Customers for solar panels and battery systems will be navigating various supply chain delays and disruptions from the pandemic for some time. Supply chain validation has become more critical than ever before as buyers of equipment with overseas supply chains must assess and manage their risk so as not to get caught short due to supply chain, logistics or trade case challenges.

Much of the equipment or subcomponents for racks, inverters, transformers and batteries required originate in China. There are still many solar modules and inverters manufactured in Southeast Asia, South Asia and Korea, as the cost advantage is needed to achieve slim project IRRs, even with the existing trade case in place.

Solar, wind and storage developers can survive and thrive both during and after the COVID-19 outbreak with lessons from international sourcing experiences that have come before, including the SARS and H1N1 viruses, the solar tariffs and trade wars.

While CEA is a U.S.-based entity, our Asian supply chain headquarters in Shanghai saw firsthand the most significant supply chain disruptions back in January, around the time of the Chinese new year. But as of today, most of the supply chain in China is up and running and has recovered substantially since February and March.

Reuters reported on May 15 that factory output there rebounded in April to 3.9% above a year ago, over twice what had been expected after a 1.1% fall in March. The China National Bureau of Statistics reported even higher production numbers and a 3% uptick in exports in April. Our 85 engineers worldwide have been back in the factories since late February in China, and agree that overall manufacturing in the solar sector has returned to above 90% of factory capacity in almost all Southeast Asian manufacturing facilities.

Despite a first quarter that was quiet in terms of cell capacity expansions, CEA estimates nearly 180 GW of module capacity will be online by the end of this year in China alone, accompanying almost 185 GW of cell capacity thanks to a combined 66 GW of new cell expansions announced by Aiko and Tongwei. Among suppliers continuing multi-GW expansions are Jinko Solar and LONGi, with Risen and Trina Solar also moving ahead.

In the long term, our current crisis will require that companies all over the world, in virtually every sector, constantly assess their supply chain risk amid global uncertainties—whether a trade war or a pandemic. The good news is that even while some projects have been delayed as a result of the pandemic, the demand for renewable energy has never been stronger.

A few key tips to keep in mind as your company navigates the ever-evolving supply chain today and going forward:

Diversification remains critical

Traditionally buyers have been advised to dual-source, depending on volumes and pricing. As the pandemic ebbs and flows across different geographies and different economies open and closed, the decision to diversify to not just two, but three or more suppliers across a diversity of projects, rather than single-sourcing your entire portfolio may be the right choice.

There are different ways to slice and dice risk. While Asia broadly continues to see a modest pickup in manufacturing activity through July alongside China’s continued uptick, rising infection rates in key export destinations are still being monitored carefully.

Decisions to increase overseas sources require extensive due diligence and cost research, and a more streamlined approach to subcomponent manufacturer partnerships. They may require more risk, and aggressive pricing by emerging suppliers.

Using these new suppliers may require extra time to convince banks of their bankability credentials or more extensive upstream QA/QC measures if previous financing requirements were dependent on one stable supplier. Even so, the case for supplier diversification just became stronger.

Exercise caution and plan for uncertainty

For months now, the upstream impact of the COVID-19 pandemic has been limited to delays generally measured in weeks. However, the market may experience extended shutdowns of individual factories that lead to suppliers exercising other factory locations or rushing new OEM relationships with more thorough due diligence or qualification. Consequently, caution is due.

Selecting a supplier based on their designation as a Bloomberg New Energy Finance Tier One supplier, for instance, misses out on too many of the elements that any good financier or developer should find important, including module quality.

Future COVID-19 restrictions are unpredictable. While many remain hopeful of avoiding a new outbreak in China, and that most nations will implement strategies to contain the spread of the disease, there will still be substantial noise in the system

As the industry innovates, there is no shortcut to quality

In the midst of these earth-shaking events, downstream buyers of equipment are simultaneously witnessing an unprecedented degree of innovation across the solar and storage industry, from wafer size to cell process to cell-to-cell interconnection and more. The speed of change combined with unpredictable pandemic-related disruptions have increased pressures to ramp up production to meet demand, in case of a stoppage in some area of critically needed supply. Due diligence can build trust, so the old adage of “trust but verify” necessitates that a robust QA program of daily in-line production monitoring is a requirement.

As any buyer implements a qualify verification program, there is no substitution for experienced third-party inspectors who follow internationally accepted practices and are independent of manufacturing facilities. Inspectors can screen out defects that can threaten performance or safety. A thorough Quality Assurance program includes daily inspections, stringent AQL guidelines and internationally recognized manufacturing standards which are documented in the contract in advance. Furthermore, all parties involved must comply with the U.S. Foreign Corrupt Practices Act and be able to delineate a comprehensive corporate ethics policy over multiple years to avoid any conflict in interest.

A natural consequence of the shifting landscape from COVID-19, as during previous disruptions, will be a flight to quality suppliers at scale with localized supply chains. When there aren’t enough such suppliers to go around, however, working with emerging suppliers may be possible if buyers are prepared with contingency planning to navigate an ever-expanding global supply chain.

These supply constraints will hopefully end soon, but tariffs, pricing and other challenges will always affect quality and supply. As new constraints emerge, a diverse supply chain composed of high-quality suppliers reduces risk and increases an investor’s confidence in a profitable project.

About the author: Andy Klump is the CEO and Founder of Clean Energy Associates, based in Shanghai. He has 17+ years of supply chain experience in China and is an expert on sourcing solar modules, racks, inverters, transformers, and energy storage batteries from China and elsewhere in Asia without sacrificing quality.