DSD explains long-term purchase strategy to counter supply chain risks

supply chain risks

This column is from the Q2 2023 issue of Solar Builder magazine. Subscribe for free here.

Demand for solar is so high that, for certain equipment and materials, it’s outpacing manufacturing capabilities, adding challenges for developers during the procurement process. The Inflation Reduction Act (IRA) is pushing to increase domestic solar manufacturing with landmark tax incentives, but there still isn’t enough current capacity for certain material on U.S. soil. In fact, almost every segment of the solar industry saw year-over-year declines in installed capacity growth in 2022 largely due to supply chain challenges.

With rapidly increasing demand, solar equipment manufacturing lead times are only going up, resulting in more project delays and complexity for solar developers. The industry is also competing for necessary equipment with several other kinds of business projects; items like medium voltage switchgear, panel boards and disconnect switches are also used for data centers, crypto mining, as well as general building construction.

How do developers bring predictability to their procurement strategy as demand increases and supply constraints grow? How do they get ahead of increasing lead times that are causing delayed projects? It all boils down to the right planning.

Future project visibility

Traditionally, developers have utilized engineering, procurement and construction (EPC) firms to secure necessary materials, such as racking, inverters, switches and more, on a project-by-project or just-in-time basis. Procuring on a transactional basis like this was largely effective because there was ample supply and viable competitors, ensuring you always got the best price. But because of supply chain disruptions and manufacturing lead times, waiting to hire the EPC is no longer an option if projects are to be delivered on time. To solve this, developers need to plan ahead.

Looking at their project pipeline over the long-term is critical, such as assessing equipment needs for projects 12 or more months down the line and placing those orders with suppliers today. Developers need a team looking specifically at strategic commodities, tracking the markets for trends, pricing and lead times, to successfully forecast supply needs a year out. Most, if not all, equipment needed for 2023 projects should already be ordered, and developers should be assessing/forecasting their supply needs for 2024 projects, in order to meet customer expectations and mitigate any supply chain issues that could arise.

This visibility and proactive procurement strategy ensures a secure supply of equipment that helps reduce extended lead times and delays to meet customer expectations, while also allowing the EPC to work more efficiently by focusing on other critical project tasks.

Standardization is key

In solar development, equipment standardization is key, where possible. While examining future projects, developers also need to look at the bill of materials to see what equipment will be needed and when. Even with diverse, client-driven design customizations, standardized building blocks of equipment and material allow for design flexibility while mitigating market conditions.

Shifting to this long-term procurement strategy allows you to standardize what equipment or manufacturers you’re using for a portfolio or pipeline of projects. This creates predictability in development as well as design processes and pricing, as opposed to waiting for an EPC to procure what’s available at the time of construction.

Standardizing what racking, modules or inverters you are using in advance across a portfolio can result in the design, permitting and construction documentation being completed before the projects start, greatly reducing project lead times and accommodating for unanticipated delays. Using the same components across projects also reduces risk when making large orders because, in worst-case scenarios, the equipment can always be integrated into any of the other projects in your pipeline. Having this predictability allows you to more accurately quote customer projects, navigate permitting and design roadblocks, and create repeatability in projects down the pipeline, which simplifies going to market.

Standardizing suppliers and equipment requires extensive collaboration between the construction, engineering, operations and supply chain teams, but certainly pays off with more efficient business processes and successful, on-time project deployment.

Forging strategic partnerships

So, what’s the best way to secure a long-term supply chain and standardize processes?

Particularly at a time of increasing supply chain uncertainty, forming deep partnerships with supplier and solar equipment manufacturers will be critical to ensuring long-term access to necessary equipment, keeping up with customer demand and remaining competitive in the market.

Consistently ordering project material a year or more ahead and forecasting what equipment is available can lead to a lot of upfront costs and time. Entering into an agreement with a manufacturer or supplier can not only secure supply, but it can reduce upfront cost expenditures by allowing the developer to pay as the orders are fulfilled for each project. It also eliminates the need to find new suppliers or equipment for each deployment.

We’ve taken on this exact approach to ensure our own success — we’ve signed a one-year agreement with racking manufacturer PanelClaw to provide racking for a 150 MW portfolio we’re deploying over the next year. Similarly, we’ve entered into an agreement with panel manufacturer Qcells to support our pipeline of ground mount and canopy projects over the long-term.

With a push toward domestic supply chains on the horizon, these partnerships will be even more critical as demand grows and supply shrinks. Our partnerships with PanelClaw and Qcells are long-standing, but developers need to promptly foster these relationships as these issues continue to impact our industry.

Navigating the solar procurement market is a challenge for any developer, so planning smarter and more holistically is crucial in the ability to meet demand. Long-term procurement strategies are largely in action for modules with utility-scale projects, but it will need to become a wide-spread reality among commercial and regional developers, to continually scale and serve customers, while overcoming the supply disruptions in our industry.

Carl Newton is VP of strategic procurement & estimating at DSD Renewables.

— Solar Builder magazine

[source: https://solarbuildermag.com/featured/proactive-procurement-long-term-purchase-strategy-supply-chain-risks/]


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