One of the quotes often attributed to Warren Buffett is: “It's only when the tide goes out that you learn who's been swimming naked.”  The idea is that when the markets are going up, most fund managers look like champions. But when the stock market collapses, it becomes obvious which stock pickers have true skill, and which were merely riding the wave.

A similar scenario plays out in commodity markets.  During times of high demand relative to supply, prices are high -- and even high-cost producers can earn a healthy gross margin. But when suppliers increase output faster than demand, this oversupply causes price declines, which in turn pushes the margins of the high-cost producers from profits to losses. So when the proverbial tide goes out and module prices drop, we “will learn who’s been swimming naked” (i.e., which companies have an uncompetitive cost structure).  We have already “discovered” one skinny-dipper: Evergreen Solar.  With costs around $1.90/W and average sales price of around $1.80/W in December 2010, it was time to throw in the towel on their U.S. manufacturing plant. 

While attending the World Future Energy Summit in Abu Dhabi this week, we had the opportunity to meet with First Solar’s VP of Business Development for EMEA, Jos van der Hyden, to discuss some of the more pressing issues facing the company. 

Question #1: Potential oversupply in 2011 or 2012

The main take-away from our conversation is that for utility-scale plants and commercial rooftop solutions, First Solar is the lowest cost per watt solar option available.  Our recently released CSP 2011 report generally agrees with that finding, although CPV, CLFR, and power tower technologies are also in that same ballpark.  That means that First Solar is well suited to handle a really low tide (a weak price environment), as they have the lowest absolute cost/W and a clear roadmap to drive costs for both modules and BOS further down. In his recent PV report, GTM Research analyst Shyam Mehta compares modules on an adjusted basis, taking into consideration the differences in module efficiency.  But even on this basis, First Solar should be able to match the adjusted prices of their crystalline competitors and still maintain higher margins.

Conclusion:  First Solar is the best positioned company to handle an oversupply situation and bring PV electricity cost down to grid parity (in select markets) in the next 2 to 3 years.

Question #2: LCOE in the U.S. Southwest?

2010: LCOE of $0.12-0.14 for CdTe panels according to LBNL studies

2014 FSLR Plan from their Analyst Day presentation:

Module Cost $0.52-0.63/W-dc

While First Solar didn't comment on expected gross margin in 2014, a 35% margin seems reasonable and would imply a price of $0.90/W-dc

BOS $0.91-0.98/W-dc

Total installed cost: $1.85/W-dc ($2.20/W-ac)

First Solar is setting the bar pretty aggressively here -- it remains to be seen if they can reach these targets.

Question #3: Why buy RayTracker?

RayTracker’s vision to drive down the cost of solar energy aligns well with the First Solar mission of creating enduring value by enabling a world powered by clean, affordable solar electricity.  By combining our systems technologies we expect to accelerate our roadmap for lowering LCOE.

Question #4: Largest market opportunities

Few surprises here: According to the Q3 2010 earnings presentation, Germany, Italy, France, Spain, US, China, and Australia.

We also discussed India’s goal of 20 GW by 2022, and the Desertec Initiative. In December 2010, First Solar and Indian ACME Tele Power Ltd signed a module supply agreement for PV projects in India, including a 15 MW project in the state of Gujarat.

First Solar as an associated partner of the Desertec Industrial Initiative contributes its utility-scale expertise in desert regions to DII working groups and is working together with its partners in DII on preparing the ground for reference projects.

Question #5: PV vs. CSP

First Solar believes that PV and CSP are both interesting technologies for utility-scale desert projects. They both produce clean, sustainable solar energy by harnessing the sun. Generally, PV modules are characterized by their modularity and scalability -- you can begin producing clean power from a PV power plant in just 3 to 6 months, versus several years for some other renewable technologies.

From an environmental point of view, PV solar modules are very interesting, because they do not require water (whereas wet-cooled CSP plants require millions of gallons per MW every year).

Additionally, First Solar’s advanced thin-film solar modules perform better than other modules in real-world conditions including high temperatures and low, indirect and diffuse light conditions, such as in high humidity areas and dusty environments. Given that First Solar uses fixed installations and their modules have no frames to trap sand and dust, maintenance is negligible and water for cleaning is not required, a factor that is especially important for installations in deserts, where water is scarce.

Frank Wouters from Masdar was quoted as saying that currently, on an unsubsidized basis, trough is about $0.30/kWh vs. PV at $0.25/kWh

As a sign of the shift, a couple of years ago Sempra/SDG&E’s pipeline had been 80% CSP. Now the mix is closer to 30% CSP, 70% PV. One of Sempra’s biggest PV projects is the 48 MW AC solar power plant in Copper Mountain, Nevada, U.S. The project was built with First Solar thin-film modules.

CSP is advantageous in one place -- Spain.  They choose CSP locations near rivers, which allows for the lower-cost, higher efficiency wet-cooling.   For other desert locations, this may not be possible.

Question #6: Are you worried about copycat CdTe plants in China?

There are already other manufacturers producing CdTe panels.  If that helps accelerate solar deployment, then that is a good thing.  [We at Greentech Media see that as a potential problem, as it may push up tellurium prices.]

Question #7: Thoughts on the United Steel Workers suit against China and the possibility of trade barriers?

First Solar has no comment on the USW complaint at this time. 

First Solar intends to contribute to the development of a long-term sustainable solar industry in China by bringing global expertise, advanced PV technology, know-how and best practices to the Chinese market. A MOU signed with Ordos City in 2009 represents the first step and indicates First Solar’s commitment to establishing a meaningful and long-term presence in China.

Additionally, in January 2011 First Solar and China Guangdong Nuclear Solar Energy Development Co., Ltd. signed a memorandum of understanding to collaborate on the development of Phase 1 of the previously announced solar photovoltaic plant in Ordos, Inner Mongolia. The agreement represents an important step forward for the Ordos project, following First Solar’s MOU with the Ordos Government in September, 2009, and the Chinese government’s recent approval of the pre-feasibility study for Phase 1 in September 2010.  

Question #8: Comments on the Zayed Future Energy Prize?

The following is a direct quote from First Solar.

"We believe that a unique award such as the Zayed Future Energy Prize helps to focus international attention on the issues critical to sustainable energy markets. Furthermore, we believe that the Zayed Future Energy Prize brings together an incredibly innovative, influential and dedicated group of leaders from business, politics, NGOs and academia, hence, certainly contributing to the future of energy innovation and environmental stewardship.

First Solar is honored to be one of the six finalists and be associated with the international elite of social entrepreneurs, thought leaders and experts in the field of environmental leadership."