Robert Bryce 0:04
Hi, everyone, welcome to the power hungry Podcast. I’m Robert Bryce. On this podcast we talked about energy, power, innovation and politics. And I’m pleased to welcome Xiu Qin he is a senior director of power, renewables and energy transition at FTI consulting you welcome to the power hungry podcast.

Xu Chen 0:21
Great to be here. Thank you so much.

Robert Bryce 0:23
So we’re going to talk about solar energy today and with you because that is his field of expertise. You I warned you guests on this podcast introduce themselves. So if you don’t mind, imagine you’ve arrived somewhere you don’t know anyone. And you are they asked you to introduce yourself and you have about a minute please introduce yourself.

Xu Chen 0:43
Absolutely great to be here. And my name is Su Chen I have been was at TI for about one and a half years now coming from the long career within the solar industry for the past 15 years or so. And having worked for multiple original equipment manufacturers, and most of them Chinese firms in the solar panels, so inverter and other type of equipment manufacturing, as well as to the downstream sales, business development and more importantly, my personal and the core competence in project finance and project development here at FTI. Be more interested, given my background and been more more or less in charge of the solar sector. But I do have my tenants goals also express expanded was feels like energy storage, electric vehicle and other renewable energy that’s ultimately integral to the entire energy transition for the global energy market. Yep, great to be here and happy to have I’ll have to make a discussion and conversation happen.

Robert Bryce 1:46
Sure. Well, as you know, and we’ve discussed before, there’s a whole lot happening in the solar field now the solar sector, the market is booming. There are a lot of projects being developed, but there are also some real obstacles. We talked some weeks or months ago after US Customs and Border Protection impounded what several 1000 shipments of solar equipment. So what’s the I understand that that has been alleviated somewhat, but last year, I think it was between June and October, something like 1000 shipments were detained. The value of those shipments was a hundreds of millions of dollars. Were what is the current situation with solar panel, imports from China in particular with regard to the enforcement of the weaker forced labor Protection Act, which is going or Prevention Act what’s what’s going on there.

Speaker 2 2:36
Becca, Danica. So you know, the basic week of both labor professing that you FLTA was officially enforced starting in June 2022. But a precursor to that called the withholding and release or the WR o was enforced much earlier back in 2021. So basically, the audit caught the impounding of the inputs of solar module and solar products from both China. And more importantly, actually been Chinese firms based in Southeast Asia have already been a recurring theme for the solar industry since 2021. And to some extent, very significant disrupting the supply chain into the US market. That last starting was 2022 was the US RPA enforcement and the US Customs and Border Patrol have been more focused on the UK and the leading companies of solar module manufacturer the suppliers in the US. And that’s usually counted with one hand, you can count names like laundry, solar, Trina Solar, Chinko, ja solar, etc, as those primary being targeted. And among the basically 1000s of incumbent of the shipment that those are the companies and basically behind the basic behind the chicken behind the supply side.

Robert Bryce 3:58
So if I could interrupt there for just a second as you because I know this is complex, and there are a lot of different players here. But so there were there were shipments that were being impounded because of discussions about dumping, right that there were from other countries, right, that other countries ring used as a conduit for Chinese content. But then the more recent actions have been under the UFL. Pa is that I just want to make sure I’m clear about what you’re saying.

Speaker 2 4:23
Actually, no, that that’d be always also linked to shinjang. It’s actually just a lesser person. Okay, you FLTA prior to the enforcement of the for forced labor protection act. Okay, so yeah, so this issue has been on the table and in the force for more than two years now. It’s just really kind of culminated with the yo yo FLTA passage and the sales to the enforcement in 2022.

Robert Bryce 4:48
Gotcha. So has this been alleviated? I’ve seen news reports now since some of these were at Reuters was one of the leading reports of leading a reporting on this in January about all the shipments that were being impacted. have had those shipments been released. Now, what are the status of some of those over 1000 shipments that were detained? What’s the status with those now,

Speaker 2 5:07
latest news is that quite a few of those shipment has been released as compared to the earlier days of enforcement, where neither CBP or the best importers know what exactly kind of set of documents and information or data to be submitted, submitted or basic clearance at the border. Now, I think the CDT has provided more kind of more clarified regulations on what kind of documents who would like to see on a shipment to clear basically the UEFI RPA concerns. And that has led to the supply side to basically make arrangements to obtain those documents and also to arrange the supply chain dedicated towards clearing UEFI LPA. And that has allowed all the shipments detained at the border to be released, as well as new shipment, as I understand becoming picked a lot big, being able to clear out the CBD much faster and much easier.

Robert Bryce 6:11
And you’re saying US Customs and you’re saying CBP. That’s Customs and Border Patrol, Border Protection, right. Make sure we get everyone’s on the same page here is that on the acronyms? What percentage of us solar panels today are coming from China,

Speaker 2 6:28
from China actually very minimal. As you may recall, as early as 2012, USS already imposed anti dumping and countervailing duties on modules of solar cells and modules of Chinese origin. And that was the impetus for the Chinese company to set up manufacturing facilities in Southeast Asia to avoid the ADC add on Chinese modules and basically still being able to serve the US market.

Robert Bryce 6:58
So okay, so so that the anti dumping rules then led Chinese manufacturers to move to Vietnam, Malaysia, where were they? Where did they go?

Speaker 2 7:08
Island, Vietnam, Malaysia, and to a lesser extent, Cambodia as well. Those are the four main countries.

Robert Bryce 7:15
So Where’s where’s a Willemijn? So if the if China is not the main supplier, where where most US solar panels coming from today?

Speaker 2 7:25
Take 2021, as example, I believe, at 70%. Or I think close to 80% of the US solar modules are coming from Southeast Asia, basically, those four countries will mention.

Robert Bryce 7:39
Gotcha. So and are those Chinese companies in those countries, then that our own net production then in those countries that are China? Or I’m sorry, Malaysia, Vietnam, Thailand, and which one would did I miss? Not Indonesia? What was the other Cambodia, Cambodia? Those all Chinese companies those so if it’s roughly 70 to 80%, coming from those four countries, what percentage of that is Chinese ownership?

Speaker 2 8:06
Mostly, mostly, I’ll say close to 90%. And then with the exception of hemlock you south, which also have the US base manufacturing and of South Korean origin, and the others, Mark basically on most of the leading Chinese come solar companies have the operation in Southeast Asia corresponding

Robert Bryce 8:25
Gotcha. So I have solar panels on the roof of my house. I have eight and a half kilowatts. They’re made by LG. It would LG have with these panels have Chinese content or wood is that what it’s not just necessarily where the panels are made? It’s also the poly silicon that’s in the panels in China has a dominant position in the production of poly silicon as well. So my question was, is there a chance that my Korean made panels have Chinese content?

Speaker 2 8:54
Very lightweight, very likely. I mean, any Robinhood LG panel, if you had it in the past few years, it’s very likely to be assembled in the US in the LG factory in Alabama, as I recall. But LG, what LG supply chain will do is they actually sourced the solar cells most likely prone those Southeast Asian countries, and by which, so the solar cells most likely made by solar wafers, those thin slice of silicon wafers from China, and the way but most likely attorneys out at least about 90% of chance, is going to be made by policy kind of produced in China. Gotcha. And supposed to be more than 70% of it and out of the 90% have a positive comment. There’s half as a 50% chance it’s actually made in Xinjiang region.

Robert Bryce 9:48
Well, let’s talk about shinjang because, and I know this is a sensitive subject and you’re you’re a US resident, but you we talked about you you hold a Chinese passport, as the as the reporting on Jin Jiang. You know, Laura Murphy out of the UK has done reporting on this. In 2021, several agencies are think six or seven departments of the US government, including the State Department labeled what’s happening in Xinjiang and the Uighur Muslim population there as genocide. In your view, has this reporting and the US government’s reaction to the Uighur situation in China? Has it been fair?

Speaker 2 10:28
I’ll say one thing, I think that for one part of Xinjiang, the region has been under a lot of political winds out as well as terrorism threats over the past two decades. And in the situation of ground, it was, at one time basically the in the past 20 years, also an epicenter, basically out the the erba. Basically, I would say religion driven terrorist attack as part of the Global Islamic terrorism, terrorism. But anyway, what China did basically government in China did is they had, they did enforce a very strong crackdown on such activities. And along the way, it has brought Xinjiang region two into a much more secure situation as it stands now. But along the way, it certainly comes upon very strict enforcement, strict control, and a lot of security, the security measures what what’s happening in Xinjiang, to certain extent, is a hobby and would more extreme version of what happens everywhere in China. I think there’s a lot of a while, given how the government and a governing system is set up in China versus in the US, there are a lot of things that come down very differently. I think there’s something I can say, quite frankly, to say that what is happening to the basically the weaker and Muslim population in Xinjiang, as genocide will be quiet. Except for acceleration, if not outright. Yeah, I said, Well, if not outright, basically unjustified accusations. Yeah, for me, it’s what growing up in China and seeing what had what had happened in China, what and also seeing what’s currently happening on the ground in China, it is safe to say that basically, there are a lot of synonyms, a lot of issues, a lot has to do with the general population. And but that isn’t what we haven’t really readily observed this kind of ratio or ethnic discrimination, or even to the extent of cleansing that’s happening. And that’s not something we’re seeing. It’s not something we’re really hearing from our friends in either in Xinjiang or outside of Xinjiang. And it’s also not something it’s not to the extent that what has been reported by most of the Western media.

Robert Bryce 12:58
So I just want to be clear here, and I understand you’re, you know, well, I think it’s fair to say, somewhat difficult situation and that you’re in the US and you want to maintain positive relations with China. But you’re saying that in your that these reports of genocide and forced labor in Xinjiang are wrong.

Speaker 2 13:20
unsubstantiated now be my assessment.

Robert Bryce 13:26
Okay. Fair enough. We might have to differ on that, given the amount of reporting that I’ve seen because it there is a lot of reporting on this. And it would be I mean, I’m not saying the US government come out with this many different agencies saying flat out that this is genocide and there, but it’s but the reporting on this is and Laura Murphy from Hallam University has put out another report and there’s been some other reports about the Uighur forced labor not just in solar, but in other many other industries right, including glass, textiles, agriculture. Do you say the same that this is not a this is exaggerated as well?

Speaker 2 14:08
Indeed, indeed, what well, but my bulk personal experience I have involved with manufacturing companies that have participate in what what is alleged labor arrangement, basically initiated by either local or basically a central government in China, and gives you hear reports about basically Uighur labor forces being transported to other provinces in China to work in factories. And that’s actually a very common practice in China, not just pushing John but also for other provinces, where they organize surplus labor can do education and training and then also basically make arrangements factory and basically manufacturing powerhouses elsewhere to provide again, the labor labor group almost as a part basically a labor so I agreement type of arrangement to, to randomly call those labor arrangement. basically forced labor would be quite disingenuous. It is part of the RSA. The government, as well as this part of the government is society athletes ready to facilitate the labor movement within China and also to allocate the labor resources to the extent as efficient as possible. That will be my personal experience and personal opinion on those on those programs, those activities. Okay.

Robert Bryce 15:36
Well, I want to focus on solar and some of the economics of solar. But I’ve also seen a lot of reporting on this that about forced sterilization, forced labor at large scale in Xinjiang. And so that let’s let’s set that aside, it’s a big issue to just set aside. And I understand you’re saying you personally don’t understand you don’t know about this. But let’s talk again about what that content then because is there? Is there any way for solar panels coming into the US? Because you said that my site, my my Korean panels may have Chinese content? Or, you know, some some part of parts of the those panels may have been originated in China? Is there any way to certify and to do so reliably? That the supply chain of the solar sector does not have forced labor content?

Speaker 2 16:32
We actually FTI we actually get that request on our prospect clients a lot. The honest answer we provide and in all honesty, is that actually, the hot hot answer will be no, there’s no 100% foolproof way to study by a price supply chain, on post labor and especially with with anything related to Xinjiang right now. And that’s typically my two primary factors. One, that being that basically, the solar supply chain is quite dispersed. And the way that UEFI RPA is being enforced chasing the supply chain all the way up to the silica standard that’s going into the policy can make it very difficult to study by the basically this origin of a set, you can vary, it’s closer to impossible, really to certify each grain of the standard of going into the melter for making the silicones. And that’s that’s that there has been a challenge being faced by the supplier side to respond to CDP on the UFL to enforcement. And secondly, I mean, the Chinese government does enforce a law called anti sanction law in China, that is making kind of specific certification program like for you FLTA, close to impossible within Chinese model, or for companies like ourselves. So when that standpoint, we have been for FDI side, we actually have been staying away from such requests and such engagement, fully understanding that we cannot surely provide the kind of 100% satisfactory results for the clients.

Robert Bryce 18:20
So if I, if I can just read that back to you, as you what I’m saying what I heard you say is that the Chinese government’s own actions have are helping or obscuring them or preventing reliable tracing of supply chains, then within China? Is that Is that a fair way to read back what you just said?

Speaker 2 18:40
It’s part of it. I think the dominant force is really the, in my opinion, in my personal opinion, it’s actually sheer difficulty to go out to the very dispersed supply chains back on the other screen.

Robert Bryce 18:53
Okay. So we’ve talked about those upstream issues. And I want to I want to talk about reshoring because this is another big issue, and particularly on production of poly silicon, which is very labor and are very energy intensive process. But they’re the latest issues in the solar solar sector, aside from the UFL, Pa and impoundments. And shipments are the prices and the latest reports show that the power purchase agreements for solar in the first quarter rose sharply, they went up eight and a half percent in the first quarter of 2023. Why are prices going up so quickly? They went up faster than they did for wind when was up almost 5% 4.9% According to level 10. So why are solar PPAs going up? Everyone’s been claiming solar is cheaper. What’s what’s going on now, with these dramatic price increases?

Speaker 2 19:42
Oh, that’s actually a very, very quick question from my perspective said and it first of all, equity energy prices, every kind of energy passes increasing. And the general inflationary environment is basically providing the supporting environment for solar and other renewable energy to raise the Yes, regardless, and it’s caused by also the surge of demand and probably more attributes in Europe. And then when certainly also for the US market. And secondly, the I think the difference between weighing and solar and other renewable energies that, as you exactly pointed out that the US badly dependent on basically imports of solar products across the value chain, the way that the how the tariffs work and talk about the last year is about the basically the new initiative initiative for anti circumvention of ad CVD on Chinese tariffs, but targeting,

Robert Bryce 20:43
you gave us an acronym there, I have to interrupt you. So the circumvention of

Speaker 2 20:48
anti anti anti dumping countervailing duties.

Robert Bryce 20:51
Okay, and so what was that? Ad? Counterfeiting A, D,

Speaker 2 20:56
C, D, A, B, C, D, D? Okay. Right. So

Robert Bryce 21:01
I hadn’t heard that acronym before. So you’re saying they’re the part of this. I’m just reading back, I want you to continue. But I hadn’t heard that acronym before. So you’re saying that some of the price increases are due to this having to be more compliant with regulations regarding anti dumping? Is that am I bringing that back correctly to you?

Speaker 2 21:20
Indeed, indeed, that’s part of the kind of overall target at this was the Southeast Asian supplies of solar, given the given that they usually rely on Chinese input Chinese materials for manufacturing solar modules? There is this current investigation at the Department of Commerce to assess whether those suppliers is circumventing the basically the anti dumping duties on Chinese products on Chinese solar products? And the preliminary findings actually positive? Meaning that yes, there is anti dumping. So the anti dumping tariff would likely be applicable for the products coming from Southeast Asia as well. And also,

Robert Bryce 22:05
to interrupt again, I’m sorry. So you just want to make sure I’m understand what you’re saying is that the preliminary investigations are showing that the Chinese companies are dumping solar panels into the US market by circumventing the rules and going through the Southeast Asian countries. Is that what you’ve said?

Speaker 2 22:25
All right, that’s the conclusion of a department commerce investigation in the preliminary conclusion. And when did that come out? That came out in December 2022.

Robert Bryce 22:35
Okay, so I wasn’t I didn’t see that. But so that so in other words, again, to read this back to you, as you because I want to make sure I’m understanding what you’re saying is that one of the reasons why solar prices are going up is that solar imports of solar panels are being hit with tariffs because of the the domestic manufacturers are, what the Department of Commerce to enforce anti dumping rules Am I captured this correctly?

Speaker 2 23:01
That is correct. But with the with the added complexity that back in June 2022, Biden, Joe Biden actually enforced the two year moratorium on additional terror on solar. So even though the department commerce have this preliminary ruling, on basically supporting the, basically the kind of second Bastion or basically supporting imposing those tariffs on Southeast Asia, that is a two year window that they cannot do so basically, until June 2024.

Robert Bryce 23:33
So the Biden administration has given a reprieve then a special carve out if I could put it that way, to the solar industry from these from these tariffs

Speaker 2 23:42
at the end. But the mere possibility of having this tariff, especially in the first half of 2022, essentially stopped a lot of shipment from Southeast Asia to the US. And that created basically the supply crunch in the earlier earlier time in 2020, to basically raise the price of solar panels in the US dramatically. Yeah, the end in 2022 has seen great inflation, inflationary pressure on a lot of products sold as well. I think oil in general, on a global level solar panel price basically went back to the 2019 price level in 2022. So that so even though we always forecast solar prices to go down continuously was older technological and a supply improvement. 2022 actually 2021 2022 What would exceptions that price went up or basically kind of plateaued. From this standpoint. It’s

Robert Bryce 24:48
sort of in the PPAs and I’ve reported on this utility products in general copper wire poles, you know, regular kind of transformers. A lot of the basic material is basic commodities and equipment that’s required to install solar and wind. Across the board. There’s been huge inflation and all of those commodities. 18%. Last year, according to the rural electric supply cooperative, which I wrote about in my substack untransformed a piece I published a couple of weeks ago, I made this Well, I just reported on it right. So some of these PPAs, then further costs for solar and new PPAs is up 8% In the first quarter, some of that has been driven by cost increases that have nothing to do with the panels themselves as am I hearing you correctly.

Speaker 2 25:33
Indeed. But But still, the panel is more prominently and they would cover a couple was the general inflation, the tariffs, and they in the second half 20.2, the ULP RPA enforcement, there has been a dramatic dislocation of supply and demand of solar panels in the US. And that has raised the price raise the cost with Filipinos much more so compared to the general inflation.

Robert Bryce 26:00
So the uncertainty is one of the price that is affecting the price right? Uncertainty leading to some shortages of supply, those are those are contributing to the inflation.

Unknown Speaker 26:11
That is correct. Okay.

Robert Bryce 26:13
So are you seeing then a significant reshoring? Because I want to read there was a used to work at GCL, if I recall, from TCL technology holdings, right? So you’re familiar with this company, there was a recent news article, and GCL is a big producer of poly silicon, as I understand it, and I’m reading I think this was a Reuter story that said GCL is looking to expand outside of China. And here I’m reading from the piece it says however, the company says it will likely pass on the United States for new poly silicon production due to high costs according to Bloomberg New Energy Finance, the GS GCLs chief executive launch Shi Shan chi, Chuan, she said the inflation Reduction Act helps make the US market more appealing. But it’s still five times more expensive to produce poly silicon in the US than in China. Polly US policies are attractive but not attractive enough to yawn she said Is it Is that true that it’s to produce poly silicon in the US costs five times what it costs in China?

Speaker 2 27:19
Well, it’s certainly one of the factors deterring companies that he’s able to set up politics and manufacturing here, the five times cost actually refer more to the capital expenditure. And that basically, the sheer sipo and kind of basic equipment construction needed to set up basically policy and plan will be quite hot and quite higher than if you do it in China or in Southeast Asia. And this actually is kind of across the board, across the kind of sort of value chain, we actually have a little kind of cheat sheet numbers, saying that, for example, for solar module and solar cell manufacturing facilities, including everything that’s basically land, building facilities, labor and other permitting activities, the factory in the US will probably cost three to four times x of those in Southeast Asia and very likely to be close to buybacks in China. And that’s, that applies to policy manufacturers as well. It’s not necessarily just the operating costs. I think from an operations standpoint, as you correctly pointed out, positive economic action is basically energy intensive. It’s not really very labor intensive, the labor really occupies a very small portion of the total operating part. And all the costs of the policy taken by the US actually enjoy some type of energy cost advantage over China. But it’s really the initial capex now and now I have to express as a depreciation over the years, that being kind of prohibitively expensive for companies that GCL

Robert Bryce 29:02
Okay, so I’m going to repeat back what you what I what I heard you say that if the capital costs of trying of trying to, to manufacture solar panels in the US is three to 5x, what it is in Southeast Asia and China? Is it fair to say we’re not going to see much uptick in solar manufacturing in the US? Or if we do, it’s going to mean significantly higher solar panel prices to end users?

Speaker 2 29:28
I don’t know if that’s a that’s not a wrong path. Probably not not notices for all the prospects for the US market. But we have seen quite a bit kind of a surge in reshoring, or at least basically a new capacity expansion, or at least the solar module manufacturing pod. And what’s underlying that surge of really big inflation Reduction Act incentives, expressed per module as the base base seven says covad Oh, Most direct subsidy, so manufacturers to basically making those panels here in the US.

Robert Bryce 30:07
I want to hear so you said seven cents per watt is what would be the subsidy under the inflation Reduction Act? That’s correct. And so what does that translate to? But that even with that seven cents per watt, so that’d be well $7 Then per kilowatt, right? So if my numbers are right $70 dollars per kilowatt, forgive me, then it will that make them module manufacturing competitive here in the US, then we’re not,

Speaker 2 30:39
I think it will actually consider this or module coming from China or from Southeast Asia without any tariffs. And actually including shipping, it will be anywhere between our say 25 cents, and 30 cents per watt. Now for the US market, circumstances very significant portion of percentage of those costs. And if you have if you do have to import all the exams, solar cells and what people call the bill of materials, equipment and components from overseas for us, assemble them into us, you may be looking at, and also factor in the tariffs that will be applicable, there’ll be anywhere between 15%. And for Chinese products, it could be up to 200%, then the seven cents incentives more than more than able to cover the added costs for manufacturing in the US. And that for that exact reason. We’re seeing leading companies like launchy, solar, Trina Solar and Jenko and J solar, or announcing new new view new factory or new capacity expansion in the US, but exclusively on the solar module side. So they know they can take advantage of the seven sets and setup, still being able to price the products competitively within the US. But that being said, going back to your kind of original message in your question, I think it will be a fair statement to say the US market will continue to see higher solar module costs higher solar module price as compared to the rest of the world, especially in China and certainly than in Europe as well. And that’s because of the imposition of tariffs, the relatively isolated status of this market. And all the incentives going in, is not being able to really bring those incentives are going to the manufacturers, most likely, but not that directly to the consumers. And most likely so well.

Robert Bryce 32:45
I see. So then, again, what I think I’m hearing you say is the US, we’re going to US consumers, US solar installers are going to have to compete in the global market, where the Europeans obviously are wanting to build more solar. So that and but if I’m hearing you correctly, you’re saying that the combination of the the US tariffs with the UFL PA, despite the inflation Reduction Act may not result well, it will result in some more solar manufacturing occurring here in the US. But it’s going to long term, what I believe you just said was long, you’re saying that over the longer term, solar prices are going to panel prices themselves are going to are going to rise because of all these factors. Is that is that is that fair?

Speaker 2 33:32
Well, I’ll set solar panel price will continue to, to guide to be reduced in a continuous fashion in concurrence with the global chair. But but my expectation is there will always be a premium or spread between US price versus the global price. And that that is a premium as Brad is ultimately driven by the tariffs and the other trade restriction that’s made to the US market from the global standpoint of Raja isolated. Hmm,

Robert Bryce 34:04
that’s interesting. I hadn’t thought about that. But as you’re saying this, I’m thinking well, there are similar price disparities between, say natural gas at TTF. In Europe, right. There’s a trading hub in Holland called TTF versus the US trading hub for gases, Henry Hub, and there’s a big difference in our spread between those two basins. Right. So you’re saying there’ll be a similar spread similar differential for solar prices in Europe versus the US. But what about the labor part of that? You know, one of the other things that’s and people who track solar prices, they say, Okay, well, yeah, the panels, the price of the panels are going down. And we’ve touched on this a little bit, right. But it’s not just the price of the panels that ultimately matter to the end consumer or the end installer. It’s the Balance of System. So Trent, Transformers interconnection, to high voltage systems. Have you tracked that? Are you familiar with what’s happening with those Balance of System costs? We When mentioned, obviously copper, copper wire, you know, Transformers pad mount of transformers, all these things are pole mounted transformers, all these things are going up in price, is that also going to be a significant factor in the price of solar as it expands over the next few years?

Speaker 2 35:17
Absolutely, I think it does balance to certain things that to a large extent will be applicable for most other types of energy storage as our energy projects well, so when energy storage are separate, and that applies to the BTS supporting structures, which are basically steel or other other metal. And then things like basically the transformers and inverters, which are power electronics, there will be yes, I think similar to solar panel, for example, transformers, I think there are certain similar restrictions of a national security ground against basically products coming from China and actually, basically outside of the US. And that actually has created this basic very acute shortage of transformers in the US that basically really wreaking havoc on on the grid operations across nation.

Robert Bryce 36:14
And if I can jump in, but yeah, wreaking havoc, I think that’s a that’s a pretty accurate statement. I mean, again, this goes back not just to the labor of assembling the transformers, but also Grain Oriented steel, right? It’s a key commodity inside the transformers, the supplies of that are very constrained imports on that commodity are subject to tariffs. So there are a number of factors that are combining here that are created that are contributing, as we’ve discussed to inflation. But let me shift a little bit you if you don’t mind. And again, quick station break. My guest is you chin is a Senior Director for power renewables and energy transition at FTI. Consulting. He’s had a long career in the solar industry. Are the efficiency levels on panels peaking? I mean, have we gotten to the level where the efficiency you know, everything gets to a peak where it can’t the bets limit in wind energy, right, there’s, there’s a physical limit on how much energy you can harness from the wind due to fluid mechanics and so on? Are we seeing a peaking or near peak in the efficiency of solar panels?

Speaker 2 37:14
Oh, it’s, uh, depends on the basically the how you’re how you’re looking at what scale you’re looking at, basically, solar technology? Well, when I entered the solar industry back in 2008 2009, the typical solar cell was basically just basically producing the efficiency at around 15 16% with the solar modules as well, more or less 14 to 15% range. Now, that range has a paying interest on mainstream products currently in the market. So the solar cell, it’s actually 21 to 22%. What’s the modules been basically about 20%? If you look at the big view of what will happen over the past year, the sheer improvement of efficiency from a technology standpoint is basically is actually astonishing. And I actually anticipate this trend. Well, well, for 15 to 20 years, it was brought sorry, from 15 to 22 is a very big jump. But I think what we what will happen in the next 10 years and it will still continue we’ll continue to see the improvement in efficiency, but probably not at the rate at because the sheer range that we have observed in the past 10 years. And that’s mostly basic governed by the basic law of physics and how basically the photo potato back can take it back on those own that basically silicon based semiconductors and and also speak up basically general manufacturing and process engineering process that basically allow those solar cells and modules being manufactured. But that being said, we have currency at the junction of the basically scaling up a next generation silicone base with solar cells caught the top column for name, tunnel oxide combat conductive. And this will work on my knowledge of that but it’s got T O P c o n Topcon is the new basically generation of technology that being currently scaled up and pop up making up and majority of shipment starting in 2024. That’s basically quite effective. It’s more or less a 10% efficient jump from the current mainstream market. products were receiving also sell at the margin side. And then this top cons of college expected to take us to a continuous incremental improvement over the next five or even 10 years. And then basically in the near future. There’s another competing technologies that we can currently be In mature materials and being improved upon, or mass manufacturing and as heterojunction tendency SJT, in short, and those are basically another generation of solar cell that will probably provide an additional 0.5% efficiency as compared to Topcon. So, overall, speaking of the next thing, yes, we may see solar cell efficiency going up from the current 22%, all the way up to close to 26, or even 27%. And that’s still a very significant improvement.

Robert Bryce 40:35
Sure, that’s a big jump. And if you don’t mind give me that acronym for the next generation. You said T O

Speaker 2 40:40
P, T, o p, c o n, C O F as in Frank, H O, C o n, Sen, se, c o n top con.

Robert Bryce 40:49
Okay. Because I would just thought I’d look it up, I hit the Google here very quickly, okay. Topcon solar cell cells passivated by aluminum oxide fine layer on the surface of a p type material to two nanometers silicon dioxide tunneling layer and highly poly silicon thin film below the Si O two layer. So two nanometers that is getting very, that’s two billionths of a meter. Right. So the but your your point about the limits on physics, that’s the similar then, in the mechanics of building, the solar wafers are getting very similar to the as I’m reading as to what we think about in semiconductors, right? We’re reaching the limits of physics and the ability to make those, you know, nanometer scale etchings on the on the on the semiconductors, we’re seeing the same thing in solar is that the same limit them?

Speaker 2 41:49
Indeed, in the process of adding silicone materials, as the kind of photovoltaic material has, it has its natural and physical limitation, given the basic electron band gap, it tells it has to be well, the there is a physical limit on efficiency of silicon based solar cells.

Robert Bryce 42:09
And that may be in the 30% range. If we’re going from you’re saying 20% 22%. Now we could get to 26. But maybe 30%, is going to be the maximum something like that, or is that is that? Is it fair to even estimate? I mean, we always underestimate the ability of the systems to increase efficiency and so on, but is 30% Is that would that be a natural assumption? We can’t get much more than that.

Speaker 2 42:34
I’ll say So yeah, that’s actually sounds like the right range. I have to look at that for online science books. But yep, 30% is most likely going to be in the real upper limit for silicon based technology. And I think that’s why exactly, basically. So within the solar industry, they are also technology and looking beyond silicon, and looking at the new materials that can bring in higher promise of either lower, much lower cost, or basically higher efficiency. One that the contending technology, which has been in existence for decades already is caught her rough skies, to the SK, SK y. And that’s another type of the solar cells being currently under very intensive ind activities, looking to be the next generation disruptive for the solar products as well.

Robert Bryce 43:27
Right. Yeah, I’ve heard of the perovskite. That, that technology. So what about interconnections? I’ve written a lot about continuing to write a lot about land use conflicts, and that this being one of the key constraints for solar and I was in Michigan a few weeks ago met with a local group of landowners who are fighting solar big solar projects in their in their neighborhoods. But that’s only one part right? As my friend Lee Cordner says, Where are you going to put it? How are you going to connect it and how you going to pay for it? So we ignore Where are you going to put it and how you pay for it? What about the interconnections? Is there the system the network in the United States, the grid, the electric grid, we have is constrained by the high voltage transmission network. Are you following this the interconnection cues, and particularly in California, there are long interconnection queues for projects of all kinds and but in particular, batteries and solar. Have you looked at that? Can you talk about that and both are either in California or in the US?

Speaker 2 44:27
On the surface, it’s not my necessarily my forte, but I did have my years in project development. So follow the interconnection topic for a little while. My understanding is that I’ll say for the good part, California is not is now not alone, interconnection struggle for solar and other renewables. Basically, other grids like PJ N and Texas are facing even Syndics even graver interconnection challenge compared to California was the sheer amount of a solar project and by other storage projects looking to interconnect. And that’s, that’s a problem very large a superb real physical problem, your grid can only handle, basically so much in the connection, so much resources coming online. And that’s really determined by the wires and the posts and basically the physical arrangement of the grid. And there’s no real way to circumvent that. It’s very immediate, shorter, what solar industry or what solar project and what has been doing and together with other manual, Banerjee is basically Western emergence of the energy storage, becoming a kind of more technological viable as well as the economical option. Pairing solar with energy storage is made is probably going to make interconnection a bit easier, requiring less kind of lengthy and expensive interconnection upgrade, and then also being able to allow the grid operators to allocate interconnection resources more efficiently. And that’s the hope we’re hoping to appear for the general project site for solar and renewable energy to enable the benefit of energy storage to become that kind of a network great network upgrade alternatives. So instead, but why a USANA storage to accommodate the new interconnected resources.

Robert Bryce 46:26
So, explain that to me, why why would the addition of batteries then reduce the need for access to high voltage transmission

Speaker 2 46:36
from the capacity standpoint, if you do interconnect get too hot, for example, a 500 megawatt solar project give the interconnected lines, we only take 300 megawatt at the peak capacity, that you are seeing constraints in terms of how you get the 500 megawatt solar out to your bigger to the to the grid and to the wider kind of grid operation. So instead of putting in to the 500 Mega solar directly, which will probably be curtailed at a 300 megawatts, so you had peak hours, you could lose 200 megawatt of your capacity, adding energy storage to absorb that additional 200 megawatt being produced during those peak hours and then basically discharge them at an at a time that is, so those not producing above the lines capacity, then you’d have a much smoother production line production yield from the solar plus storage system, and also allow the grid allow the basically the specific line to transmit those energies to pretty much close to 100% without any curtailment. And that’s the benefit that or the value proposition and storage is really coming in right now for the renewable energy side.

Robert Bryce 47:52
So the batteries then act as a buffer, I’m use that word as the between the between the production and the network, then that end. Okay. And what are you seeing in terms of, there’s been a lot of talk about solar and storage, a lot of talk about batteries. What about the constraints there? I mean, we’ve talked about, you know, we talked about the Uighur issue and forced labor there. But what about the other issues around batteries and, and around copper, and lithium and supply chain issues there? These are the other things that are top of mind for a lot of people, and I’ve had guests on the podcast talking about those issues. But can you discuss that a little bit how you see those markets unfolding? Because these projects, whether they’re solar, whether they’re batteries, you know, or wind projects, they’re very resource intensive Land, land intensive, copper, intensive lithium, manganese, nickel, all these other things? Are you following those markets at all, because these are key commodities that are going to be needed in enormous quantities?

Speaker 2 48:53
I do I do, but also to put in perspective, so that’s related to battery, which can be used for electric vehicle electrical tools, as well as energy storage systems, the energy storage system is actually a relatively small portion of the demand for battery and basically tracing out for demand for all those critical minerals. So, in in my head, I think this split is close to 90% with electric vehicle 10% for energy storage. So the current surge of demand for those critical minerals and also the batteries themselves are really driven by the surging demand for electric vehicle much less so by the demand for energy storage. So for energy storage, it has becoming a price taker for lithium for copper and for other critical minerals as versus electric vehicle industry, which has been the dominant demand and but corresponding either to certain extent also the price setup in the market. What is happening for energy storage, the size that they are, I think first For for energy storage, the chemistry going into the battery the dominant technology of the battery and now basically converging towards the basically what we call our app key. Basically an ion batteries that requires lithium but definitely require either very expensive minerals like nickel, cobalt, nickel, manganese, and that sort

Robert Bryce 50:25
of so to interrupt you used to use the acronym LSP that we’re talking about lithium iron phosphate batteries, right so that’s correct. No cobalt, no, no, no Cobalt is involved in those in the production of those batteries. Cobalt is generally used for batteries that need higher energy density, right? That Correct? Okay, and EVS being the obvious one there. But anyway, I want to make sure everyone’s coming along with your Matthew. He’s a lot of acronyms you so I want to keep and keep our audience up to date. So LF LFP batteries are the ones that you think are going to dominate it in storage.

Speaker 2 50:57
And they already do they already do. Companies that Tesla, fluence and all these other companies, they are basically the system that they deploy and are now pretty much 100% out basically LFP technologies. And then going forward with Western basically general price pressure or inflation repression on the EDM price and other critical minerals, there are technological breakthrough that go beyond the Lydian chemistry. And one of the probably more, I was a promising contender part of the the sodium based chemistry that doesn’t doesn’t need the ATM, but the exam will be as cheap or even cheaper than our ft a chemistry. And those will be those who typically were coming with less energy in best energy density compared to even our key. But for energy storage application, the energy density is not necessarily the first order consideration. And those could be very well on a cheaper and more efficient use of resources for supplying for energy storage applications. And we think within the next five years, we’ll see quite a bit, a nice split of RP and sodium batteries and maybe other type of energy storage as well.

Robert Bryce 52:16
So we talked only about solar photovoltaic is solar thermal dead.

Speaker 2 52:23
Pretty much so I think it’s bad in the US, if you have been following the news, the old pretty much all the solar thermal power plants in the US in the past, mostly funded by the DoD loan guarantee back in the days or in trouble and our ratings and restructuring with DOD and then the plan that only a limited amount of a global path operation are now in Spain and in Northern Africa. And there hasn’t been any talk of any new capacity anywhere really at a significant level. So, yeah, we were not really seeing so that there will be a very viable competitive technology going forward.

Robert Bryce 53:08
Ivanpah was one of the last I guess or one of the few built in the US right and so, is solar is solar electricity and the additions of solar electricity you live in California is a good for consumers.

Speaker 2 53:23
Obviously, it is it is especially now that a lot I think with the previous generations have a net energy metering policies the what we call any n n e m one and two which basically allows the solar generation on your rooftop to be compensated for the retail price that you otherwise have to pay to the utilities make solar very attractive and even with the kind of higher capital expenditure upfront and most of the solar customers are really happy in terms of a reduced tariff and a Java economic candidate. As you may follow calculating recently implemented a new at basically net energy metering policies. So any new solar installation and basically a little surplus generation will be only be compensated by said well avoided cost which was very close to the wholesale market price in Kaiser region. Now the that’s probably be closer to at least I’ll say 50 is anywhere between 50 to 80% discount to what you otherwise will pay on the retail level. So the SOLAS rest especially with residential solar. In California, the value proposition is fairly impaired under the new policies, but it also gives a new value proposition to energy storage system. So what we’re seeing now that for the to California market and probably a nationwide pretty soon, the solar plus storage residential solution being very being the eMERGE And then also the dominant market going forward. And the benefit of wishes, basically saving, saving electricity, VO, and also serve as a kind of a backup power for your entire house. And that to combine is a very powerful message for consumers everywhere. And especially for California as well that has been stricken by so many accidents and basically natural disasters over the past few years. Having a reliable and tineco controlled cost kind of cost of electricity is a really nice thing to have.

Robert Bryce 55:34
So let me just push back here a little bit. You’ve given me the case for homeowners, but for people who don’t own their homes, are they subsidizing the people that have solar on their roofs?

Speaker 2 55:45
Oh, that’s why the where the community solar come into play. I think that’s where basically policymakers and making the racquetball recognizing essentially reckon the cross subsidy. dilemma has been posted by posted by the solo explanations. And then Western community solar installation, which is basically kind of a almost a utility level, ground mounted solar project, but allowing critical subscription at a small portion to add customers. And those will be something that basically would be readily being enjoyed by renters. And hopefully with a reduced that can reveal a whisper kind of a below staging, and economic benefits as well.

Robert Bryce 56:30
So what’s your Outlook then for solar, you think this bullish market is going to continue because of the IRA, or what are what are going to be the market drivers and market polls,

Speaker 2 56:39
it will be continued to be a very significant portion up in new capacity. And it’s going to be a very significant part of the energy transition away from fossil fuels. And we hope that the basically with solar was weighing and other renewable energy and coupled with energy storage, it will become a less of an intermittent resources, which has been a hazard for the grid operation and become a more than more prone to car post a car cost and operational standpoint of baseload type of application for the entire grid. And that’s something that I think for a solar supply side is trying to get the cost down and get get the the overall cost benefit benefits to the optimal level to enable this and in front of policies at the policy side, to create an enabling environment to promote the application of those markets.

Robert Bryce 57:38
Do you have solar on your you live in California in the Bay Area? You said? Do you have solar on the roof of your house?

Unknown Speaker 57:43
I Do I Do I have had it for five years now.

Robert Bryce 57:46
And do you pay? Do you pay an electric bill?

Speaker 2 57:48
I still do because of the kind of fixed charges and because of the mismatch between the generation and consumption pattern. Are they one thing nice I have is a redo. I do also only electric vehicles. So that’s a nice compensation. Nice can always say is it compatible generation in usage in a way that because of the use of electric vehicle, my general electric consumption will be rather higher than a normal, residential or restless, but with it, so the installation up on the roof is really being kind of a dedicated resources towards this usage.

Robert Bryce 58:28
And how many kilowatts is your system?

Unknown Speaker 58:31
I have a little three kilowatt thing. Yeah. Okay.

Robert Bryce 58:34
So And who’s your utility? Who does who serves your house,

Unknown Speaker 58:38
pg&e?

Robert Bryce 58:40
So California utilities are raising rates across the board? Why are rates going up so dramatically in California?

Speaker 2 58:48
A very good question, I think it really comes down to the reliability of the grid. It’s not really the generation side is creating trouble or the electricity or on the residential side, I think for the wholesales market standpoint, we’re seeing with the penetration of solar wing and other renewables, the marginal cost of electricity is going down. And I think that’s just the nature of the market and basically the physical nature of those energy resources. But those intermittent resources does increase the kind of general burden of operating the grid efficiently and reliably. And that has that basically lead to expensive upgrades and sometimes now unfulfilled upgrade and that led to basically accidents or basically industrial grade incidents that impacts the general supply, electricity supply here in California. Not to mention the wildfire and all those added pasta, utilities a PG and E and others in California have to be sholden And that has been this kind of a general transmission and distribution network level of maintenance and addition on cost has been spread to the residential side, that sort of general rate payer side. And that has been been a main driver behind the increase the utility bill, in my opinion,

Robert Bryce 1:00:12
well, you make a good case for it. And it’s your dreams, it’s your rhymes with what I know that you add more intermittent renewables, which in theory are you said the marginal cost is low, but the reliability costs go are high. So and who ends up paying for that the consumer, which is one of my criticisms of this, you know, surge toward renewables, it has not, or as Meredith Angwin said, you know, the reliability issue has been pushed to the side. But ultimately, consumers are going to have to pay one way or another. So, but that’s, that’s maybe a decision or a discussion that we don’t have time for today. We’ve been talking now for about an hour Again, my guest is Hugh chin. He is the senior director of power renewables energy transition at FTI. Consulting he’s had a long career, or will I guess it would be what 15 year career now in the solar business? All right. So I always ask my guests as you I didn’t warn you about this. What are you reading? What books are on your shelf? I know you have three young kids. So I’m assuming you’re reading some Dr. Seuss and some other books to your kids. But what are you read novels? What science books would you read when you’re not working?

Speaker 2 1:01:21
While antigens of the children’s book I tried to kind of really regroup my sanity to kind of establish a new industry so that I previous haven’t been able to get more involved with So the really the electric vehicle and energy storage actually more upstream the lithium ion battery, this is somewhere I’m very familiar with. So I’m reading a book that a friend sent me for the for fault rush, feel LT R U. S. H, is it really about the kind of earlier days of history about how basically Levy and extracting the DDM mining industry and how that got catapulted by the DNI in battery demand, the General Electric Vehicle and storage market, a fascinating book and involving a lot of global and also a lot of Chinese companies, and some even a very tasty and saucy kind of stories. And basically rumors around this kind of very powerful characters. So highly recommend the book.

Robert Bryce 1:02:24
So volts rush, gold rush of volt rush. Okay, good. Well, that’s a good recommendation. I haven’t heard of that book. So the last question I asked this of all my guests is you. There are a lot of challenges in the world. And it’s not just in, you know, the US and China are not on the best terms US and Russia are not on the best terms. We have a lot of geopolitical challenges, electric rates going up, there are things that we can be depressed about or pessimistic about what gives you hope.

Speaker 2 1:02:53
Oh, the general kind of human humanity says shy to go up. First of all, remain existence, just to buy. And to basically go through the basic to overcome challenges, though, basically, have the existence existential threat of our human race, and meaningful as the constraint or resources, the journal will go up. Basically, climate change is showing signs of a real impact on basically a normal person’s life and take a lesson from, from me living in the Bay Area for 14 years and seeing how the weather pattern has shifted so dramatically, and creating basically kind of disasters, we have never experienced people we can I think I can very safely say that, yeah, global warming or climate change is indeed in motion, and it could have catastrophic effects on all of us across the globe. And that and that issue should transcend any geopolitical conflict or basically national interests conflict. And as someone that had worked in the solar industry and worked in the window manager for long term, and is this my sincere hope, and also sincere expectation that basically, folks I can myself either on the science side, or on the supply side, or on the downstream side, this shows that go making the energy transition to a clean energy and the cleaner future happen. And that now there’s nothing that and that kind of share to go and really remove any barriers from the, as you mentioned, geopolitical issues, allow us to be continued to be mingled together, share ideas, and basically pursue the goal together. And that is something I like about the renewable energy industry and certainly is something I’m still very passionate about and very hopeful about the future.

Robert Bryce 1:04:52
Well, that’s good place to stop right there. Then, my guest has been Xiu chin. He’s at FTI consulting. You can find out more about him on F ti consulting.com You can also find him on LinkedIn. As you thanks for your time. It’s been a very interesting conversation.

Unknown Speaker 1:05:07
Likewise, thank you so much for the invitation.

Robert Bryce 1:05:10
And all you out there in podcast land tuned into the next episode of the power hungry podcast. And if you’re so inclined, subscribe to my substack Robert bryce.substack.com But until the next podcast see you