First Solar has always done things differently compared to the silicon solar industry at large. From wild technical success with its cadmium telluride thin-film platform to actually delivering profits and not following a growth-at-all-costs strategy, First Solar has cut its own path. While solar module companies come and go, ending up insolvent like Germany’s SolarWorld or China’s Suntech, First Solar is still here and still achieving. The company just logged a strong Q1, ahead of expectations on revenue while modestly raising its guidance for 2017. That’s just not that common of an occurrence in the 2017 solar industry. Mark Widmar, First Solar’s CEO, spoke to GTM Research head Shayle Kann at last week’s Solar Summit and revealed some of his thinking on running a profitable solar business in uncertain times (video archive of the entire event available to GTM Squared members). Here are some of the highlights.
“Let’s be capacity-constrained”
During the talk, Widmar shared some insights on First Solar’s business strategy, particularly in light of an oversupply of panels in the market. “I’m not in the mode where I’m adding tremendous amounts of capacity that hold me hostage, where I have to find ways to settle through that volume,” he said. “What that allows me to do is to be very disciplined [so] we can anticipate and find markets where we can capture the best value.”Widmar cited a recent bid in Abu Dhabi as an example where signing a $29 megawatt-hour power-purchase agreement might have closed the deal or set a record, but his firm opted out: “There’s not a real big profit pool for anyone to capture there. We made a decision not to participate.”
“One of the things that we’ve done since day one is, we’ve chosen not to leverage up our balance sheet,” he added. “We have $2.5 billion in cash right now; we have no corporate-level debt. The only debt we have is project-level debt. I refer to that more as working-capital debt.” Widmar said his management team had foreseen oversupply and ASP challenges ahead in 2017. Their response? “Well, let’s be capacity-constrained. Let’s make that shift now to be capacity-constrained,” he said. “I only have 2 gigawatts of production right now. I’ve got more than enough resiliency to sell through that. I can sell that product without any issues, but now I can be selective.”
Utilities want to own and rate-base solar assets
GTM has covered the boom in utility-scale solar and its likely dominance and continued growth in the coming years.
Widmar added some color: “In the U.S. in particular, we’re seeing more and more movement toward utility-owned generation. The most logical owner of these assets will be utilities, and they would prefer to rate-base these assets and…to have a turnkey solution.”
What can a utility do that a third party can’t?
According to Widmar, it’s all about the cost of capital. Widmar cited an instance in which First Solar told a utility in the Southeast that the price difference in a rate-based project versus a non-rate-based utility solar project is the difference between a $30 PPA and a $35 PPA.