First Solar: Boosting production is a bad idea


Solar manufacturers have been on supercharged expansion mode over the past five years in order to cut costs and solar electricity prices. But to continue that march at this point is just unwise, and this belief underlies First Solar’s (s FSLR) decision on Thursday, to put off bringing on line a solar panel factory in Vietnam.

The solar panel maker broke ground on the 250 MW factory only in March this year and had planned to begin production there in the second half of next year. The Vietnam project was part of a larger plan to nearly double the company’s overall production capacity by 2012. Boosting production is a crucial way for a company to reduce manufacturing costs.

But the global solar market has been marked by a bumper crop of solar panels this year.  The combination of declining government subsidies in Europe – the largest solar market in the world – and the weak economy has depressed demand. The oversupply problem is so overwhelming that prices of solar panels have plummeted 30-40 percent and manufacturing giants such as Suntech Power (s STP) and JA Solar (s JASO), are cutting production. Other companies have closed factories, like SolarWorld and Solon. Several have gone bankrupt: see, Solyndra, SpectraWatt and Evergreen Solar.

Smart growth

First Solar’s interim CEO, Mike Ahearn, on Thursday said the company’s most pressing focus now is not to build more factories but to send more people to emerging markets to learn about those regions’ electric markets and policies. “Building more factories absent this demand creation doesn’t lead to growth and prevents us from focusing on the right things to do. What we need to do is to create new markets,” Ahearn said Thursday as he discussed the company’s third-quarter earnings in a conference call.

The company actually released its numbers last week, a day after it disclosed the sudden departure of its CEO, Rob Gillette. Ahearn was the CEO of First Solar for nearly 10 years before leaving the post in 2009 and handing the reigns to Gillette in October 2009. Ahearn said Gillette left because he was no longer a good fit for the company, not because of any shortcoming.

Gillette’s tenure was filled with plans to build many factories and to enter new markets. The company has completed a few factory projects during his time, including a 250 MW manufacturing center in Germany. He also talked about India, China, Australia, Middle East and Africa as promising markets for First Solar to conquer. But perhaps he wasn’t moving as fast as he should have into emerging markets.

Although Europe remains the largest market, its growth is slowing. The U.S. should grow faster because many states require their utilities to sell renewable energy and offer rebates for consumers and businesses to put solar on rooftops. But Ahearn also remarked that there haven’t been many new state solar programs for many years – the domestic solar industry is growing on the backs of existing programs and subsidies.

Ahearn said he has come up with a few reasons for why First Solar (and perhaps other leading manufacturers) haven’t moved as quickly into emerging markets. First, the company is continuing to invest in maturing markets when it should focus more on creating new ones. The other is the “short term fixation with earnings per share,” which can undercut the company’s willingness and ability to think long-term.

Although the Vietnam factory is now on hold, First Solar still plans to “continue developing” the previously announced factory in Mesa, Ariz., to serve the company’s 2.7 GW of solar farm projects in North America. The company held a dedication ceremony at the factory site in August this year and was planning to start production at the 250 MW plant in the third quarter of 2012.

The company also announced a new project on Thursday: NRG Energy has hired First Solar to build a 66 MW project in Lancaster, Calif. Pacific Gas and Electric will buy the electricity from the project, which should be completed in the third quarter of 2012.

Photos courtesy of First Solar.

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