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As SolarCity turns giant, call goes out for supply chain

When the SolarCity factory is running full-tilt two years from now, it will be the biggest solar panel plant in North America.¶ And to run at full speed, the plant will need an elaborate network of suppliers and service firms to support its operation – one that SolarCity will have to build essentially from scratch. ¶ As the shell of the sprawling SolarCity factory – the size of eight Home Depot stores – is steadily rising, the task of building a supplier network for the plant is in the much earlier stages, with the company’s push to find local companies that could become part of that supply chain expected to kick off in less than two weeks.

While the supplier and support network have been largely out of the spotlight, shunted aside by the construction of the million-square-foot factory, the supply chain will be a key part of the SolarCity project, providing almost as many jobs as the factory itself.

“This is a big deal,” said Dottie Gallagher-Cohen, president and CEO of the Buffalo Niagara Partnership, which has been working behind the scenes with SolarCity executives to lay the groundwork to identify and cultivate a locally based supplier network.

“It’s the beginning of the beginning. The potential is great, because they’re going to be buying hundreds of millions of dollars in supplies. They’ll use a lot of stuff.”

It’s in SolarCity’s interests to buy local, too. As part of the deal the solar energy systems installer struck with the state for $750 million in incentives to build and equip the South Park Avenue factory, SolarCity agreed to bring 2,900 jobs to the Buffalo Niagara region, with 1,460 of the positions at the plant and another 1,440 jobs at local suppliers and area companies that provide support services. If SolarCity doesn’t meet its job targets, the company could face penalties of as much as $41 million a year.

As a result, SolarCity is expected to build an “entire ecosystem” of suppliers in the Buffalo Niagara region, said Alain E. Kaloyeros, the president of SUNY Polytechnic Institute and Gov. Andrew M. Cuomo’s point man on the SolarCity project.

‘Plenty of conversations’

That ecosystem can range from companies that supply materials to the factory, from the specialized glass used to make the modules to the aluminum casing that makes up the frame of the solar panel and the backing sheets that are applied to each panel to protect it from exposure to heat and the weather. The plant will need a variety of suppliers to provide it with the chemicals used during the production process, as well as a range of industrial gases. The plant will need cleaners and security personnel. An estimated 200 to 250 trucks will stop at the plant each week.

“We have a bill of materials that has probably about 30 items,” said Christopher Beitel, executive vice president at Silevo, the SolarCity subsidiary that will produce the solar panels in Buffalo.

And while few Western New York companies currently do work as suppliers to the solar panel industry, their products and services, which now go to other types of advanced manufacturers within the region, could be adapted to serve SolarCity, said Howard A. Zemsky, president and CEO of Empire State Development.

“There are a lot of opportunities for chemical suppliers and other suppliers that Western New York is pretty rich in,” Zemsky said.

Praxair, for instance, has an extensive presence in the Town of Tonawanda and is a major supplier of industrial gases. DuPont, which has plants in the Town of Tonawanda and Niagara Falls, makes solar panel backing sheets that are made out of Tedlar, a material produced at the company’s Yerkes plant on Sheridan Drive.

“There are plenty of conversations going on between SolarCity and potential suppliers,” Zemsky said. State and company executives declined to identify potential suppliers because contracts haven’t been signed.

SolarCity also could be a magnet to lure other suppliers from outside the region.

“Their presence will be a good attraction tool for us,” said Paul S. Pfeiffer, a spokesman for the Buffalo Niagara Enterprise business development and marketing group. “There are companies that will want to be here because they’re here.”

The state and the Partnership also have been working with SolarCity to better understand the types of supplies and services the Buffalo plant will need. “We’re bringing to bear some local knowledge, so we have better understanding of the supplies they need and can help connect them to local industry,” Zemsky said.

But even if local suppliers have the technical capability to do work for SolarCity, they also will have to be able to produce in those goods in the high volumes. The solar module plant is expected by 2017 to be producing enough solar panels each year to generate 1 gigawatt of electricity, or enough power to supply about 750,000 homes.

That’s a lot of solar panels. The SolarCity plant’s capacity is roughly equal to all of the solar panels produced in the United States in 2013, according to GTM Research. The SolarCity factory will have the capacity to make 500,000 silicon wafers and 10,000 solar panels per day, once it reaches full production.

“The question is how many local companies produce the supplies they need and in the volume that they need,” Gallagher-Cohen said.

The SolarCity project, along with nine other U.S. solar panel production projects with a total capacity of just under 1 gigawatt that were unveiled last year by other manufacturers, are part of a revival of domestic solar panel manufacturing, following a difficult period that saw more than 20 U.S. producers go out of business since the summer of 2011, when Solyndra, the failed solar panel-maker that received a $535 million U.S. Energy Department loan guarantee, filed for bankruptcy.

U.S. manufacturers now produce about 3 percent of the world’s solar panels, with China holding a dominant 70 percent share of the market, according to the International Energy Agency.

Consequently, the U.S. solar panel supply base is fairly small. About 75 U.S. factories make the primary components for solar panels, from polysilicon to wafers and inverters, according to the Solar Energy Industries Association.

“Ten years ago, when the venture investment started to really roll in to solar, there was a lot of exuberance and there was a lot of interest from glass suppliers and aluminum extrusion suppliers, all these types of things,” Beitel said. “As there were challenges in the marketplace in terms of technology bets and we saw the emergence of Asia, a lot of the supply chain here slowed down and moved over to Asia.”

Saving on shipping costs

SolarCity’s road map to outfitting and supplying the Buffalo plant has its roots in Hangzhou, China, where the company operates Silevo’s small-scale solar panel factory, which has a capacity to produce enough solar panels annual to generate 32 megawatts of electricity, just 3 percent of the expected production of the Buffalo facility.

“We have partners that are there. We know our bill of materials. We know our requirements. We know our products and road maps,” Beitel said. “It’s been out getting the lay of the land in terms of how economical and how much the scale and what types of win-win partnerships can be formed here in the U.S.”

And partnerships with suppliers in Buffalo Niagara are even more desirable, Beitel said.

“Think of the savings you can achieve by using a local supplier network instead of having to pay to ship things from other places,” Kaloyeros said.

Those potential savings are especially important to SolarCity, which is scrambling to reduce the costs of its rooftop solar systems to the equivalent of $2.50 per watt within two years – a level where company executives feel its products will be competitive with utility generated power even with a planned elimination of a 30 percent federal tax credit for residential installations at the end of 2016. SolarCity’s costs averaged $2.95 per watt during the first quarter of this year, and company executives believe that manufacturing its own supply of high-efficiency solar panels will help the company meet its 2017 cost target.

“There’s a natural tendency for us to engage with New York-based suppliers,” Beitel said. “Obviously, from a logistics point of view, you’re going to be much more competitive if you’re trucking glass from somewhere down the street, than if you’re importing it from New Mexico or wherever it may be.”

A big part of the SolarCity project is jump-starting the U.S. supplier base.

“It’s been really exciting to meet with executives of U.S.-based firms who play in the space but just haven’t played because there hasn’t been a U.S. presence in terms of large-scale manufacturing,” Beitel said. “There’s been a lot of R&D and early ventures that haven’t necessarily scaled. So the fact that we can come back with the overall story and the size and the scale and the overall commitment that we’re showing makes them feel like this is really viable.”

“Some of them are multinational and they have most of their manufacturing located in Asia,” he said.

“Others are like Guardian Industries. They are based in Michigan, and they do a lot of architectural glass and windows,” Beitel said. “They played in solar 10 years ago. But the U.S. manufacturing aspects didn’t scale like they thought and they put it on hold. Now that we’re coming back, and coming back in a big way, they’re excited again.”

Compiling a database

Solar panels are covered by a special type of glass the protects the modules against the elements and helps maximize the efficiency of the unit that converts the sunlight into electricity. Solar glass manufacturers tend to locate near the solar panel factories they supply because of the high shipping costs.

SolarCity’s rapid growth and its position as the dominant installer of residential rooftop systems and New York’s massive investment in the project, is spurring interest, as well.

“Even when they were involved 10 years ago, it was still a bunch of small players. We knew it was going to grow, but you were still placing bets,” Beitel said. “Solar panels have their boom and busts, but the fact is that SolarCity is growing so fast that we can never keep up.”

To jump-start the effort to build a local supplier network, the Partnership is sponsoring a presentation by Vinayak Gupta, vice president of supply chain at SolarCity, on June 18 at the Hyatt Regency Buffalo. At the event, the Partnership will distribute “intake forms” on which local companies interested in becoming suppliers for the plant can outline their capabilities and qualifications.

The business group plans to compile that information into a database that SolarCity then can use to assess the potential for local companies to supply the plant, Gallagher-Cohen said.

“Really, it’s looking at assessing their capabilities, especially in New York, they don’t necessarily have products that are plug and play because they don’t serve the solar industry,” Beitel said. “But they have the competency and they have the interest. If there’s an ability to partner and figure out win-win scenarios, they want to make that investment.”