After a brutal 2012 in solar manufacturing, First Solar hit one out of the park a few weeks ago when it significantly guided up its earnings and sales outlook for 2013 combined with the announcement that it was acquiring TetraSun, a startup working on silicon based photovoltaic technology.
First Solar remains focused on pushing the efficiency envelope for its cadmium telluride solar panels, laying out a roadmap to get to 23 percent efficiency during its April analyst day. But the company has also pushed into project development and EPC (engineering, procurement and construction).
Unlike its big Chinese competitors, which are monofocused on cost and economies of scale in manufacturing, First Solar is looking more and more like a company that wants to do it all as it develops its utility scale project development business. CEO Jim Hughes sent a message to his competitors about the difficulties of competing against a panel maker that could service its customers from end to end:
“Take time to focus on how much of what we’re talking about can only be offered by a company that’s fully vertically integrated across the whole value chain. A lot of the future efficiencies and future cost reductions and future capabilities that we will to deliver to customers are going to be very difficult for someone who’s not fully vertically integrated to deliver to the marketplace.”
First Solar is on the offensive in terms of project development, doing things like taking over existing projects even during mid-development soas to lock in sales for their panels and lock out competing panels. It did just this recently when it bought the 150 megawatt Solar Gen 2 project in California from an affiliate of Goldman Sachs, Energy Power Partners and a third partner with San Diego Gas & Electric buying the power under a 25 year agreement.
And all this talk of vertical integration has me wondering about the TetraSun acquisition. There was a lot of talk about why First Solar, a company so critical of silicon technology, was buying a solar startup whose tech was based on silicon. The answers came down to the fact that TetraSun has shown impressive efficiencies, efficiencies that appear to be reproducible at manufacturing scale and low cost due to the fact that its designs have fewer manufacturing steps and that it eliminates the need for silver and transparent conductive oxide.
But those questions seem less relevant to me than the fact that First Solar will use the technology to get at the rooftop market in Japan, a market the utility focused company had all but abandoned. First Solar likes the Japanese market because the country is highly space constrained and because, post-Fukishima, it’s looking like a subsidy friendly environment.
First Solar execs took questions at the end of analyst day about whether the company would use TetraSun to forward integrate. Essentially would it move from the solar module to building entire solar systems? Execs answered that their forward integration would be dictated by how good the margins were at each step.
But what if the company really wanted to be the fully vertically integrated company serving the rooftop sector? Could it handle financing as SunPower does, offering both leases and solar systems, or even push further, offering installation? And if First Solar doesn’t vertically integrate the rooftop market, could someone else do it?
Right now the rooftop market is fairly disintegrated. It has players like SolarCity which do financing and installation. While some companies like Clean Power Finance do financing and software services. And others just provide solar systems.
First Solar is a ways away from vertically integrating the rooftop market and is playing the utility development game, which has shown revenue growth that’s more impressive than rooftop sales. But it does have that cultural business understanding that realizes that if you have one margin to make—rather than margins for financing, installation, the solar system, and the panels—you can be very competitive.
And if you have the resources and capital to fight through industry consolidation, as First Solar has weathered the solar manufacturing storms, then you can be the last man standing. In which case you can finally get to where everyone in the solar industry wants to be—the land of stable and expanding margins.