IN DEPTH: First Solar’s big plans for community PV

If you can’t beat ’em, then play a new game — one that threatens to become more popular than the original game ever was.

This appears to be First Solar’s new sidewinding approach to the distributed PV market — and companies in the booming US rooftop sector will be paying very close attention.

First Solar, the largest US-based PV module maker, is a titan of the utility-scale solar sector, with a downstream arm that has developed and built more than 10GW globally — including some of the world’s largest projects — creating an enormous demand engine for the company’s own modules. 

Yet for all its strengths, First Solar has one glaring weakness: rooftops.

The trouble is First Solar’s modules — uniquely in the PV big leagues — are based on cadmium-telluride thin-film technology, which has a lower conversion efficiency than conventional crystalline-silicon modules.

In many settings, particularly the kinds of hot, dry places where utility-scale arrays are often built, First Solar’s modules are more cost-effective than other options. But their lower conversion efficiency means they are less attractive in space-constrained settings such as rooftops.

Over the past few years, First Solar has watched helplessly as US rooftop PV companies such as SolarCity and Vivint Solar raised billions of dollars of capital and captured the imagination of investors.

SolarCity has never made a dime of profit; it has installed less than one tenth the capacity that First Solar has; and the module factory it is building in New York state will not kick off production until next year. Yet its market valuation is higher than the profitable First Solar.

For First Solar, the current market for distributed solar — to say nothing of its potential — is simply too vast to ignore. Even worse, the US utility-scale market is expected to crumble in 2017 when a key tax credit is slashed.

First Solar’s initial response to its rooftop problem appeared to come in 2013, when it acquired TetraSun, the owner of promising but unproven technology for making high-efficiency silicon-based modules. First Solar has not given up on TetraSun, and recently opened the first 100MW line based on its technology in Malaysia, with Japan as the initial target market.

But last December First Solar opened a second, more intriguing line of attack by making a “strategic investment” in Colorado-based Clean Energy Collective (CEC), the largest player in the still-minuscule US community solar market. While the precise terms of their arrangement have not been disclosed, First Solar chief executive James Hughes now sits on CEC’s board.

CEC does not build rooftop PV systems. Instead, it works with utilities to develop community solar “gardens” — typically ground-mounted projects ranging from several hundred kilowatts to a few megawatts. The utility’s customers are offered the chance to buy into the projects on a per-module basis. They then see their power bills lowered based on the amount of electricity their share of the project generates.

Eran Mahrer, First Solar’s senior director for utilities, says community projects have many advantages over rooftop solar. Larger projects carry powerful economies of scale, from the upfront installation work through to O&M. Customers can invest as much or as little as they want, down to a single module.

Utilities like community solar, too. Unlike rooftop PV, utilities maintain control over the assets, and can site them in a way that makes the best use of their existing distribution systems. “We believe over time the market [for community solar] is what we’ll call infinitely scaleable,” Mahrer says.

The success of both the rooftop and community sectors will ultimately be driven by their ability to lower consumers’ electricity bills. But if rooftop solar is in many ways on a collision course with the traditional utility model, then community solar is very much a bet on the utilities themselves.

Large investor-owned utilities may have the resources to develop community solar projects in-house — and some, like Duke Energy and Xcel, are already doing so. But the US electricity utility sector is mind-bogglingly fragmented, with more than 3,000 players, and the vast majority do not have such resources. More than 15% of the electricity supplied in the US comes from municipal utilities, each with a median of just 2,000 customers. And even many larger utilities will be happy to farm out solar work to specialists.

Together, First Solar and CEC will approach utilities with an offer to handle everything that goes into a successful community solar programme — from marketing to potential customers, to developing and building arrays, to making sure the new billing system is up to scratch.

For their efforts, they will of course take a cut. But in theory, the economies of scale offered by community solar projects will still leave them economically attractive to all parties concerned.

The big question is whether — or perhaps when — community solar will begin competing with rooftop companies. Initially, the most obvious candidates for community projects are people without houses to put panels on, or perhaps people whose poor credit score precludes them from obtaining a rooftop solar lease or power-purchase agreement.

While hesitant to discuss the inherent tension between the two sectors, Mahrer concedes that they may come into conflict. “It’s possible that community solar draws on some of the same pool [of potential customers],” he said at a recent industry conference.

There is no question that the potential market for rooftop solar is “very, very large”, Mahrer says. “But the population of people who are owners of single-family homes that have the right [rooftop] orientation and the right credit [score]... is a limited population.

“Community solar is not limited to that population. The universe opened up by community solar is much, much larger.”