What is OEM?
OEM is essentially AD Green manufacturing and making specific products on behalf of brands. In the case of solar module companies, primary manufacturers are outsourcing the production of their solar panels to OEMs.
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The manufacturer still brands the product as its own, and ideally, monitors the manufacturing process to ensure the OEM maintains the level of quality that customers expect from the brand.
What does OEM mean for solar module companies?
The use of OEMs has been common across manufacturing by large, well-known for years. For instance, your iPhone is made by an OEM. Most likely, so are your TV, laptop, car stereo, air conditioner, and many other appliances.
Keeps costs low
Solar panel companies, including Panasonic, see several benefits from this strategy, and many positive effects for customers. Most notably, it can enable manufacturers to reduce their own costs as the OEM solar module manufacturers benefit from economies of scale in operating its factories, purchasing materials and hiring labor.
That allows the solar panel companies to keep costs to homeowners affordable, while still maintaining a high quality.
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However, this is only the tip of the iceberg. The total cost of ownership for a project involves all the project capital costs as well as the project operations and maintenance costs, and these can be affected by multiple factors.
A useful parallel is with buying a car. While the list price is important, ultimately it constitutes just one element of the overall cost of ownership. Discerning buyers will consider the cost of fuel, maintenance costs and insurance costs. They may also take into account factors which are not directly cost-related but will ultimately have an impact on the overall cost of ownership, including fuel economy, reliability, potential depreciation and level of use.
In the same way, choosing the most suitable equipment for a renewables project will involve accounting for every element that could impact the total cost of ownership. Owners need to be sure to ask the right questions to be able to make an informed decision.
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As well as factors affecting the total cost of ownership of equipment, owners should also consider a range of non-financial factors in making the final purchase decision.
The potential financial benefits of using US OEMs create a further layer of evaluation and decision making in OEM selection. The IRA offers a domestic content bonus as part of the tax incentives aimed at boosting renewables investment in the US. However, the initial IRS guidance on domestic content is complex and will require substantial investment in the US supply chain to achieve the domestic content requirement (DCR) thresholds for solar and storage projects in .
Developers also need to consider the relatively higher upfront costs and additional risks of opting for a US manufacturer rather than sourcing from abroad. US manufacturing for renewables is less established than in many other countries, so attention to financial viability, scalability and security of supply and the potential for production delays are important factors to consider.
Clearly, doing nothing is not an option and ultimately procurement decisions need to be based on anticipated market conditions. However, risks should be minimised wherever possible. Developers and owners should ensure optionality by keeping a second choice of supplier in mind for key equipment. Its also worth exploring partnering with a domestic OEM to help share risk and safeguard equipment supply.
Choosing to buy key equipment for renewables projects from an established foreign manufacturer has potential advantages both in terms of upfront costs and in relation to other key factors such as production capacity and proven reliability. However, sourcing equipment from abroad can involve its own problems in the shape of ongoing supply chain issues. As well as lengthy timescales for delivery and production delays, import regulations and rules designed to protect domestic manufacturers have become a significant stumbling block in recent years.
With the market for renewables equipment constantly evolving and increasingly complex, tendering and procurement processes need to be carefully structured. We recommend the following:
With the market constantly evolving, it can be difficult even for experienced developers and owners to pick winners. Wood Mackenzies analysts and researchers stay on top of every aspect of the market, ensuring our project consultants have access to a wealth of proprietary information to identify and evaluate the best potential OEMs for a clients particular project.
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