Solar bellwether First Solar (s FSLR) has two pieces of big news out of its earnings on Thursday. First it’s got a new CEO who has deep experience in the conventional power and natural gas business; second, it finally outlined a 5-year plan to transform into a power plant developer and builder and move away from simply selling solar panels.
Investors have been waiting to see who will helm the Arizona company ever since it let go of Robert Gillette, the former CEO, rather abruptly last October. Mike Ahearn, who was First Solar’s long-serving chief executive before Gillette, came back as the interim leader, and now he will remain as the chairman.
The new CEO is James Hughes, who joined the company in March as the chief commercial officer. He was the CEO of AEI, which is an owner of power plants and natural gas distribution. “He has owned and operated utilities, built power projects, created local teams and partnerships and led profitable growth in numerous markets around the world, including many markets we’re targeting now in our five year plan,” Ahearn said during a conference call Thursday. First Solar also announced Thursday the retirement of its chief technology officer, Dave Eaglesham, and the appointment of Raffi Garabedian for that post.
The Arizona company is one of the largest solar panel makers in the world and has built a reputation for being able to produce them cheaper than its competitors. But a global oversupply of solar panels over the past year, one that has caused just about every solar manufacturer to post losses, is blunting that competitive edge.
First Solar’s shares have tumbled from $134.66 per share a year ago to $18.07 per share at the close of the market on Thursday. First Solar posted a net loss of $5.20 per share for the first quarter, compared with a net income of $1.33 per share a year ago. It generated $497 million in revenue for the first quarter, down 12 percent from $567.1 million a year ago.
Last December, Ahearn said the company would work in earnest to move more into markets that don’t depend heavily on subsidies. Until now, government subsidies — from guaranteed solar electricity prices to big loans and tax breaks — have fueled much of the solar market’s growth worldwide. Those subsidies, while lucrative at the start, also can fall away quickly and sometimes unexpectedly because of economic downturns and changing political views. Those changes have led to boom-bust markets and oversupply problems, and solar companies are all trying to figure out how to reduce their reliance on subsidies.
Last month, First Solar announced major cost-cutting measures that reflected its move away from mature markets such as Germany. The company said it would close its 500 MW German factory, half of which it brought online only last year. The company is also laying off 30 percent of its global workforce and has opted not to open factories in Arizona or Vietnam.
The company made a smart move into the project development business and bought Turner Renewable Energy in late 2007. It then boosted its pipeline of projects under development when it spent $400 million to buy a massive unfinished project in North America from OptiSolar in 2009. Several subsequent acquisitions of project development companies later, First Solar emerged to become the largest solar farm developer in the country.
Now, the company intends to focus on this business and move away from what it started off doing: selling solar panels to distributors and other developers. The move is meant to set it apart from its chief rivals, mostly Chinese solar panel makers. Some of them recently began project development work in China, and some have gotten into project development in other parts of the world. But none has achieved nearly the scale of First Solar.
A big part of Hughes’ job is to market First Solar’s project development, construction and operation skills. The company has been building projects as big as 550 MW, and doing it pretty fast. NRG Energy said Thursday that the 290 MW Agua Caliente project in Arizona is set to be completed and start delivering power three months ahead of schedule in 2014. First Solar also has accumulated operational data from completed projects that it could use to show customers that it’s good at operating solar farms and delivering power reliably, Ahearn said.
In outlining a 5-year plan (initially it was supposed to be a 3-year plan), Ahearn said the company will set out to accomplish three things in markets that don’t depend heavily on government subsidies: deliver solar electricity at prices that are competitive with the power sold locally ($0.10-$0.14 per kilowatt-hour is the goal by 2016); design projects that will behave more like conventional power plants; and make it easier for its customers to integrate solar into the electric grid without significant costs. Although Ahearn didn’t provide many detail how the company will achieve these goals, the use of energy storage and other technologies to overcome the intermittency of solar power generation will be key to accomplishing them.