04 May 2012
Transition to unsubsidized markets hinges on competitive pricing and reliability – such as using satellite imagery to predict cloud cover.
With a new CEO at the helm and a new CTO to drive the efficiency of its CdTe thin-film solar modules to new highs, the photovoltaics (PV) pioneer First Solar has outlined its five-year plan to radically re-shape the industry.
The aim is nothing short of a revolution, as the company will strive to turn what is currently a subsidy-dependent, intermittent form of energy generation into a far more predictable technology that grid operators can rely on, and which will be paid for directly by consumers at a market-competitive rate.
Jim Hughes, an industry energy executive who joined First Solar in March as chief commercial officer, has been selected as the CEO who will spearhead that transition and attempt to restore some shareholder value to a company whose market capitalization has slumped by more than $10 billion in the course of the past 12 months (see stock chart, below).
That has been brought about by a combination of two key factors. First, a huge oversupply of PV modules from rival large-scale manufacturers in China, who have come to dominate a market with no real barriers to entry other than start-up costs, alongside support from their central government.
Coupled with the disappearance of solar subsidies and feed-in tariffs in Europe that until now have supported the industry, the upshot has been a vast imbalance in the supply chain, and an ongoing sequence of uncompetitive manufacturers heading for bankruptcy.
Doing things that matter: at scale
Against that backdrop, Hughes admitted that some of his peers in the conventional energy industry may have reacted with surprise at his latest move, but insists that he is up for the challenge:
“I believe that the rapid cost reductions that have occurred leave solar on the threshold of taking its place as a mainstream power generation complex,” the new CEO told investors during the company’s financial report for the opening quarter of 2012. “I have always endeavored to do things that matter and that make a difference in the world, and in energy that means doing things at a meaningful scale.”
“First Solar is the premier platform in which to execute projects at scale. We deliver real power plants,” he added.
The problem for Hughes and First Solar is that unsubsidized markets barely exist right now – and certainly not on the scale required for First Solar to turn a profit. To open up such markets, First Solar has developed a five-year plan that focuses on three key requirements for PV technology that had taken a back seat while subsidized markets ruled.
First, inevitably, is to reduce the cost of each watt of power produced by a First Solar module to a price that is competitive enough to be borne by consumers. At the moment, the total cost of a system is around $1.60 per watt (excluding the cost of interest, trackers, and certain site-specific costs). The aim is to reduce this figure to just under $1.20 by 2016, largely through the key lever of increased module conversion efficiency.
In the latest quarter, the average efficiency of a First Solar module was 12.4%. By 2016, that figure must be improved to 15% to hit the proposed cost model. If that can be achieved – something that will be perhaps the most important target for new CTO Raffi Garabedian – then First Solar believes that its installations will be able to deliver a levelized cost of electricity of $0.10-0.14 per kilowatt hour.
That may sound a little on the high side when compared with fossil fuels, but the company will be targeting markets where PV can provide additional power during periods of peak demand – when electricity prices spike higher.
Reliability and grid integration
But the five-year plan isn’t just about cost. The second key requirement is to be able to predict PV production reliably – something that is only really possible today in desert climates. That could involve the radical use of satellite imaging to predict periods of unbroken sunshine and periods of cloudy weather, when not nearly as much energy will be produced by a utility-scale plant.
For domestic rooftop installations, that intermittency isn’t much of a problem, but when scaled up to solar farms operating on a megawatt-scale, grid integration becomes a serious issue and any sharp spikes in production are disruptive. Ensuring that PV does not de-stabilize electrical grids is the third key requirement identified by First Solar.
If – and it’s a big if – those issues can all be addressed over the next five years, Hughes anticipates that First Solar and its partners could be installing 2.6-3 GW of PV systems in unsubsidized markets, out of a total market predicted to be in the range of 40 GW.
Exactly where that market will be remains unclear, and although it probably doesn’t bear much scrutiny, First Solar’s team highlighted the potential of China, India, Brazil and the Pacific coastline of South America as likely key locations for unsubsidized deployments.
There remains the possibility that First Solar may still be battling against bankrolled Chinese competitors at that point, or “irrational participants”, as they are described by stock analysts these days.
Hughes admits that this may be true, but argues that First Solar will be able to differentiate on quality, because by that time there will be a component of the PV market that won’t want to do business with “irrational participants”, and will put a premium on the availability of reliable, predictable PV power – at the right price, of course.
First Solar’s Q1 results highlighted the woes facing the beleaguered PV sector right now. With $400 million in costs for a restructuring that will see its fabs in Germany closed by year-end, as well as aborted plans for more facilities in Vietnam and Mesa, Arizona, the company posted a net loss of $449 million on sales of $497 million.
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