Last week, STS spoke at PVModuleTech USA in Napa, California, USA and shared its practice delivered to help the developers mitigate quality and import risks for their US projects in this seller’s market.
Here is a recap of our presentation on ” De-risking US Projects in 2022″.
Mitigating Risks Before Purchase Contract – Select the right supplier-partner
– In 2022, price is not the only selection criteria anymore.
With the changing regulatory landscape, and disparities in supply and demand, price is not the only selection criteria in 2022. Since last year, we have seen that more and more clients are increasingly including Environmental, Social, and Governance requirements in supplier qualification and purchasing contracts. Sustainability requirements have become mainstream, and traceability is the backbone of sustainable sourcing. For US buyers today, minimizing import risks is a top priority, and supply chain assessment is a must-have, ideally before signing the purchase agreement.
– Solar and storage industries are maturing
As the industry continues to grow, we are seeing industry-driven requirements for maturation of supply chain traceability and monitoring. To motivate more collaboration, STS supported SEIA in the development of the Solar Supply Chain Traceability Protocol; and is currently working with Solar Power Europe providing expert advice on the development of the Supply Chain Monitoring Program.
To foster industry collaboration, STS has also set up the Sustainable Supply Chain Program more than a year ago when we developed a comprehensive supply chain assessment to go along with our well-established factory audit services. At that time, traceability was a new topic for the solar industry; it took some time for the Program to gain traction with manufacturers. What we are now seeing is that traceability is moving from an “add-on” to a mainstream requirement.
Globally dozens of module buyers, asset managers and lenders (representing 40+GW of yearly buying power) are currently members of the Program and benefit from unique tools designed to reduce the current and future supply chain risks, and we have assessed the supply chain of more than 35GW worth of PV module production capacity. Forward-looking suppliers are even approaching us proactively willing to show full transparency towards their clients.
– How does the PV industry score today in supply chain management audits?
We observe some general trends in our Program:
The average score over all our supply chain management audits is 67%, with supply chain security processes being slower to be implemented, and therefore scoring lower and lagging behind other important traceability processes. We also observe an encouraging improvement in the last few months across all of our supply chain audits, showing that the industry is maturing thanks to the common effort from buyers and suppliers.
– Recommendation for supplier assessment and qualification
- Use only accredited inspection bodies
- Multi-dimensional assessment
- Factory Audit
- Product Design and Development Process Assessment
- Supply Chain Assessment (supply chain mapping, traceability, security, and regulatory and statutory requirements)
Supplier assessments assess a particular supplier’s risk level and gives a score. Audit scores are most actionable if the audits are performed before contractual engagement with a manufacturer. Today, thorough supply chain auditing is a must-have.
Mitigating Risks After Purchase Contract – My Purchase Contract is signed; Is it too late?
– Recommendations for performing conformity assessment during PV module manufacturing
- Use only accredited inspection bodies
- Use a widely-accepted QA/QC “Standard” for criteria and requirements
- The most-widely used QA/QC standard today is STS-STD-PVM1:2018©. It has been reviewed now by more than 100 stakeholders and includes hundreds of criteria and requirements
- Be present in factory 24/7
- Due diligence on the supply chain
When on site, STS engineers verify conformity of products to all specifications, including supply chain traceability specifications. When the verifications are made, we will issue a certificate of conformity, which can be used to reconcile the different needs of the different stakeholders.
The Difficult Exercise of Negotiating a Purchase Contract in 2022
– Seller’s market conditions reduce quality
Today pressure on supply reduces the level of quality of solar modules. During contract negotiations, STS advises procurement teams through a diligent risk assessment process. We have observed a 20 X increase in the number of high-risk deviations requested by suppliers in the first half of 2022 compared to two years ago. Cracks and soldering defects are the two main high-risk deviations observed recently.
STS clients are made aware of the additional risks associated with these deviations and may therefore push back. Many other developers, however, may end up at an increased risk of purchasing low quality items.
– Recommendation for purchase agreement negotiation
To adapt to a seller’s market, more and more developers are asking STS to support them in their contract negotiations. The STS Standard is used as a reference to evaluate the risk of each deviation from the Standard, providing buyers with the tools and knowledge they need to make an educated decision.
Module buyers need to have a robust quality control plan (design, components, process) and inspection and test plan (long duration test, factory audits, production supervision 24/7, and container loading check, etc.) to reduce purchasing risks effectively. A simple paragraph referring to the STS Standard in the contract offers protection in these two dimensions. The right to audit the supplier’s supply chain should also be included in the purchase contract.