COLUMN-Solar market shift threatens western producers: Gerard Wynn

Thu May 9, 2013 8:53am EDT

By Gerard Wynn

LONDON May 9 (Reuters) - U.S. solar module maker and project developer First Solar illustrates wider industry efforts to secure new markets in a shift away from the United States and Europe.

That was before the U.S. and European imposed and planned import duties against Chinese products, which may hinder exporters seeking to tap one of the world's fastest growing markets.

The European solar market shrank last year for the first time this century, and this year will be less than half the global market for the first time since 2003, according to data and forecasts from the trade body, the European Photovoltaic Industry Association (EPIA). (See Chart 1)

Meanwhile meteoric U.S. market growth of some 76 percent in 2012 will slow, exposing First Solar which derived 56 percent of total net sales last year from utility-scale projects in California.

Arizona-based First Solar is one of the world's largest PV module manufacturers and also builds utility-scale projects for financial and energy company buyers after its acquisition of two leading U.S. developers.

It has signalled a shift away from Europe, in particular after Germany scrapped support for large-scale projects, closing its manufacturing operations in Frankfurt at the end of 2012.

"We continue to shift our selling efforts from the European markets, in which we have historically generated a significant portion of our net sales, to new markets, in which we have not historically generated any meaningful portion of our net sales," it said in February.

It is instead targeting a combination of sun-belt and high growth markets, such as China, India, the Middle East, South Africa and Chile, which it terms "new sustainable markets".

It defines these as markets where: "demand for power that exceeds current supply; high existing power prices; and abundant sunshine", in its 2012 annual report.

The strategy reflects the desperate need of the global industry to find new demand to mop up a global glut in modules, where subsidised markets in Europe and the United States are waning or slowing and anyway fail to match product supply.

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Chart 1: (page 34)

Chart 2: (page 51)

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CALIFORNIA

First Solar presently has a U.S. pipeline of massive projects which it expects to complete by 2015.

They are: a 550 megawatt (MW) project in San Luis Obispo County, California (Topaz Solar Farm); a 550 MW project west of Blythe, California (Desert Sunlight Solar Farm); a 290 MW project in Yuma County, Arizona (Agua Caliente); and a 230 MW project located just north of Los Angeles, California (Antelope Valley Solar Ranch One, or "AVSR1").

The grid-connected portion of the uncompleted Agua Caliente project is already the largest operating PV power plant in the world, it says.

Beyond 2015, the United States will continue to represent a significant portion of the company's sales.

It has added over the past year new permitted projects in California and New Mexico which are all smaller than the above, including: Campo Verde (139 MW); PNM II (22 MW); Macho Springs (50 MW); Lost Hills (32 MW); and Cuayama (40 MW).

Its less advanced project pipeline, where it has executed power purchase agreements but not yet secured permits, includes bigger projects including the 300 MW Stateline project in California and the 250 MW Silver State South project in Nevada. (See Chart 2)

NEW MARKETS

First Solar announced at the end of 2011 its long term strategic plan (LTSP) "to transition primarily to sustainable opportunities" by the end of 2016.

"Execution of the LTSP will entail a reallocation of resources around the globe, in particular dedicating resources to regions such as Latin America, Asia, the Middle East, and Africa where we have not traditionally conducted significant business to date," the company said in an update three months ago in its 2012 annual report.

A year ago, First Solar had a presence in the United States, Canada, India, Europe and Australia.

As of its first quarter results, earlier this week, it said it had added South America, China, the Middle East and North Africa to the list.

Some of these new initiatives are necessarily limited, as early stage ambition.

China was the world's second biggest solar market after Germany last year, installing some 5,000 MW, according to the EPIA.

In December, First Solar announced its first commercial demonstration project, in a collaboration to supply 2 MW of modules to local developer Zhenfa New Energy Science & Technology Co. Ltd.

In the United Arab Emirates, First Solar was selected by the Dubai Electricity & Water Authority to construct a 13 MW power plant near Dubai, the first stage in the Emirate's plans for a solar park with 1,000 MW capacity by 2030.

In its most significant expansion, it announced in January its acquisition of Solar Chile, a Santiago-based solar development company with a portfolio of projects at various stages totalling approximately 1,500 MW in northern Chile, including the sun-drenched Atacama Desert region.

LOCAL CONTENT

First Solar itself acknowledges the wider risks to its strategic plan of focusing on new regions, including: grid stability in emerging economies; local content policies limiting module imports; the availability of local skilled staff; and local competition.

Regarding local content, South Africa has ambitious targets for renewable energy by 2030 in its Integrated Resource Plan.

Published data show rising local content at 29 percent and 48 percent in bidding rounds one and two of the plan which together allocated 1,049 MW of solar PV.

Regarding inertia, the Middle East presents uncertainty over the timing of implementing ambitious targets.

A Saudi government advisory body last year recommended a target for about 41,000 MW of solar energy by 2032, but the country has installed less than 15 MW.

"While the expected potential of the MENA (Middle East and North Africa) markets is significant, policy promulgation and market development are especially vulnerable to governmental inertia, political instability, geopolitical risk, fossil fuel subsidization, potentially stringent localization requirements and limited available infrastructure," First Solar said in February.

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