Domestic solar manufacturing is seeing an unprecedented boom as the industry reaps the tax benefits of the Inflation Reduction Act. To meet the demands of electrifying and decarbonizing the American grid with products made within its borders, companies are expanding operations in the United States.
However, not every solar company producing hardware has the knowhow, staff or facilities for in-house manufacturing at scale. To make products without expanding operational bandwidth, companies can work with contract manufacturers — specialized third-party fabricators that produce components to the specifications of the originating company.
Contract manufacturing arrangements vary by a company’s needs. They can be short-term, or in the case of many solar companies, they can start entire factories or new manufacturing lines dedicated to producing individual pieces or whole products.
An employee at an Enphase contract manufacturing facility assembles inverter components.
“As a technology company, you’re best at developing technology, proving that the technology works,” said Raghu Belur, co-founder and CPO of Enphase. “Manufacturers, contract manufacturers in particular, are very good at contract manufacturing; that’s their role, their own skills. You’re bringing two best-in-class functions together.”
Enphase develops microinverter technology at its Silicon Valley headquarters while leaning on contract manufacturing relationships in Asia and throughout the United States to make its products. The company has designed its microinverters to be simple to manufacture, with operating systems placed on a single printed circuit board. Accessory components are mounted to the board using an automated “pick and place” method.
Working with a contract manufacturer frees a company to instead focus on fine tuning and advancing its products. Upfront capital expenditures when working with contract manufacturers are smaller than starting a whole factory. Plus, factories run by contract manufacturers are often outfitted with automated manufacturing lines, cutting down on labor costs.
Belur said Enphase works with a few contract manufacturers across the globe to better serve its local customer bases. Multiple manufacturing locations also allows factories to expand capacity when needed. Belur said Enphase’s contract manufacturers have been able to add new manufacturing lines or factories in six to 12 months.
“It’s really important for us from the standpoint of how you service your customers,” he said.
Citing fluctuations in market demand, Enphase recently halted operations at a Romanian plant and shifted capacity from Wisconsin to other locations in the United States. The company still has contract manufacturing arrangements with Flex in West Columbia, South Carolina, and Salcomp in Arlington, Texas. Enphase was able to adapt to the market and continue production because of its contract manufacturer setups. No Enphase-branded factories were closed.
Growing with a contract manufacturer
Nevados of Oakland, California, produces the All Terrain Tracker, a solar tracking system capable of installing on difficult topographies. Initially, Nevados had production arrangements with third-party companies that would outsource manufacturing services to other international factories. The company had to station inspectors in those factories to ensure the tracker components were produced to its standards and contend with meeting the demands of its clientele on an international supply chain.
Steel passes through a roll forming line at Priefert Steel’s factory in Mt. Pleasant, Texas. Priefert produces steel components for Nevados solar trackers.
Even before the IRA incentives, Nevados was considering moving tracker production to the United States to increase the reliability of its supply chain. In November 2023, the company partnered with Priefert Steel on a new production line at a factory in Mt. Pleasant, Texas. It wasn’t a hard choice for Nevados to opt for a contract manufacturer arrangement.
“It’s very simple — I’m not a manufacturer,” said Scott Troy, VP of operations and global supply chain at Nevados.
Priefert is a third-generation steel fabricator that has historically served the agricultural industry. Troy purchased tracker torque tubes from Priefert on his first solar project with Nevados.
Today, Priefert is fabricating torque tubes, brackets, cradles, mechanical assemblies and bearings for Nevados’ All Terrain Tracker. The manufacturer maintains several tube rolling lines, one of which is dedicated to Nevados trackers.
“There are manufacturers, such as Priefert, who’ve been around for 63 years, who have been successful in manufacturing,” Troy said. “They have all the tooling, they have all the machines, they have the space, they have the relationships with the mills to buy the material. They also have a full manufacturing engineering staff that I don’t have.”
Mt. Pleasant, where the factory is located, has a population of just over 16,000 people. When the Nevados line opened, Priefert employed about 900 people, 100 of which make Nevados tracker components.
Working with steel for this long and understanding the tenets of assembly, Troy said Priefert has helped redesign certain elements of All Terrain Tracker to make it simpler to manufacture. Priefert sources steel from the state’s many suppliers, and when components are ready for field deployment, they can be shipped from Texas to anywhere in the country in three to four days.
“I did not need to go to Priefert and say, ‘change your business model for Nevados,’” Troy said. “We were able to go to them and say, ‘here’s an opportunity to grow together, which has mutual benefit.’ They can expand their operations, they can create more jobs, they can obviously have more revenue. But at the end of the day, it was all about expanding.”
How tax credits work with contract manufacturing
While many solar companies have stated interest in bringing production to the United States, the manufacturing tax credits within the IRA have been a catalyst for driving domestic solar production.
The advanced manufacturing production credit (section 45X) provides manufacturers with a tax credit for producing components related to solar module, inverter, battery/energy storage and tracker technologies. However, in a contract manufacturing scenario, who can claim these tax credits?
Stacks of Enphase inverters manufactured in the United States await shipment.
Section 45X states that the actual producer of eligible solar products is the entity to receive the tax credit, but solar hardware companies typically enter into agreements with the contract manufacturers to share those credits.
Nevados has such an agreement with its partner Priefert. Troy said both companies are eligible, but only one may claim 45X. Nevados negotiates and splits that tax credit with the contract manufacturer after it has been claimed to benefit both parties.
“In my opinion, some of that tax credit should go back to the people who are doing the work — the hardworking individuals that are actually investing into this — so they can improve their factories, so they can improve their work-life balance for their employees, so that they can create a great environment for their employees to work,” Troy said.
These investments into domestic solar production through contract manufacturing will likely continue. Since the IRA passed, Nextracker has opened torque tube production lines for single-axis trackers with contract manufacturers in five states, with another set to open in April. This summer, Siemens will start rolling string inverters off a production line in Kenosha, Wisconsin, through manufacturing partner Sanmina. Contract manufacturing arrangements like these help boost American-made solar tech and give installers more options for collecting their own domestic tax incentives.
