First Solar slashes forecast, staff & plans to flee subsidized markets
First Solar has had enough with subsidized solar markets and will bet its future on sales in countries in which solar companies that can provide low-priced equipment and engineering services will make money and stay in business, company executives said Wednesday.
The solar panel maker and project developer will unveil a 3-year plan early next year to describe just how it will march and stay into markets that aren’t heavily dependent on government incentives and political whims that can dramatically shrink their appetite for solar electricity, said interim CEO Mike Ahearn during a conference call to discuss the company’s 2012 action plan. The company plans to target the market that serves utilities and reduce its focus on the rooftop and off-grid market that serve businesses and consumers, he added.
In the mean time, the company cut its 2011 sales forecast to $2.8-$2.9 billion from the previously announced $3-$3.3 billion because of delays in certain projects from “weather and other factors”. Earnings for 2011 should hit $5.75-$6 per share. For 2012, the company expects to generate $3.7-$4 billion in sales and $3.75-$4.25 per share in earnings.
The company also announced the layoff of 100 workers, or nearly 1.5 percent of First Solar’s workforce. That reduction will include about 60 people at the research and development center in Santa Clara, Calif., in order to focus on developing its core technology of producing cadmium-telluride thin films, said First Solar spokesman Alan Bernheimer. The center will have about 40 people left. Bernheimer declined to confirm aDow Jones story from late last night about the departure of Markus Beck, who moved from Solyndra to First Solar in 2008 to develop solar cells using copper, indium, gallium and selenium at First Solar’s Santa Clara research center.
The conference call on Wednesday created a lot of anticipation beforehand not just because First Solar is an industry bellwether but also because it’s got to figure out how to weather a stormy time in the market. First Solar has struggled along with many of its rivals, some of whom have closed factories, lay off workers or even declared bankruptcies. The company’s previous CEO, Rob Gillette, left abruptly in October after being on the job for two years.
First Solar brought back Ahearn to serve as the temporary chief executive in October, and all eyes are on him to come up with a business plan that can ensure the company’s longevity. For nearly 10 years Ahearn presided over the rise of First Solar as manufacturing powerhouse before he left to pursue other interests, such as launching a $300 million greentech fund earlier this year. Can Ahearn work his magic this time around?
Although investors will have to wait until early 2012 to hear the detail of the company’s 3-year plan, they got a glimpse of it Wednesday when Ahearn laid out the roadblocks that he said have made it necessary to avoid markets heavily subsidized by the government. It’s a bold pronouncement considering that the global solar industry has depended so much on government incentives, from guaranteed solar electric pricing to rebates or tax credits to offset the cost of installing solar projects.
Government subsidies have been the means for turning countries such as Germany and Italy into the largest solar markets in the world. The same is true for the United States, where the chief solar industry trade group is fighting to extend a federal grant program that covers 30 percent of the cost of a project.
These subsidies, while helping to build a fast-growing market for solar electricity, also can change quickly from political decisions that are driven in large part by worries that the subsidies will cost too much money. These concerns are particularly prevalent during times of weak economy, when governments struggle to tighten spending.
Moreover, government subsidies have attracted manufacturers, particularly those in China that have been able to build up huge fleets of factories and ship huge volumes of cheaper products, even when demand is low. That imbalance of supply and demand has been particularly significant this year and led to trade complaints against Chinese solar manufacturers that make silicon solar panels.
First Solar ran an analysis of key government subsidy programs and noted that how countries such as Spain, Czech Republic and France cut their programs dramatically after realizing that their incentive programs were causing a solar construction boom that they hadn’t anticipated.
The growth of the U.S. solar market has depended largely on policies in states that require their utilities to include an increasing amount of renewable electricity in their supplies. California has become the largest solar market thanks to its aggressive mandates for utilities and also incentives for consumers to put solar panels on their rooftops. But Ahearn pointed out that the state has capped its program from the start – the requirement calls for sourcing 33 percent of the electricity from renewable sources by 2020. Utilities in the state have been signing so many contracts to buy renewable energy for delivery in the coming years that they are close to meeting their state mandates, he added.
Pacific Gas and Electric, for one, expects its renewable electricity mix to hit around 19 percent by the end of 2011, PG&E’s spokeswoman, Lynsey Paulo, told me yesterday. The state mandate is to reach an average of 20 percent during the years of 2011 to 2013. PG&E has signed power purchase agreements that will deliver more than 10 gigawatts of renewable energy, including solar, and they will more than meet the 20 percent goal for the next few years, Paulo added.
Ahearn said First Solar could make panels and design and develop solar power projects at even lower costs, and that advantage should allow it to compete in unsubsidized markets. The goal is to deliver solar energy systems at a price of $1.40-$1.60 per watt, which does not include the development costs that project owners will have to shoulder. “We don’t think our Chinese competitors can get there directly or indirectly” and remain profitable, Ahearn said.
“The real competition is (fossil fuel-based power), and we need to focus on the road ahead as opposed to the review mirror of these silicon guys,” Ahearn said.
Photos courtesy of First Solar
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