SEPA2007JayPPres

Drivers for Location of PV Manufacturing : 

Drivers for Location of PV Manufacturing Solar Power 2007 September 27, 2007 Navigant Consulting, Inc. 1801 K St NW, Suite 500 Washington, DC 20006 (202) 973-2400 www.navigantconsulting.com

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Acknowledgements NCI would like to thank NYSERDA for providing the funding to undertake this research effort.

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2 1 “Carrots” Motivation Table of Contents 3 Incentives 4 Analysis

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2 1 “Carrots” Motivation Table of Contents 3 Incentives 4 Analysis

The goal of this report is to gain insight on how PV manufacturers choose where to locate or expand manufacturing plants.: 

The goal of this report is to gain insight on how PV manufacturers choose where to locate or expand manufacturing plants. Motivation Step 1: Estimate PV labor intensity Step 2: Review PV manufacturing incentives Step 3: Conduct analysis to identify and test key drivers

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2 1 “Carrots” Motivation Table of Contents 3 Incentives 4 Analysis

To understand the motivation to lure jobs, NCI first studied PV’s labor intensity. : 

To understand the motivation to lure jobs, NCI first studied PV’s labor intensity. Before examining the incentives used to lure PV manufacturers, it is important to understand the motivation for offering incentives – jobs. This study first estimates labor intensity along the value chain and uses market data to obtain a rough estimate of worldwide, direct PV employment. For the Arizona Department of Commerce, NCI used it’s LCOE model and PV manufacturing cost model to estimate labor intensity over time*. “Carrots” Wafers Distributor System Design & Integration Dealer Installer Downstream Supply Chain Cells Modules BOS Components Upstream Supply Chain * Please see the appendix for NCI’s job calculation methodology

NCI expects employment rates to decline over time as PV manufacturing becomes more automated and installation practices mature. : 

NCI expects employment rates to decline over time as PV manufacturing becomes more automated and installation practices mature. “Carrots” » Labor Intensity Notes: 1. One job-year is equal to 1960 hours (40 hours per week, 49 weeks per year) 2. System Integration includes system integration, design, and distribution 3. Details on NCI’s method are in the appendix Source: Navigant Consulting, Inc. estimates, June 2006. Residential Market Commercial Market

Applying NCI’s PV employment analysis to PV market data puts the direct employment due to PV at ~64,000 jobs, worldwide in 2006.: 

Applying NCI’s PV employment analysis to PV market data puts the direct employment due to PV at ~64,000 jobs, worldwide in 2006. “Carrots” » Estimation of Current Employment Sources: NCI PV Services program and NCI estimates. *Does not include consumer indoor applications. Direct Jobs Due to PV in 2006

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2 1 “Carrots” Motivation Table of Contents 3 Incentives 4 Analysis

Several states have incentives specifically to lure PV and other renewable energy manufacturers.: 

Several states have incentives specifically to lure PV and other renewable energy manufacturers. Incentives » United States

Some groups have bonuses on installation based incentives for locally manufactured equipment.: 

Some groups have bonuses on installation based incentives for locally manufactured equipment. Incentives» Installation Based and Germany

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2 1 “Carrots” Motivation Table of Contents 3 Incentives 4 Analysis

NCI first drafted a potential list for industry to comment on. : 

NCI first drafted a potential list for industry to comment on. Analysis » Potential Plant Location Drivers ?Drivers? Proximity to Market PV Manufacturing Incentives Location is Where Company was Founded Cheap Labor Cheap Land Proximity to University or R&D Facilities Economic Development Grants/ Incentives Access to Raw Materials and Resources

Manufacturers indicated that proximity to strong markets is the key driver for plant location. : 

Manufacturers indicated that proximity to strong markets is the key driver for plant location. Analysis » Industry Perspective Source: Interviews with two module manufacturers, a large semi-conductor company, and NYSERDA, May and June 2006 and September 2007 Several common themes developed Many countries and regions are offering strong incentives (free land, tax holidays, reduced power rates, etc). Above all else, the main differentiator is market potential. Thus, if a country or region wanted to attract manufacturers, it must first create a strong PV market. When considering plant expansion, proximity to large markets is again a key driver. In regards to incentive bonuses for locally produced equipment, some installers do not want a module brand forced upon them. Industry Perspective

Market data suggests a correlation between supply and demand. : 

Analysis » Testing Industries’ Statements Source: NCI PV Services, September 2007 and NCI Analysis, September 2007 To test industries’ statements, NCI used 2006 market data to correlate shipments to demand. With the exception of German and Japan (which can be attributed to how the PV industry has evolved) there appears to be a strong correlation between shipments and demand. Methodology 2006 Supply 2006 Demand Market data suggests a correlation between supply and demand.

NCI interviewed program administrators and found some success.: 

NCI interviewed program administrators and found some success. Analysis » But What about Manufacturing Incentives? Source: Interviews with incentive program administrators, September 2007 * Interviewees indicated that these programs were the sole reason for location, merely one motivator

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Conclusions Conclusions Several states have put forth incentives to lure manufacturers. Market data supports industries statements. PV manufacturing has the potential to employ large numbers of people. Manufacturers indicated that demand is the strongest driver for plant location.

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Contact Jay Paidipati Managing Consultant phone: 202.481.7512 jpaidipati@navigantconsulting.com 1801 K Street NW Suite 500 Washington, DC 20006

NCI calculated potential PV related employment rates for the Arizona Department of Commerce. : 

NCI calculated potential PV related employment rates for the Arizona Department of Commerce. Appendix » Labor Intensity Calculation Methodology 1In the manufacturing model, a process flow details each step and its costs, with technology improvements tracked as they occur. For each step, a detailed activity-based accounting is made of material, labor, capital and overhead costs, based on material quotes, machine capability spec sheets, machine cost quotations, U.S. labor rates, and industry financial parameters. The LCOE model accounts for module prices, inverter costs, installation labor, system integration, installer margins, etc. to build total system price, based on interviews with a wide array of industry sources