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BFD Expert Voices - Climate Deals

BFD Expert Voices

Federal agents seized nearly $500 million worth of solar modules and other imports in fiscal 2022 due to forced labor concerns, U.S. Customs and Border Protection tells Alan.

Why it matters: “This is the most difficult renewable procurement environment of the past 15 years,” says Reagan Farr, head of Nashville-based solar developer Silicon Ranch. 

What's happening: Customs in June began stopping virtually all shipments from the world's largest module manufacturers because the shipments violate a new law meant to punish China for its treatment of Uyghurs (known in short as the UFLPA). 

China supplies about 80% of the global solar module market, and three manufacturers — Jinko, Longi and Trina — account for about half of the U.S. solar supply, consultants say.

Last year's Customs and Border Protection (CBP) crackdown halted that flow overnight. These types of seizures previously were only sporadic and low volume, according to industry sources. 

CBP withheld 1,592 entries valued at nearly $500 million identified under the UFLPA in fiscal 2022 (ending Sept. 30), an agency spokesperson said in an email. 

Be smart: The impact is falling heaviest on utility-scale developers, who depend on imports.

Between the lines: The volume of seized solar components amounts to as much as 1 GW of capacity, or 1/24th of the solar capacity installed in 2021. But it's not just about what's been seized. 

Since these detentions began, major module manufacturers have simply stopped sending their product to the U.S. 

Their rationale: Why risk product detention when there are open markets elsewhere?

For example: Jinko, one of the largest manufacturers, halved its planned exports to the U.S. in 2022 after its products were detained, executive Charlie Cao said during the company's Q3 earnings call.

Meanwhile, U.S. manufacturers, such as First Solar, provide just a fraction of the country's module supply, and new factories will take years to come online. 

Residential and C&I solar installers have wider margins and smaller orders, which enable them to buy higher-cost panels from domestic manufacturers. 

Bottom line: If you include the volume of modules that are simply not being sent to the U.S. anymore, imports are down by at least 12 GW — or half of all the solar capacity installed in 2021, industry sources tell Alan.

A separate U.S. Commerce Department investigation into tariff circumvention has exacerbated the slowdown.

“America’s clean energy economy is being hindered by its own trade actions,” Solar Energy Industries Association president Abigail Ross Hopper said.

1 big thing: U.S. solar shift hamstrung by forced labor law

Stellantis, the Netherlands-based parent company of Jeep, Chrysler and Fiat, signed a binding supply agreement with Element 25 to supply battery materials for electric vehicles, Alan writes.

Why it's the BFD: Commodities markets are volatile. That's unleashed a furious arms race between automakers seeking to lock down long-term supplies for the raw materials needed to build EVs.

What's happening: Element 25 agreed to ship 45 kilotons of manganese sulphate monohydrate to Stellantis over five years, starting in 2026.

Manganese is used as a stabilizing material in EV battery cathodes.

Stellantis, meanwhile, committed to an equity investment in Element 25.

Of note: The materials will come from a mine Element 25 operates in western Australia, and the company plans to build a facility to process the materials in the U.S.

Meanwhile: Stellantis has signed supply agreements with Controlled Thermal Resources, a U.S.-based lithium hydroxide producer, as well as GME Resources and Vulcan Energy Resources, Australia-based battery material suppliers.

Stellantis in May announced a $2.5 billion joint venture with Samsung SDI to build a battery plant in Indiana.

Between the lines: The race for battery materials is a race to reduce reliance on China.

China dominates the battery supply chain, from mining and processing raw materials to building batteries.

By the numbers: Beijing controls more than 50% of the global market's lithium, cobalt and graphite processing capacity; 70% of production capacity for cathodes; and 85% production capacity for anodes. 

In all, China produces about 75% of the world's lithium-ion batteries.

Context: GM last summer inked battery material deals with suppliers based in South Korea and South America.

Ford has also entered agreements with South Korean manufacturers, though it's also considering building a battery plant with China-based CATL.

2. The BFD: Stellantis paves road for EV growth

Illustration of a car with a remote control battery compartment in the top

The U.S. last year saw a 23% drop in new solar installations, per a December market report from Wood Mackenzie.

That's an enormous reversal. The country in 2021 saw a 19% increase in solar capacity. In 2020, new capacity soared 43%.

The solar industry's main trade group, the Solar Energy Industries Association, cites Customs enforcement of the forced labor act as a chief reason. 

What they're saying: "There has been limited information from Customs about what documentation is acceptable, and no one seems to know how to navigate UFLPA, regardless of the provenance of the polysilicon," Christian Roselund, senior policy analyst at consulting firm Clean Energy Associates, tells Alan.

But, he adds, that might be changing for at least one manufacturer.

What's next: Customs in November began releasing shipments it'd detained from Jinko. 

All eyes are on whether shipments from other companies, such as Longi, will soon be released — even as investors and developers remain intensely wary of new large-scale detentions.

👀 What we're watching: If Jinko, after its experience, is slow-pedaling any new contracts to send supplies to the U.S., insiders tell Alan.  

3. State of play: the China solar problem 

Illustration of a tractor trailer with a Chinese flag reflected in the side mirrors

🏈 NFL’s Texans to buy carbon credits: The Houston Texans will buy offsets from Occidental Petroleum to offset the team’s air travel over the next three years, per Bloomberg.

The credits are tied to a direct air capture project that Occidental is building in West Texas. Occidental expects to finish construction next year.

📈 SPACs bounce back?: There were 17(!) climate-tech SPACs announced in Q4. This after an awful year in 2022 for climate-tech SPACs.

What drove this late bumper-crop of SPACs? There was a new buy-back tax in the IRA. Plus, some blank-check companies were nearing the end of their two-year lifespans. Climate Tech VC dives into the details.

☀️ Ground-mounted solar panels: Erthos is supplying the country’s first utility-scale solar project with panels installed directly on the ground, per Canary Media. 

The project, being built in Texas by developer Industrial Sun, will eliminate what Erthos says is “unnecessary materials and risks” associated with more traditional racking and tracking systems.

🚌 Berkshire Hathaway sells more BYD shares: Warren Buffett’s investment empire offloaded roughly another 1.1 million H-shares in BYD, the China-based electric vehicle manufacturer, per Reuters.

BYD’s been an investment darling, vastly outperforming Tesla and upstarts like Rivian. However, Berkshire has steadily cut its holdings in BYD, prompting speculation whether Buffett is merely cashing out or sees warning signs.

BYD has established a footprint in the U.S. building electric buses.

4. 🌡️ Temperature check

Illustration of the sand from a sand timer filling the temperature scale on a thermometer.

• Caban Systems, a Burlingame, Calif.-based energy storage developer, raised a $51m Series B led by BCP Ventures. The Ontario Power Generation Pension Fund, Ember Infrastructure, Portfolia and Inspiration Ventures participated. https://axios.link/3Iv9Yq5 

• Impaqto Capital, a Quito, Ecuador-based early-stage venture firm focused on the “missing middle” of fundraising, raised $2m for its Capital Fund I. The fund will target ag tech and environmental startups in Bolivia, Colombia, Chile, Ecuador and Peru. https://axios.link/3ilaxZ1 

• New York Ventures, part of the State Small Business Credit Initiative, is launching a $30m pre-seed and seed matching fund program. It’ll invest $50k to $250k in companies to match private investments. Climate tech and ag tech are among the program’s nine focus areas. https://axios.link/3CBbD9L 

• OceanSound Partners invested in Gannett Fleming, a Harrisburg, Pa.-based provider of infrastructure consulting services. https://axios.link/3w7Bq61 

• UNSDG Acquisition, a decarbonization and digitalization SPAC chaired by James Boettcher, withdrew registration for a $100m IPO. https://axios.link/3GtC6qQ

• A subsidiary of Castleton Commodities, a Stamford, Conn.-based energy commodities merchant, acquired a majority stake in S4 Energy BV, a Netherlands-based owner and operator of large-scale storage systems. https://axios.link/3VQmiUQ 

• Tianqi Lithium, a Chinese lithium producer, agreed to buy Australian lithium explorer Essential Metals for A$136m. https://axios.link/3ZmXdnp

• The African Development Bank approved $19.2m in funding for Madagascar for climate resilience projects. https://axios.link/3Zpimxa 

• Chevron, the San Ramon, Calif.-based energy producer, and Hyzon, a Rochester, N.Y.-based manufacturer of hydrogen fuel-cell powered commercial vehicles,  invested in a planned waste-to-hydrogen production facility from Raven SR 1 in Richmond, Calif. https://axios.link/3QuD0rY 

Chevron and Hyzon are existing investors in Raven SR. The three companies formed Raven SR 1, with Chevron investing $25m for a 50% stake, Raven SR investing $15m for 30%, and Hyzon $10m for 20%.   

• Breakthrough Energy extended $500k to NextGen Highways, which is developing national- and state-level coalitions to advocate for building renewable electric transmission infrastructure in existing rights of way, such as grassy areas alongside highways.

5. Hot deals

• Spruce Power, the Houston-based solar developer formerly known as XL Fleet, appointed president and director Christian Fong as CEO effective Feb. 1. Fong succeeds Eric Tech, who will remain on the board of directors. https://axios.link/3CxQbCB 

• Baker Hughes, the Houston-based energy services company, hired Ganesh Ramaswamy as EVP of its industrial & energy technology division effective Jan. 16. Ramaswamy was previously president of global services for Johnson Controls. https://axios.link/3vMT4eP 

6. It's personnel

☕ It's Monday and we're back. Let's dig in.

🎥  Alan watched "Tár" this weekend. Twenty minutes too long, but an absolute jaw-dropper of a performance by Cate Blanchett. Worth the watch.

Thanks to Michael Flaherty and Phoebe Neidl for today's edits.

And thank you for reading Climate Deals! Please share with your friends, family and energy commodities traders.

January 09, 2023

1 big thing: U.S. solar shift hamstrung by forced labor law