Red flags for green energy: What to look out for in supply chains and projects

The past few years have been a sellers’ market in the solar and energy storage market. That dynamic is changing quickly, however, as global supply chains ramp up quickly.

Clean Energy Associates (CEA) recently forecasted an 18% reduction in battery energy storage system (BESS) pricing in 2024. On the solar side, massive production overcapacity and resulting oversupply drove PV module prices down below 15-cents per watt outside of the United States; we forecast a significant drop in U.S. module pricing as suppliers continue to build new factories.

While this is great news for buyers, one should avoid getting too caught up in the excitement over low prices. Continuing to insist on high quality in suppliers, products, project design and installation remains critical. A low upfront price can be quickly undermined if product defects are found during installation and commissioning, or if major problems emerge once the equipment is in service.

To help buyers avoid expensive mistakes in this new market dynamic, here are some red-flag warning signals CEA has identified in the course of our work helping clients ensure high-quality supply chains and successful project execution over the past 15 years.

Supplier selection and contracting

The current buyers’ market means that developers will have an easier time selecting the best supplier and negotiating favorable terms. Pay particular attention to:

Quality assurance (QA): Few suppliers want a third party in their factory overseeing the quality of manufacturing, but this has become the standard in solar and energy storage contracts. Beware of any supplier who will not commit to third party QA oversight.
Factory acceptance test (FAT): Buyers should be able to negotiate the details of the FAT. Suppliers who are unwilling to be flexible in FAT procedures may also be inflexible when it comes to supporting later project stages.
Warranty: Vague or inflexible warranty terms will turn any future warranty claim into a time-consuming and frustrating process. For example, energy storage warranties should not be immediately voided due to a single thermal deviation.

Product quality and definition

With suppliers under increasing competitive pressure to reduce prices, there are strong incentives to cut corners on input materials and product quality. Protect yourself by paying close attention to the following:

New factory: While they look great, new factories often experience bumps in the road that can result in higher defect rates and shipping delays. This is particularly true of factories built in new geographies, using new labor pools and new supply chains. Make sure your contract clearly defines where your order will be manufactured and opt for more established facilities whenever possible. At a minimum, insist upon stringent factory audits, quality assurance oversight, and pre-shipment testing.
Bill of materials (BOM): Insist on a clear definition of your project’s BOM. Reluctance by a supplier to commit to a specific BOM may indicate an immature product or supply chain. An insistence on using multiple BOMs for a single project can lead to performance inconsistencies and troubleshooting challenges.
Definition of quality: A clear and objective definition of which deviations from the specification constitute a defect eliminates arguments and ambiguity during production monitoring, pre-shipment inspection and shipment acceptance. If your supplier won’t commit, find one who will.

BESS integration

Energy storage projects are more complicated than solar, both technically and commercially. The selection of an energy storage integrator is critical to the success of any BESS project, consider the following key areas:

Warranties and performance guarantees: Most projects involve multiple, independent warranties. If your integrator hasn’t clearly explained how those warranties or performance guarantees work together or flow through from the initial buyer to the end owner, put on the brakes and figure that out before proceeding. For example, your power purchase agreement (PPA) may require 98% uptime; what if your inverter, transformer and BESS system each have non-overlapping 1% downtime, leading to 97% uptime? Are you protected or are you on the hook to pay liquidated damages?
Cell agnostic: Less experienced integrators often claim to be cell agnostic. While the specifications for energy storage cells from multiple suppliers may look nearly identical, actual performance and long-term support from those suppliers can vary dramatically. The more opinionated your integrator is with regards to cell suppliers, the better!
Duty cycles and degradation curves: Make sure you have a well-defined duty cycle documented in your contract, supported with a warranted degradation curve matched to that duty cycle. If your project has a unique use case, collaborating with your supplier to develop a customized degradation curve may take time, but it will save untold headaches down the line.

Installation quality

The clean energy industry’s growth continues to attract engineering, procurement and construction companies (EPCs) and contractors from other industries. Discovering installation problems after the fact inevitably leads to delays and costly re-work or chronic underperformance. To avoid problems before they begin, keep an eye out for the following:

Standards: Hiring inexperienced installers may lead to inconsistent work in the field. To avoid confusion, delays and finger-pointing, your best defense is to insist on reviewing and approving detailed installation and commissioning standards before construction begins.
Field testing: Problems are much easier to fix if discovered before construction crews leave the site. Tests such as electroluminescence (EL) and IV tracing for solar and capacity testing for energy storage systems can catch problems while the teams needed to fix them are still on-site.
Material handling: Solar panels are fragile, and batteries can be damaged by elevated temperatures. Make sure your installer has a plan to properly store and stage equipment onsite prior to installation.

In short, choose wisely, contract comprehensively and install carefully to avoid some of the costly and time-consuming problems that many in our industry have experienced.

Jake Edie is Vice President, Marketing at Clean Energy Associates, and an Adjunct Professor in the College of Engineering at the University of Illinois Chicago.