First Solar retreats from downstream and goes back to basics

For years the solar industry has watched with awe and envy as First Solar expanded its downstream activities into new markets around the world.

Since 2007, when it acquired US integrator Turner Renewable Energy, the Arizona-based company has built the first utility-scale PV plants in a range of countries, from Australia to the United Arab Emirates, and trumpeted big development deals from Chile to China, India, Japan and Jordan.

Today, however, that era of downstream expansion into foreign markets is largely coming to an end.

First Solar, the world’s most valuable solar company, is at the precipice of one of the largest strategic shifts in its history. Having successfully transformed into a leading global solar developer and EPC contractor, it is now putting the emphasis back on the old-fashioned business of selling panels.

The shift is expected to happen quickly. Last year, third-party module sales contributed a mere 6% of First Solar’s $3.6bn of revenues, while its systems division — centred on selling turnkey PV plants to power generators, including First Solar’s own yieldco — accounted for the remaining 94%.

But by the end of the decade, the company expects pure module sales to once again dominate its sales mix.

“We’re going to be a little more selective about what we do where internationally,” says Joseph Kishkill, president of First Solar’s international business, at the company’s headquarters in Tempe, Arizona.

“It’s hard being a developer everywhere — you’ve really got to understand the local nuances. And it’s hard being an EPC contractor everywhere,” he says, citing differences in local labour laws as a particular challenge.

“You’ve got to hire people, there are start-up costs, and you need a certain amount of business to cover that overhead.

“As far as just putting people on the ground in a country and pumping in investment, we’re being a bit more selective about that.

“We’ll do it where we think it makes sense in the longer term. But there’s a higher bar to get over internally.

“[But] we’re happy to sell modules everywhere. That’s a global business.”

More attractive modules

A number of factors may be behind First Solar’s decision to limit its development and EPC activities in foreign markets.

There’s the booming US market, expected to account for a quarter of global solar installations this year. These days, much of First Solar’s downstream diversification is coming within its home market, in places like the Southeast and Texas, where little utility-scale PV had been built until recently.

Some may wonder, too, whether the spectacular rise and even more spectacular fall of SunEdison following its fiery global expansion might not be affecting the way companies such as First Solar view downstream markets overseas.

But the most obvious factor is that with dozens of solar markets opening around the world, it’s easier and a lot safer to be a module supplier than a do-it-all downstream operator — assuming, of course, there’s sufficient demand for your modules.

Luckily for First Solar, its cadmium-telluride thin-film panels have never been more competitive.

Fuelled by the fattest R&D budget in the solar industry, the progress First Solar has made with its technology in recent years is nothing short of remarkable.

Four years ago, the average First Solar panel rolling off the line had a conversion efficiency of 12.9%, well below the average multi-crystalline panel (the main type of technology First Solar competes with in the utility-scale market).

To break into a foreign market, then, First Solar often had little choice but to do so as a downstream actor.

But by the first quarter of 2016, the average panel made by First Solar boasted an efficiency of 16.2%, higher than multi-crystalline modules. And thanks to the inherent advantages of the thin-film manufacturing process, the gap is expected to continue widening for years to come.

Elasticity of demand

First Solar has every intention of continuing its development and EPC work in about ten foreign markets, with Kishkill pointing specifically to India, Japan and Australia as places where the company’s downstream arm remains in full swing.

In India, the company is “bookending” the market — developing in-house projects and selling modules externally, but not engaging in EPC work. “There are a lot of good companies doing EPC in India,” Kishkill explains.

In the right circumstances, the company remains open to entering new markets as a downstream player. It bid projects into Mexico’s first-ever renewables tender in March, Kishkill reveals, although it did not win any capacity.

In most important new solar markets, however, First Solar wants to make its mark — and its money — as a module supplier.

Brazil is one such example. First Solar carefully considered entering Brazil as a developer — as some of its rivals, notably Canadian Solar, have done — but was ultimately put off by the country’s complicated rules around local content and financing. “We’ll be happy to sell into Brazil,” Kishkill says.

In promising markets such as Africa, where First Solar hopes to sell modules, the company is looking to partner local developers and construction companies, using its well-recognised name to help projects access multilateral finance.

Even in relatively stagnant markets like Europe, First Solar sees a bright future as a module supplier. The tender systems under way in Germany and France offer an opportunity for module sales “on an ongoing basis”, Kishkill says.

And moribund markets such as Italy and Spain — “hungover from the feed-in tariff days” — will blossom again one day, Kishkill believes.

“Ultimately they’ll chew through [their FIT-induced solar gluts], and when markets like that do return they’re going to find that the price of solar has really come down,” he explains.

“We really believe in the elasticity of demand [for solar power].

“As the technology gets cheaper, it’s going to trigger more demand” than many markets originally planned to procure.

That’s already happening in some places, like Texas and the Middle East, he adds, “and I think you’ll see the same thing in Europe”.