solar and wind developers including Pattern Energy, Origin Energy, Longroad Energy and SunPower leaned on descriptions such as “fluid,” “dynamic” and “complex” to describe both the potential effects of the COVID-19 pandemic and their evolving responses.
The industry largely acknowledges that COVID-19 will result in decreased demand, delayed projects, lost jobs, manufacturing stoppages and uncertain or unavailable financing.
According to a new Wood Mackenzie research insight, a few weeks of supply delays, combined with construction disruptions, could translate into as much as 2 gigawatts of project development delays in 2020. However, a worst-case scenario could shift upward of 5 gigawatts' worth of projects into late 2020 or 2021.
But there are plenty of examples of how industry players are adapting in near real time to reduce the damage. For SunPower, that has meant emphasizing online work to address the huge challenges in permitting, interconnection, sales and project design that arise when government stay-at-home orders prevent face-to-face meetings.
“There’s a massive shift to everything [being] online,” Tom Werner, CEO of SunPower, said during the webinar. “We were making big investments in digital, and I think the shift has accelerated dramatically.” For residential solar companies, the push from kitchen-table to digital sales could impact their future beyond the current global pandemic.
The coronavirus pandemic is also compelling developers large and small to change their approach to financing. For example, the rapid evaporation of commercial paper (i.e., unsecured short-term debt instruments) used to fund day-to-day operations has led companies like Avangrid to tap revolving credit facilities to ensure sufficient liquidity.
While the Solar Energy Industries Association says the $20 billion in tax equity funding slated for this year is threatened by the COVID-19 pandemic, well-capitalized developers like Avangrid are examining other options.
“We can use our balance sheet to finance projects,” said James Torgerson, Avangrid’s CEO. That’s not an option for smaller developers. But if development capital significantly decreases, expect to see larger players eyeing development rights controlled by smaller companies.
The most obvious and collective example of adaptation to the COVID-19 pandemic can be seen in the industry’s lobbying of Congress as it crafts a follow-up stimulus package related to the economic damage caused by the pandemic. The renewables industry was left out of the $2.2 trillion stimulus package that passed in late March. The wind and solar industries are assessing various options, including the extension of the federal Investment Tax Credit to accommodate project delays, the ability to use direct payments in place of tax credits or an extension of safe-harboring provisions for qualifying equipment.
Lessons from China
Inverter manufacturer Sungrow is headquartered in Hefei, China. The company’s manufacturing capacity was initially affected when the Chinese government extended the Lunar New Year holiday — a time when factories traditionally close and huge numbers of people travel to celebrate — in order to contain the spread of the virus. Additional restrictions also meant employees returning to Hefei from holiday travel had to be quarantined for two weeks before returning to work.
When the factory shutdown ended, hundreds of Sungrow’s 1,200+ factory workers were still quarantined at home. “That is where we felt the impact of the shortage of employees, especially in the workshop, because people working in sales and other departments can work at home,” said Hank Wang, president of Sungrow Americas.
In response, Sungrow quickly recruited and trained hundreds of temporary workers to take on manufacturing jobs that didn’t require much technical knowledge or expertise. Although Sungrow received approval to restart production in February, the company still invested in measures to protect factory workers from infection. Employees wear gloves and masks, and every person entering the factory has their temperature taken so those with a fever can be sent home.
A high level of automation at Sungrow’s 50-gigawatt-capacity factory helped implement the social distancing needed to avoid spreading COVID-19. “Because of the automation and the large size of the workshop, people are far away from each other,” said Wang. The company also prohibited typical mealtime gatherings in the cafeteria and instead delivered food to individual workstations.
Moving fast in uncertain times
When Sungrow realized the severity of the COVID-19 outbreak, it put together a task force to facilitate quick decision-making. The company already had crisis-management experience, thanks to the Section 301 tariffs imposed on imported Chinese power conversion technology as a result of the U.S.-China trade war.
The tariff experience taught Sungrow the importance of rapidly reaching out to its suppliers to ensure access to the raw materials and components needed to make inverters. This was particularly important for certain components — such as fuses that go into transformers — that are made by only a few suppliers and need to be secured six months ahead of time even under normal circumstances.
“We knew that if we had delays in raw materials, our delays would be months rather than weeks,” said Hans Zheng, director of operations at Sungrow Americas. “We were able to secure our priority in getting those materials because we reached out early and have long-term relationships with them.”
Sungrow has applied the same proactive approach to communicating with U.S. project developers. Wang sent a letter to all of Sungrow’s customers in the Americas outlining the delivery schedule for each project and has made the company’s executive team available to answer any questions.
So far, the pandemic has had minimal impact on Sungrow’s ability to deliver inverters; many orders are still being completed on time, and those that are delayed are just a few weeks behind the original schedule. According to February inverter export data released by China Custom, Sungrow had an industry-leading export value at more than $12 million. The company shipped 943 megawatts in February, with about half coming from its China factory and half from its facility in India.
“For the first two quarters, we have a lot of safe-harbor deliveries in the U.S., and we will try our best to fulfill our customers’ [Investment Tax Credit] requirement through close collaborations with customers and logistics partners,” said Zheng.
In part, that’s because the inverters Sungrow delivered in the first quarter of 2020 were manufactured at the end of last year, before the pandemic impacted production. It also helped that the first quarter of each year is traditionally a slow time because orders from Europe in wintertime are minimal and much of Asia is on holiday.
As of early March, Sungrow’s China-based production was at full capacity, and the company’s third-quarter orders were healthy enough to indicate a year of growth ahead.
Nevertheless, Wang’s optimism is tempered with cautiousness, given just how fluid the impacts of COVID-19 remain. “What we don’t know is the impact of the virus on our customers and the economy,” said Wang. “We want to convey confidence, but we realize there is a developing story here. We just don’t know where things are headed at this point, and communication is key.”