On June 30, Jim Hughes stepped down as CEO of First Solar, a world-leading integrated solar power provider. Hughes joined First Solar in early 2012 as the company was contending with significant financial issues. At the time, an influx of cheap solar panels from China forced the U.S. solar giant to lay off staff and close factories. Hughes helped to turn things around.

During his time at the helm of First Solar, the company set new records for solar cell efficiency, made fundamental changes to power plant architecture, continued to drive down solar costs, expanded from solar manufacturing to become a major, large-scale solar project developer, and swung back into the black. In the first quarter of 2016, First Solar reported a $171 million profit versus a $61 million loss a year before, and a $450 million loss in the first quarter of 2012.

Hughes leaves First Solar with the company firmly in the top-ranked position of the U.S. utility-scale solar market. According to GTM Research, First Solar currently has 2,397 megawatts (DC) of projects in development, which represents 10 percent of the contracted pipeline. For comparison, the second-place company by projects in development is SunEdison, with 2,029 megawatts (DC). In third-place is Recurrent with 1,571 megawatts (DC), which puts First Solar more than 800 megawatts ahead of the the next active player.

With respect to projects in operation, First Solar currently has 3,177 megawatts, which is a whopping 1,792 megawatts ahead of the No. 2 player, SunPower.

In April, First Solar named CFO Mark Widmar as its new CEO, effective July 1. Alexander Bradley, First Solar’s vice president of treasury and project finance, has taken the role of interim CFO. Hughes will remain in an advisory role and on the board.

“Under Jim's astute guidance, First Solar achieved the strongest technology position in our history, with record bookings of new business and unparalleled financial strength in the industry,” said Michael Ahearn, First Solar's chairman of the board, in a statement announcing the leadership change. “We are grateful for Jim's many contributions to First Solar, and we look forward to benefiting from his continued involvement as an advisor and director."

The leadership team at First Solar still has a lot of work to do. The company has to reposition itself now that the solar Investment Tax Credit has been extended. There are also international market shifts, questions about near-term growth, and investor concerns overshadowing the broader solar market that company leaders must contend with.

In addition, while First Solar does not participate in the residential solar market, Hughes has argued that U.S. regulatory battles over distributed energy create uncertainty for the entire solar industry. In his view, dockets that address the fundamentals of the utility business model are critical to the long-term success of the solar sector.

“A rate structure that facilitates short-term economics and isn’t long-term sustainable for the grid, the economy and the system as a whole doesn’t create a sustainable industry -- it creates a train wreck,” said Hughes, speaking last month at the Edison Electric Institute’s (EEI) annual convention in Chicago.

“[Solar] has been a boom-and-bust business to date, and I think everybody would like us to move increasingly to a little more stable environment,” he said.

GTM recently sat down with Hughes to discuss distributed generation, rate structures, energystorageand his broader outlook on the solar sector. (The following Q&A has been modified for clarity and flow.)

GTM: At the end of 2013, solar power made up 1 percent of the U.S. electricity mix. At this year’s EEI convention, you were on a panel of utility and solar company executives that estimated solar power would make up 8 percent to 15 percent of the electricity mix in 2025. These days, there is a lot of conversation about distributed versus centralized solar. How do you see the market evolving with respect to these two types of solar projects?

Hughes: In terms of installed capacity, I think that you’ll see something like 60 percent utility-scale, 40 percent distributed. But the total energy generated is going to be more like 70 percent to 30 percent, because you get much higher capacity out of the utility-scale solar than you do from distributed. Of that percentage, I think residential will be a very small percentage.

I really think we're going to see the dominance of community solar as opposed to residential dominance. That's just an opinion. I may be right, I may be wrong. I think, broadly, you will see a mix of utility-scale and distributed generation (DG) -- if you define DG as 5 megawatts or fewer. If you were to define DG as on the customer’s site behind the meter, then I think it's a much smaller percentage. If you were to broadly define it as 5 megawatts and below…then I believe it's going to be 60 percent utility-scale, and 40 percent DG. But I could easily be wrong. The errors bars on that are going to be large. It really comes down to the regulatory structure.

GTM: On the EEI panel, you said that only 10 percent of U.S. customers want on-site solar. Why is that?

Hughes: People don’t necessarily have passion to put solar on their roof; it’s a passion for clean power. It’s about providing customers with a meaningful choice. That’s why I’ve been saying for years community solar will be so powerful.

GTM: There are some places where community-solar development is driven by utilities and other places where it’s being driven by third parties. Which model do you think is going to be dominant?

Hughes: I don't think there's going to be a single dominant model. We have a highly fragmented regulatory system. As a result, we're going to get highly fragmented solutions.

GTM: In 2013, you filed in support of changes to net metering proposed by Arizona Public Service, and you have not opposed demand charges. At EEI you noted that an increasing number of utilities are likely to adopt demand rates. That’s a rate change residential solar installers strongly oppose. What is your view of how rates are evolving and how they will affect solar companies?

Hughes: My view is that the solar industry needs to focus on more than just the demand charge. That's the negative side of it. The positive side is if you can get nodal pricing and you can get time-of-day pricing as part of a comprehensive system, including the demand charge, then you can install solar when and where it makes sense, but avoid the utility having to pay more for where it doesn’t make sense.

If the residential solar industry thinks that they're going to be able to force the industry to pay them uneconomic retail net metering rates, to whatever level of penetration they want, it’s not going to happen. That’s part of the reason we didn't go into that business. I’ve been saying that retail-rate net metering is not economically realistic. It’s something that's going to bankrupt the entire system…which is not something that a lot of people have focused on.

GTM: What do you mean by “bankrupt the entire system”?

Hughes: It will impose a penalty in a very regressive manner. […] The beneficiaries of net metering at the end of the day are generally well-off suburban companies. The people burdened by net metering at the end of the day are generally small businesses, multi-family tenants, and those who don't own their homes or don't have adequate credit. Early on, I identified that as structurally one of the big problems with net metering becoming a huge feature, because at some point, that was going to become politically untenable. You've seen that happen.

GTM: What is the rate solution, in your view?

Hughes: To me it's all about getting structures that pass through the true economics, and then [adopting] whatever makes sense. [...] If someone wants to spend a premium to self-generate, that's fine. They have a right to do that, as long as they're not being subsidized by the system. If self-generation is inherently economic and it makes sense, then self-generation can happen on that basis. The whole key to me is to focus on passing through what the true economics are.

Now, obviously everybody has their own interest in the value of solar, so you end up with competing studies, which makes it a big, confusing issue. I leave the detail of all of that for the utility commissions. They're pretty good at this kind of stuff. They're used to having people advocate in front of them, from one extreme to the other. They can usually find their way to the right middle ground at the end of the day.

To me, yes, if we can avoid unnecessary distribution investment through the strategic use of distributed generation, I think we should do that. For it to be strategic, it has to be planned. You now have an approach in New York that limits the applicability of net metering, but provides both nodal and time-of-day benefit for the excess power generated. The New York solution that's coming forward is really based upon a planning process where the utility identifies where the use of solar will help avoid investment in the grid, and provides compensation for the solar developers in exchange.

I think that's the type of program that we need to see. […] It’s part of a planned coordinated process, not just the random and rapid addition of solar.

GTM: What’s your view on the state of energy storage deployment?

Hughes: I think storage is coming sooner than a lot of people believe. I think costs are coming down faster than people realize. As a result of lower costs, it makes economic sense. It enables higher capacity factors out of the utility-scale installations and it allows customers in the distributed setting to better manage the power that they generate within the distribution network. It increases the flexibility of the grid and increases the ability of the grid to handle resources like solar.

Also, it's easy to say storage, but it’s much harder to describe the hundred different applications that there are and the products for each of those applications. Today, we speak of storage as if it's a whole segment. Five years from now, we will speak of storage as a category and then there will be all of these segments within it.

I think the various applications will drive the technology choices. If you want to provide fast response, control and voltage support, that may be one technology. If you want to time-shift power at utility-scale, that may be a different technology. If you want to provide emergency backup power to an office building, that may be an entirely different technology. The solution will drive the technology choice at the end of the day.

GTM: Going back to solar -- you said at a recent Wall Street event that large-scale solar companies are "shorting the cost curve." What exactly does that mean? How is First Solar responding?

Hughes: Developers are bidding on the belief that costs will go down in the future and that they will be able to profitably build a plant when the time comes to build it, even though at current costs that would not be profitable.

We have stated that we will continue to relentlessly drive down costs. Cost will be taken out of every aspect of the system: panels, fixed and variable balance-of-system. Competition drives innovation on all fronts. I have stated that we would be at $1 per watt in certain parts of the world. I believe the target for U.S. is 2018.

GTM: Across the board, solar stocks have taken a beating in recent months. Why do you think that is?

Hughes: Let’s take the individual cases. I've told people that the SunEdison bankruptcy has less to do with solar and more to do with fundamentals. That was a company that got over-levered, left themselves exposed to the capital markets, capital markets went sideways and they ended up in a liquidity crisis. The same story has been told in the industrial industry, mining industry, oil and gas, etc. It didn't really have anything specifically to do with solar. It had more to do with the fundamental business decisions that were made with that company.

I think the challenge that some of the residential companies are facing is a lot of them have built their business on the lease model. That's where most of their margin was, on the lease side. They had finance/purchase programs, but they generally made a lot less money. At the same time, there's concern over net metering. There's concern that if the market shifts from a lease model to a purchase model, which appears to be happening, they can't maintain the same profitability. I just think the complexity of the business, the regulatory uncertainty, the business model uncertainty is what has scared investors away, of late.

The residential solar sector is growing, but no one has demonstrated an ability to really create a truly profitable business within that segment. At least not one at scale. I think that's where the investor's skepticism is. It's not a question of, “Is it going to grow?” It’s a question of “Is it going to grow profitably?”

GTM: First Solar has also been caught up in the stock turmoil. What has affected your company’s stock?

Hughes: Clearly, there's been a lot of negative sentiment over solar generally, lately. We're in the big exchange-traded funds that cover the solar industry, so we tend to trade up and down with the industry as a whole. That’s always been the case. I don't think that's going to change anytime soon. We tend not to focus on short-term stock movements, and more on just building a solid profitable long-term business. If you do that, make sure your balance sheet is solid, then stock price will take care of itself in the long term.

GTM: What is First Solar’s claim to fame? What makes it a solid business?

Hughes: We believe we provide a differentiated product in terms of our thin-film solar panels, and we believe we provide that product against a financial background that gives our customers comfort that we're going to be there in the long run. We believe we have a differentiated product in terms of quality, performance and yield. We believe we have a differentiated financial structure in terms of a bulletproof balance sheet that gives our customers comfort that we're going to be there in the long term.

GTM: What are you most proud of from your time at First Solar?

Hughes: I would say that we dramatically improved the technology. We positioned the company for a long period of success. In 30 years, the clients we're building today will still be generating with us.

GTM: Finally, any plans for retirement?

Hughes: Spend more time with my kids.