Here are my thoughts on these questions:
1. If I had 1 million euros to invest for 20 years, I would invest in a solar power company rather than an oil company or wind energy company. Solar power is one of the fastest growing renewable energy technologies and has significant potential for further cost reductions and scaling up over the next 20 years. Oil companies face challenges from transition away from fossil fuels to meet climate goals. While wind is also growing, solar has fewer geographical constraints and is modular, allowing more distributed deployment. First Solar in particular seems well positioned as a technology and cost leader currently.
2. Given changes in the renewable energy market and First Solar's strong position established in the US through vertical integration, I don't think they
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
7. 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
8. Renewable Portfolio Standards
• Introduced in the US
• Different states had to have fixed proportion of their
energy from renewable sources.
9. Thin Film
The Solar
Value Chain
Cell Module
Silicon Wafer
Installation
10.
11.
12.
13. 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).
14. • 1998: annual production capacity of 20 MW
• 1999: controlling interest in company acquired by
True North Partners, renamed FIRST SOLAR.
15. • Industry split into – (high
T efficiency+ high costs) vs. (low
E efficiency + low costs)
First Solar in latter.
C
H • THE INNOVATION: First
N company to focus on Cadmium
Telluride (CdTe) as core
O technology.
L
O • This is an instance of
disruptive innovation (Chap-4)
G
Y
16. 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)
17. In 2010,
First Solar
was ranked
6th in the list
of top 100
innovative
companies
prepared by
Forbes.
Not bad ehh??
19. • 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
22. • 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.
23.
24.
25. • 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)
26. 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.
28. 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
29. • 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.
30. 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.
31. Compare to Theory
First Solar SunPower
-awarded bonuses to all the -very closed organizational culture
associates based on the same
metric system, cost/watt at the - Department specific metrics had
module level. limited SunPower’s ability to
capitalize on the benefits of
-encouraged dynamic flow of integration.
information between different
management levels.
(Importance of Management Capabilities in maintaining Organizational Coherence –chap. 6 and
dynamic business models chaps. 3 & 4)
33. 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
34. - shortage in demand
-excess supply
Leading to price war.
39. • 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.
40. • 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
41.
42. • 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.
43. • 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.
44. • 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
45. • 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.
46. • 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.
47.
48. • 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.
49.
50. • 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
51.
52.
53. 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.
54. • 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.
55. • 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.
56. • 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.
57. • 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
58. 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
64. 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 CEO's 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)
