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You have security of supply. Covey probably is gonna get a bit better, but last year it was a real challenge of price fluctuation. Because before you gotta start buying those equipments, you're gonna commit on the fix, say, PPA. And you hope that you're gonna buy at the price, you think you're gonna buy.?

But a lot of things can happen. You have technological changes, so you need to be on the leading edge, but probably not on the bleeding edge.?Finally, you get all these ESG components. So the job of supply chain manager is getting tougher by the day. It is indeed, it's getting tougher by the day.?

You're absolutely right. It is a challenging environment. But the good news is there are ways out of this.??because wanted to talk about supply chain, we call our friends and partners of a cooler capital. We ask, do somebody doing the supply chain thing? And love said we get the best in Europe and it's as angular as there is a competitive procurement with acquittal, the guy has been doing supply chain.?

All his life is like the supply chain geek started with Toyota then, itachi ABB. After he went to light source VP is currently chair of supply chain, sustainability work stream. We set up our Europe. So the guy really is the topics that on supply chain. So just I give you one number.?I don't like the numbers, but I give you one number in 20 twenty 2 as a both 4 billion euro of converbal equipment really 4 billion.?And I?can I just show a number of that's assumed because the volatility I don't care if it was in battery pricing or solar pricing with such that the pricing were moving 10%.?That means if you get that wrong, it costs your business 400 million. And so it's not a small amount of money. Right??

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Let's bring into the conversation. Jose, welcome to the show.?

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Thank you for having me.?

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Let me basically just kick off by sort of,?I'm really interested to talk about what's been going on in the supply chain of renewable over the last few years. My own sort of experience and observation is it's just been very difficult for anyone in this industry. Whether you're trying to deploy batteries, wind turbines, solar panels,?no matter what it is. there's been problems across the supply chain. So maybe we could just good to hear your general opinion on that and how you, as a buyer at an installer of these products, how you've been managing these sort of risks in and around the supply chain.?

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Indeed, it has been a kind of hardening time for all of these supply chain professionals in especially after colleagues and breakout.?

I can say that each asset class has their own difficulties. Solar enjoyed 15 years of ever reducing price by the help of the Chinese capacity increases. But the Kobe Bryant break showed us how fragile the supply chain we have. We can also see that in dress canal blockage, and finally, Ukrainian Russian conflict. And the supply chains have been trying to manage this while maintaining the cost or reducing the cost, but ancient supply. We see four major challenges who want to buy security.?Second one is the price volatility, especially if you are in the project business, and is becoming even more difficult to predict the cost. And for a project in 2 or 3 years time. Third one is the rate of change of technology. Innovations incremental. But we see some exhibition, especially since 2019. There are new products coming into market and lost but not least sustainability is becoming a license to operate for most of the manufacturers and also investors and the developers they have been taking extreme care to protect their brandage.?

?Those four elements and all the supply chain professionals in our industry. They're trying to mitigate those around us and their to drafting a strategy. T world is collaboration. The game is different. Now. This is not spot buying to enjoy it for a long time because we have surplus capacity, not there anymore.?

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Can we go into the different technologies? And maybe let's just start with winds if I look at the wind industry. What I see is that the wind industry, particularly in the offshore area, what they've done is they have sold their turbines forward and agreed prices for long term contracts. And what they haven't done is and they've never done it is they've never actually secured the prices of their inputs. I am talking about steel and stuff like this. And the result of it, in particular in Europe is that the industry is in big trouble. I'd love to hear your thoughts are not because you're on the other side of that transaction because you're a buyer of these turbines for a vestis or a messa or whoever it is. How do you deal with that? Because you can't afford for them to go into financial difficulties because at the end of the day you need spare parts and no one am and all that to them.?

So maybe just start with a win there for star keys.?

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Is Iraq said they were hit by the commodity fluctuations. And if you look at the wind turbine offshore,?the almost 60% of material intensity,?the steal, especially after college,?another shock with the Ukrainian conflict escalated. They still played prices very high level. And the manufacturers could not pass through anymore, and then they had to digest us. And that what we see and they ended up with the negative margins. The way to balance this out is a kind of price indexation. This is balance and fair approach. Those are the manufacturers are looking for this.?As the buyer, we cannot accept the wave, riding the wave. I giving the dedicated from the fluctuation.?What we are doing, in fact, we are finding a way to damping those fluctuations. Right? I it can kind of hygiene or indexation with the kind of bandwidth.?The manufacturers are not getting directly direct the kind of pass through the rate cost. They are the buyers, but at least there will be kind of risk.?

This is a very kind of one of the best practice in the market.?

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Let's dig a bit into wind.?It takes a lot of time to get the permitting, to get all the authorization, and then probably pre sign some PP, as I don't know what. At some point you make a meeting with your team and the guy say, look, that project looks very good. It looks like, I don't know, in 6 months time we gotta reach the final investment decision. I I guess that's the moment you start talking with your suppliers or is it later in the game or before,?how do you start negotiate your contract??When you see that the project is really maturing very well,?at which point you kind of lock everything in terms of prices, technicalities, deliveries, and so on.?

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We involve manufacturers and early stage as possible because each manufacturer have similar or same class of turbines, but they have their own characteristics. Can be coming from blade, it can be coming from generic, it can be coming from design itself.?

So then we have a kind of project we are talking to every qualified manufacturer. And the recently for a project in Europe, we are also talking start to talk with Chinese manufacturers have a kind of full spectrum of our alternatives and they are comparing level as cost of energy for its solution. The study would have a wider a panel of supplier than funneling down into limited number of suppliers, but they still maintain the competition.?

Then we going to real discussion, right? I in terms of pricing, in terms of capping the price fluctuations on. Sometimes we are also using full turn key solution, right? we're also considering the winter environment factors also provide the balance of plant services.?

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Once you sign the contract and the clock starts ticking, have you experience delays? If what type of reasons they give you, what type of mitigation can you implement??

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That talked about wind, main delays related to the permitting process or the land acquisition. The manufacture related place depends from design and the frozen design if there's there or not. But we observe some disruptions due to the liberal metal internet and it can be a transformer related. It can be LED related. There is some constraint in the last couple of quarters on the blades, but the nonsense seems to be the dissolving.?

I can say that production related to the delays and getting better.?

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So that's when let's switch to salad if you want, because you are like a multi instrumental expert. The issues you have experience for solar,?the type of problem you had different from wind or some can be parallel. How do you see all of us as wind??

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There are some similarities, but solar, it is own challenges due to the production base. If you look at the contribution of China in the solar, right? If you look at political conduction, China was representing only 6% of global demand in 2005. Now we're talking about more than 90%. If you look at the modules in 2005, China was representing 2%. Now we are talking about, again, 85%. The pendulum swung to China, and everybody enjoyed this, right? I because it helped us to accelerate the solar and it was occupied at this module price and coming down.?

The buyer didn't do anything for them because learning curve of Chinese production help the industry. Now we realize that maybe this is too much concentration in China because of different reasons and we are now we have some concerns around it, but we should face it without China, so that could not gain this acceleration.?

Now is location related risks. So these major concern, but as industrial associates, solar power, Europe and the crnus, they have taken the initiative and they relaunch the solitude of initiative and to give some clarity to buyers and sellers and also create a platform to collaborate because this problem is so complicated. So it cannot be sold only by compliance. So we need a real commitment from the manufacturers. Then we need to understand that this requires a kind of joint problem solving. I'm also chaired in the southern power, Europe's supply chain transparency. It's a big responsibility because we know that solar is the most affordable, most?scalable source of energy.?

And the friction should be eliminated. And the I think we have act now find solutions, and we know that supply chains are not designed to be transparent, but we should collaborate together with all stakeholders in the value chain.

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As a buyer and the difficulty in a way is that the technology moves so fast, which is probably not the case of wind I when you're just gonna get bigger turbines at the end of the day. It's pretty much the same technology. Whereas you've got mono perk, and now they're talking about Top cone, and I just exchanges so fast and your development cycle in certain ways longer than the base of the technology.?

So probably you're gonna arrive halfway through a project and your suppliers goes up, but I've got this new panel, which is even better than the previous one. So how do you adapt to those never ending change of technology? Do you have your list of preferred suppliers or do you kind of change suppliers? So how does it work for solar??

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As you write the set, the rate of change of technology is very steep in solar. And although the improvements are in incremental, but we see more and more technology is coming to market. It started with between late 2019 2020. We first seen a large form of panels right then a 600+, which was very exacting because promise was okay, it will reduce the epc courses installation cost. But we came to know after a couple of quarters that in orders and the trackers are not ready to handle those big panels. So this requires lots of synchronization with other equipments around the solar panel. And the industry found the solution a bit late.?

This is telling us you have a project in the future, but what is the product board map of your supplier? You will assume a product of today or a product in their drawing board. Do you want to be a Guinea pig for new technologies? Or do you want to be a laggard? It's a kind of optimization. This requires close cooperation with our suppliers to have a kind of open discussion and they look into their product code maps.?They understand the risks and the benefits of the new technologies. And the plan, your project pipeline according to the road map. As you said, then the helper injunctions coming in Top one is coming. And the landscape of production changed very quickly.?If you don't keep eye on this, I you'll end up as a kind of obsolete product and probably life cycle is so short.?

You mean that the kind of not existed product when you read it a bit? It's also forbid, right? I longer blades are coming into markets and different technologies. And each new technology has their own childhood disease system. What we are doing is that we are shortest in our supplies. You cannot collaborate at each and every supplier. The tendencies that we are talking with 23 suppliers globally.?This will also give us a kind of energies. I you are using same module or same water ecosystem portfolio. If one projects delayed, you can relocate from one project to another one so that you have continuity.?

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14:58

Can I ask you this? We're talking about solar panels here. We also forget about inverters, rocking systems, cables,?et cetera. Could you talk a little bit about what's been going on in and around their supply chains.?

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Emerges becoming as a kind of big disruption bottleneck. Due to the fact is it's triggered by a chip shortage because they are using a kind of power electronics.?This is a kind of key component of any inverter.?The early started to have more than a year ago real shortage. And this is limiting capacities of the old improvement and others challenge they have transformed because for inverted station in the transformer,?there's 2 years backlog of transformer manufacturing because of the great integration of the new commercial energies and the emergent manufacturers struggling to secure their supply for that. The transform.?Some of the manufacturers very focused on the us market. They prefer to sell there because of the high margins.?There will be a kind of disruption for projects in Europe due to the inverters and so on. And also another main uses better energy storage is also another motor user integration. So the more we have better storage, I think the demand will be higher for the most.?

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16:18

You just introduce storage. And I think that's very interesting because the technology is much less mature. The business model are still in the making. You're here making technological bets, which is not really the case for women and solar, which have been established for years and years and years.?

?How do you structure a supply chain around batteries? How different it is or what can you take from your experience in wind and solar??

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As a buying organization? We need to understand what's our strategy, right? What we want to achieve. I do you want to couple it with solar wind park and what kind of solution we are looking for in terms of life of a battery. If you look at the mobile battery, automotive, and they are so concerned about their content of supply. They're even making deals with the mining companies, right? I they are going to reach them. They're going to cobalt and manganese. The key is here, we need to identify which value chain partner you need to be incorporated. It's starting with a minor butter manufacturer integrator for the solution provide.?

We are working with the integrators that means just to balance risk I not going for to product specific or going in full package. Each company should find their own right to level in the value chain to part of it. For a developer, I think is the best option is to go with the integrator. So you can also risk the supply of the merchants or the battery supply. So you are just to delegate to the mitigating orders to your integration quarter.?

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17:50

Can I ask you just one other thing on the battery thing? What I hear, particularly coming out of the UK, is that because of the price volatility in and around inverters and batteries last year. You've got a whole pile of EPCS that are in real trouble, because people like you are sort of saying you go and build it for me.?

They build us agree a price and they just can't get the product in the market and I would have tossed that's gonna continue going forward. Because if you look at batteries, where are they go? They're gonna go into the automobiles first and foremost. I'm catl. That's why I'm gonna supply the stationary storage guys at the end of the value chain. So I'd love to see how you see that smoothing out that in the next years.?

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As you write the said, the stationary storage is not as big as in the mobile and the solution to look at the projections. This will change. We get in more attention for the better suppliers. But again, partnership is here to mitigate this risk. We're also looking at our pollution providers and the integrator if they have any volume secular partner with a kind of battery manufacturers and they have enough commitment and therefore production slope. Most of the price volatility in the region is another reason, right? I that's why industry going more into a kind of indexation.?It is very difficult to predict the cost. And even you have the purchase order.?

That's why. And we are working with the companies that we have indexation, but also a kind of ceiling so that we will have a kind of guaranteed maximum price.?

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19:20

Can I ask you maybe just talk a little bit of the future, you at the end of your buying all? These products just give us a little bit of view in terms of how you see prices for in the wind industry, the solar industry, in the battery industry?going forward

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Solar I especially after new capacity built in polysilicon, we project the kind of big surplus by the end of this year, we are talking about 300 gigawatts of the political capacity last year.?

It will go more than 500 -550 gigawatts equivalent to polysilicon. We all have seen the impact of this and the price drops starting before Christmas. We had a landslide.?We see some improvement in the Q one due to the front loading for the Chinese New Year, but this travel will continue over the year and we will see prices for less than 100 RMB per kilogram. So we see impact direct and the module price and cost of the module in Q1 is around $20. This will go down to 19 to 18 cents by the end of the year. But inverter is not helping. There is some head winds.?If you look at the steel pricing, still pricing for wrecking and tracking, we have the big drop since the Q two of the 2022.?

We see some pass through. We have some improvement in the cost. But little concern is that steel prices are picking up due to rebounding demand in China. This is solar and solar. We are still projecting dropping price throughout the year. For wind. This is some improvement and still place, which is the tower. But they see that manufacturers are reluctant to pass it through because they want to keep it for themselves. And if buyers are not very data driven or making decisions based on theta, I did understanding on the should costing and they may be acceptable increases. Batteries really depends on the lithium, and there was an expectation that it will be a shopping, but it remains the high level clock up. We expect that it will remain like this until Q and of Q two.?So we will see some improvement in creature to almost, but it will not go down to 2020 levels will remain high.?

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24:58

?It's a nice place to end it. I think we cover your four majors issues that you're dealing with, which is a security of supply possibility, T, sustainability and transparency. Keep on the great work.?

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Thanks a lot. Thanks for having me. That's great pleasure.?

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?It was great having you. Thank you very much for coming on the show.

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