In terms of environmental sustainability, and ethical working practices, there are many concerning issues affecting the supply chains for renewable energy products, and voices calling for better traceability in solar as well as other industries are growing louder. In several regions, new laws are being introduced or updated as well, to prevent problematic products/materials from being imported. Ensuring supply chains are kept free of improper practices, however, also entails responsibility on the buyer side, to ensure that legal and ethical standards are upheld. This warrants a closer look at processes of supply chain auditing, which can be used to verify the origin and quality of materials up the supply chain.
Such audits are already quite common in the PV module industry, though are typically focused on quality assurance. EPC suppliers, project owners, or other module buyers are advised to include specifications for each component to be used in a module bill of materials, and for minimum standards in production to be laid out in a detailed quality control plan. Buyers should also engage a third-party specialist to pore over these documents and send representatives to the factory to supervise production of the purchased modules. This can be a reliable way to ensure that materials specified in the contract are the ones being used, that machinery is properly calibrated and that relevant standards are being adhered to.
Given the insight into supply chains and manufacturing activities gained during these quality assurance processes, third party auditors are well positioned to add monitoring of material origins, workplace conditions and other factors to their portfolio. “It is something that comes up more and more. It is not a standard part of our inspections at the moment, but certainly something that we plan to add to our service portfolio,” says Jörg Althaus, segment manager at TÜV Rheinland. “Obviously with an announced inspection you would be unlikely to find anything of that nature. But if you are in the factory for a longer period, accompanying production of a large order for example, then it is likely you would observe any behavior that doesn’t comply with ethical as well as quality standards.”
Althaus goes on to note that TÜV Rheinland supports the United Nations Global Compact – a voluntary initiative encouraging businesses to adopt sustainable and socially responsible policies. He says the company employs internal compliance officers to be the first port of call for employees to report any suspicious activities observed during factory audits. They would then be responsible for taking the case further.
Many regions have existing laws aiming to prevent imports of what may be products of forced labor or other unethical practices, and these are now being updated in the United States and Europe, following concerning reports from China’s Xinjiang region. Buyer power can be equally effective here, and including requirements for minimum standards and third-party verification of working practices and material origins in a contract can play an important part in removing unethical practices from the solar supply chain. “In order to have full transparency there needs to be more pressure and traceability along the whole supply chain, and this would entail the requirement of audits,” says Althaus. “It doesn’t necessarily have to be enforced in law, the buying power of large EPCs/owners is quite large. If those big players can agree upon an ethical standard, I would say that is a big step.”
At the end of April, U.S. industry body the Solar Energy Industries Association (SEIA) published a “traceability protocol,” offering guidelines to manufacturers on best practices to ensure transparency across supply chains. This protocol was developed in partnership with supply chain audit experts Senergy Technical Services (STS) and Clean Energy Associates (CEA), and outlines a central role for auditing processes in allowing manufacturers to demonstrate where their materials are sourced from. “We are basically giving companies a roadmap that if they follow, they should be well positioned to provide assurance to both their customers and to U.S. customs as to where all the key material inputs in a finished module come from,” says John Smirnow, vice president of market strategy at SEIA. “That’s what this protocol is designed to do.”
Smirnow goes on to note that the protocol should be nothing new to most of the solar industry, and that SEIA’s aim is to lay down a common set of principles against which companies can be measured, and which auditors can use as a starting point. He also says that in the future, SEIA may pursue the strategy of developing a formal standard based on the protocol, but this would be a lengthy and complex process. “At this first stage it is about getting this tool out in to the public, providing companies with a resource that should help them in dealing with U.S. customs and responding to what consumers are asking for,” he explains.
SEIA’s protocol places high importance on third party audits as often the only satisfactory way to trace materials up a supply chain. Smirnow notes that existing requirements for quality assurance should not differ greatly from those outlined in the protocol. “Companies need to know where their polysilicon comes from to be able to verify the quality and purity of it, he says. “And that involves traceability.”
The difficulty for auditors lies in getting far enough up the supply chain. Third-party auditors are usually engaged by a module buyer – an EPC company or project investor – and their access to module production lines and documentation related to the products being purchased can be arranged. But having similar access to those companies supplying the module manufacturer would be a lot more complicated. “Our requirement is that we get access, accompanied by the manufacturer, to the purchasing tools – that we can see their system, electronic purchase agreements and delivery notes. So it’s certainly possible to trace the origin,” says Althaus. “From purchasing documents alone though, we may not see the full picture. That would have to come from further investigation at component suppliers, and that would not be easy.”
Another service could be developed where a module maker engages a third party to verify that materials are ethically and sustainably sourced, but would require site visits to all suppliers – which could be a complex undertaking. “It is something that I think will appear now, but it requires continuous pressure from all the buyers,” says Althaus.
Other approaches rely on companies own reporting, and though these may not have the depth of a full supplier audit including on site assessments, can provide valuable insight at a lower cost. And these also rely on buyers to push for responsible practices all the way up the supply chain. Ecovadis provides sustainability ratings to companies, requiring them to report how they manage the issues of environment, ethics, labor and human rights, and sustainable procurement, and allows companies to invite their key suppliers to also be rated. “Our model is designed to have a ‘cascading effect’ up the supply chain,” says Ecovadis Marketing Director David McClintock. “It begins with buyers, who engage Tier 1 and sometimes Tier 2 suppliers – if and when they have the appropriate contact information – and these suppliers are then encouraged to engage their own suppliers.”
For now, SEIA has publicly called on all in the U.S. solar industry to shift their supply chains away from China’s Xinjiang region, given the reports of human rights violations and lack of transparency on working conditions in the region. Proposed legislation in the United States would also create a presumption that goods from Xinjiang are produced using forced labor, requiring the importer to provide proof that it has not been – difficult to do without a reliable third-party audit.
“That is the heart of what we are calling for, when you are importing products into the U.S., you need to be able to establish where the key inputs are coming from. You need to be able to do that through an independent third party audit,” says SEIA’s Smirnow. “That is just good corporate social responsibility and governance.”
Despite the challenges, the solar industry does have experience establishing traceability in this way thanks to its history of tariffs and other measures restricting trade in PV modules and products between certain regions. The United States, European Union, and India have all placed tariffs on module imports from China at various points over the past decade, and these have led to new standards in traceability being applied.
“As part of enforcing these laws, U.S. customs has done a lot of audits of importers of foreign products, where they ask ‘where were the cells produced’, etc,” explains Smirnow. “So tracing their supply chains is something the leading manufacturers have had to do for many years.”
TÜV Rheinland’s Althaus also points out that in the past, tariffs and related incentives for using local content in the solar industry have been a key driver for traceability and inspection measures, while also warning that attempts to get around them via falsified documents or “grey” importing via other countries have been widespread.
With established third-party auditing already common, it seems the solar industry has the tools it needs to carefully monitor supply chains. And extending these beyond quality to ensure ethical and sustainable practices as well will require buyers to keep insisting these are taken into consideration. “In PV and other industries you do see more awareness and more pressure, and suppliers often advertise their sustainability measures to end customers,” says Althaus. “We have to hope that is not just greenwashing, that there is something behind it, and I think if systems are set up right, once you start it won’t go away.”
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