2. “We’re not competing against other PV companies…we’re competing against the entire electricity generation market…” Bruce Sohn, President First Solar Inc.
3. History of Solar Industry• 1883, first photovoltaic (PV) device made by Charles Fritts• 1954, Bell Labs discovered semiconductor wafer diodes generated voltage when exposed to light• Early applications limited to satellite and space programs
4. Current Market• As of 2009, solar power was the world’s fastest-growing energy technology• In 1976 solar power cost approximately $2.00 per kilowatt-hour, but by 2010, prices per kilowatt-hour averaged between $0.15 and $0.40.• Yet cost of solar far exceeds the cost of other sources of electricity, particularly fossil fuels, by multiples of three to eight times
5. Feed in Tariffs
6. Capital Subsidies U.S. introduced a 30 percent capital subsidy for renewable power producers through the Investment Tax Credit (ITC) Company needed to have taxable profits to receive this benefit
7. Renewable Portfolio Standards• Introduced in the US• Different states had to have fixed proportion of their energy from renewable sources.
8. Thin Film The Solar Value Chain Cell ModuleSilicon Wafer Installation
9. HISTORY• 1984: Glass genius “Harold McMaster” founded Glasstech Solar; attempt to shift from glass to solar industry.• Unsuccessful, forcing the company to liquidate after six years of operation.• 1990: Undeterred he raised an additional $15 million in 1990 to found Solar Cells, Inc; experimented with a new thin film material, Cadmium Telluride (CdTe).
10. • 1998: annual production capacity of 20 MW• 1999: controlling interest in company acquired by True North Partners, renamed FIRST SOLAR.
11. • Industry split into – (highT efficiency+ high costs) vs. (lowE efficiency + low costs) First Solar in latter.CH • THE INNOVATION: FirstN company to focus on Cadmium Telluride (CdTe) as coreO technology.LO • This is an instance of disruptive innovation (Chap-4)GY
12. Advantages Disadvantages• Low cost/watt at module • Toxicity level. • Low electrical conversion• Low cost/watt installed at efficiency the system level.• Low Capex(Capital Expenditure)/watt manufacturing capacity.• Fast energy payback time (EPBT)
13. In 2010,First Solarwas ranked6th in the listof top 100innovativecompaniesprepared byForbes.Not bad ehh??
15. • Attempted to bring cost/watt down - - Industry Leading factory ramps. - Allows the best practices to be shared quickly across factories• 2007 $1.29/W to 2009 $0.84/W• 50 % of this cost improvement is attributed to Manufacturing efficiencies
16. Manufacturing Cost Graph
17. • For nearly 10 years, it has relied on subsidy rich markets, such as Germany, Spain and France.• Long Term plan to shift towards Transition markets and Sustainable Markets.• Superior cost position allowed it access to markets with lower price points than anyone else in the industry.
18. • Continuous Evolution of the Business Model (Reflects ‘Poised strategy’ -Chap 4)• Well developed ecosystem of developers and systems integrators made the cell and module business model viable for First Solar in Europe. (Reflects importance of ‘business ecosystems’ –Chap 4)
19. Business Problem• Balance of System (BOS) constituted roughly 50% of the cost of the system.• Companies having higher cell and module manufacturing cost, can still have a cheaper end product, by having a cheaper BOS.• Specially important in US market where BOS is very variable, given undeveloped systems integrator/developer ecosystem.
20. To verticallyintegrate ouroutsource?That…was thequestion.
21. Vertical Integration:The US Market• Differs substantially from the EU market.• No well developed systems integration ecosystem ;difficult to reliably put together a bid for large-scale projects.• Incentive system in the US, called ITC, is much more complex than the simple feed-in tariff ;requires combination of the developer, Engineering Permitting and Construction, module supplier and the IPP
22. • The need to coordinate so many different activities to deliver a product made integration a strategic imperative for First Solar. (Reflects importance of avoiding ‘cultural lock- in’ and the need for a healthy ‘mental model’.)• By purchasing Turner, and OptiSolar, obtained a rich 1.3 GW pipeline of projects in which it could place its modules.
23. ADVANTAGES• Company gains relationships with IPPs and utilities, as well as expertise in installation, which could be leveraged in other markets.• Even if the US market were to mature to the point that First Solar no longer needed to participate in development and EPC, the company could still choose to do so to remain profitable.• Eliminated double marginalization problems associated with Joint Venture relationships common in the Solar Industry, such as incentive misalignment.
24. Compare to TheoryFirst Solar SunPower-awarded bonuses to all the -very closed organizational cultureassociates based on the samemetric system, cost/watt at the - Department specific metrics hadmodule level. limited SunPower’s ability to capitalize on the benefits of-encouraged dynamic flow of integration.information between differentmanagement levels. (Importance of Management Capabilities in maintaining Organizational Coherence –chap. 6 and dynamic business models chaps. 3 & 4)
26. Financial strategy• Avoided using substantial leverage to grow.• Capital expansions were historically funded 50/50 through equity capital and cash flow from operations.• This produced the strongest balance sheet in the industry.• Boasts a single A rating on its corporate debt ;only net cash positive module producer, with a balance of $552 million at the end of Q1, 2010
27. - shortage in demand-excess supplyLeading to price war.
28. SUSTAINABILITY-“To create enduringvalue by enabling a worldpowered by cleanaffordable solarelectricity”- Life Cycle Analysis
29. • First Solar’s initial decade in operation had been extremely successful. However the future was something that had presented significant challenges to the company on variety of fronts.• Most immediate effect was the global financial crisis that severely impacted the budgets of many of the subsidies providing countries. 2009 marked the first annual decline in demand since the inception of the PV industry.
30. • Moreover, cost reduction achieved by crystalline silicon (c-Si) players and novel thin film producers with different efficiency limit have put the pressure on them• Biggest challenge, was removing the cost and technical hurdles that prevented solar power from ever compromising a meaningful portion of world’s energy needs
31. • Fact that solar industry experienced its first decline in 2009 was consequence of global financial crisis which crippled public spending in most EU countries.• Some countries stressed on their budgets by either placing a cap on the amount of power that could be “fed-in” or Reducing the Tariff Rate.
32. • Feed In Tariff (EEG ) had been primary driver of growth within Germany solar industry despite country’s poor isolation.• Parliament amended the tariff in 2007 to increase digression rate per year from 5 to 8-10 percent, starting in 2009.• 2010 tariff in Germany would range between EUR 0.29 – 0.40 limiting the market to slightly smaller field of players efficient enough to earn a profit at this pricing level.
33. • While the country still hadn’t offered a full-blown feed-in tariff, it did encourage solar development through the Investment Tax Credit (ITC), DOE loan guarantees, and treasury grants.• Congress voted in 2008 to extend ITC for an additional 8 years which would provide a 30 percent subsidy on all capital investment in solar manufacturing and producing facilities.• However, the complexity of subsidy vehicle limited the market to primarily utility-scale projects and those few players with sufficient access to credit, scale and engineering capability to build large solar installations
34. • Potential bright spot for the industry in 2010• No limit to subsidy and all installations greater than 50kW were eligible subject to various efficiency criteria, which varied by core cell/module technology.• Government approved “Golden Sun” program aimed at creating solar IPPs within China. Program reimbursed 50 percent of all capital spending on PV installations of 500 MW.
35. • However, China as an opportunity for entire solar industry remains unclear despite of subsidies because of preferential policies and non-transparent business practises.• Wind Industry of China provided a glimpse of what solar companies could potentially expect. With no wind industry in 2004, close concession bidding Chinese firms managed to capture 56 percent of market in 2007 and 85 in 2010 despite inferior to worldwide leaders Vestas, Gamesa, Suzlon and GE.
36. • Financing of long term projects based on expected profits rather than current balance sheets• Global financial crisis of 2008 seriously hampered projected profits thus hampering current financing.• Successfully managed to avert the 2008 disaster by spotting the crisis early on• But the crisis had cast doubts over long-term project financing in the future.
37. • Company had substantial lead over its competitors in terms of module cost/watt• However, the industry was still in its infancy with many opportunities for competitors to usurp the company’s lead.• Market was fragmented with no single competitor with dominant share in market• However despite its cost advantage First Solar only commanded roughly 13 percent of the market- even though being few companies expected to gain share in 2010
38. US Business Model • Decline in subsidy markets in Europe only accentuated the importance of the US markets, largely ignored by first solar until recently. • Market in US needed catalysing by First Solar, so they made investment in Solar City on residential side and acquired Turner renewable energy and Opti solar to acquire EPC and development capabilities • Participation in the systems (Turner Renewable energy, Opti Solar) business presented a number of challenges for the company.
39. • Gross margins on systems were roughly 5-7% as compared to module margins north of 55 %• First Solar’s participation in the EPC portion of the value chain brought the company into potential competition with its current customers• A major challenge for company going forward would be to find a balance between catalysing US utility-scale solar growth while maintaining relationships current customers.
40. • As of 2010, company picked the leading technology platform for making photovoltaic modules• With 6 sites, 24 production lines and over 1GW production capacity on single technology, company was making a huge bet on CdTe.• Even though they were ruling the cost market, critical question was whether the fundamental technology had enough runway to allow the company to continue to the cost leader going forward• A number of other technologies offered the potential to unseat first solar.
41. • With upper limit of 30% c-Si collar cells could challenge CdTe if cost of crystalline silicon were low enough• With the increased demand of silicon wafer supply, in 2009 c-Si prices plummeted bringing c-Si solar cells far closer to cost parity with CdTe• Nearly all Chinese players were putting research dollars behind this technology• CIGS cells produced by National Renewable Energy Laboratory(NREL) achieved 19.9 percent conversion efficiency under optimal conditions, 20% higher than best CdTe cell.
42. • Despite current technology leadership, company was keenly aware of the potential for disruptions. Eaglesham remarked “Technology is a moving target, so I’d frankly be surprised if CdTe were the last word...”• To mitigate the threat of disruption, Eaglesham ensured that his team was constantly evaluating technologies in the market for potential integration into first solar• First solar engaged in its own internal research and development of promising solar innovations• Also recruited top talent from photovoltaic start- ups and research labs ensued that company remained on leading edge of technology
43. Taking Solar Energy to Terawatt Scale• Global energy demand in 2008 was 474 exajoules or on average 15 TW; 75% were derived from fossil fuels• Renewable sources comprised of barely 2 percent of world’s total energy consumption
44. So where is the future of Solar Industry?
45. Argue or Discuss!!
46. 1. If you were a venture capitalist with 1 million euros, which of these would you invest in for a 20 year period: An oil company, A Solar Power company or Wind energy company? Why?2. The CEOs of the corporation made an important decision to vertically integrate instead of outsourcing a few years ago while entering the US market and this decision helped them to settle down there. But in todays current day and age, should First Solar continue with vertical integration or switch to outsourcing?3. As chairman of the First Solar would you focus more in the tried and tested European markets or look at the emerging Chinese and Indian markets now? Or would you try to balance both (ambidextrous organization---we discussed this concept in previous classes)