Qcells, a leading South Korean solar PV manufacturer, signed an eight-year strategic alliance with Microsoft. Under the Engineering, Procurement and Construction (EPC) agreement, Qcells will supply Microsoft with 12GW of solar modules and EPC up until 2032. The contract includes a 2.5GW module and EPC services commitment previously announced in January 2023. All the panels will be supplied by Qcells’ fully integrated solar supply chain factory in Catersville, Georgia. With this agreement, Microsoft becomes one of the largest purchasers of renewable energy in the world, in line with its commitment to 100% renewable energy consumption by 2025.

A Strong US production base

Qcells is one of the few companies that has a completely US-based solar supply chain and has invested to further strengthen it. In January 2023, the company announced a USD2.5 billion investment into its Cartersville facility. Once commercial production begins, at the end of 2024, it will have a fully integrated capacity of 3.3GW per annum. Additionally, in 2023 another investment was made to extend the annual solar panel production at its Dalton facility, in Georgia to 5.1 GW. Overall, by the end of 2024 the company will have an 8.4GW annual production capacity in the US. Furthermore, Qcells’ parent company, Hanwha Solutions, has invested USD147 million into a new advanced materials manufacturing facility in Bartow County, Georgia, which will supply Qcells’ nearby facilities.

A Challenging Solar Environment

This agreement supports Qcells’ growth in the US but also ensures that Microsoft has a stable supply of solar modules to achieve its ambitions. The solar industry in the US has faced challenges over the last few years with high interest rates, supply chain disruptions and trade disputes. In 2022 the US prohibited the import of goods manufactured through forced labour in China’s Xinjiang Province, this included a vast amount of polysilicon used in solar panels. Subsequently, it led to a fall in the installation of utility scale projects in the US.

Rho’s Evaluation

For this supply deal, Qcells is eligible for substantial federal tax credits under the Inflation Reduction Act (IRA): the Advanced Manufacturing Production Tax Credit (45X MPTC) and the Advanced Energy Project Investment Tax Credit (48C ITC). The 45X MPTC provides tax credits for each clean energy component domestically produced, while the 48C ITC provides a tax credit for purchasing and commissioning property to build an industrial or manufacturing facility. However, Qcells is only able to claim one of the two. Considering the size of the deal we expect the company to opt for the 45X MPTC, as it offers a per-unit tax credit for each clean energy component domestically produced and sold by a manufacturer. The scope of tax credits received for Qcells is larger than under the 45X MPTC compared to the 48C ITC.

With the introduction of the IRA in 2022, the US has witnessed more investments and expansion of its solar industry. Qcells building a fully integrated solar supply chain, along with other major investments in the US, shows that Biden’s “made in US incentives” are working. Additionally, supply chain disruptions and US trade policies banning many Chinese components act as further incentivisation to increase investments and relocation of solar supply chains to the US. With the price of photovoltaic modules at an all-time low, we expect the US’ solar generation capacity to continue increasing strongly over the next few years, as its domestic production capabilities strengthen.

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Sources: Qcells