September 20, 2010 / 1:49 PM / 9 years ago

First Solar CEO betting on U.S. as Germany fades

TEMPE, Arizona (Reuters) - First Solar is banking on slate of new, large solar projects to prove the renewable energy source can thrive and create a strong market in the United States, the company’s chief said, especially with demand in Germany poised to shrink next year.

First Solar, the world’s largest photovoltaic company by market value, is currently building three large photovoltaic solar plants in the North America and has plans to start construction next year on its biggest yet: the 290 megawatt Agua Caliente plant in California.

That plant will be equal in size to some natural gas-fired plants and require more than 5 million of First Solar’s thin film modules.

“I think for the industry these first several major utility-scale sites are critical for the momentum,” Chief Executive Robert Gillette told Reuters in an interview on Friday.

Gillette took over as CEO last October from Mike Ahearn, who, backed by investments from Wal-Mart’s Walton family, turned First Solar into the cost leader in solar module manufacturing.

Gillette, previously an executive at Honeywell Aerospace, has sped the company’s push to build the large-scale plants by naming CFO Jens Meyerhoff as the head of a new group to focus specifically on those projects.

Much of solar’s growth has been on home or business rooftops, or smaller, ground-mounted facilities, but the utility-scale business will be crucial to First Solar as a sales outlet for its thin film modules, which are being used to power projects such as the 80-MW plant in Sarnia, Ontario, owned by Enbridge, and the 58-MW Copper Mountain, Nevada, plant that is owned by Sempra Energy.

“Now there’s a high level of interest. A couple of years ago, we’d be knocking on the doors and no one would open them. Now they call us,” he said.

The company has module manufacturing plants in Ohio and Germany and is building a plant in France. But more than two-thirds of its production is done in Malaysia, where it is also increasing manufacturing capacity as it moves toward its 2012 goal of more than 2,200 MW total output per year, equivalent to a large nuclear power plant.

Unlike most photovoltaic solar companies, First Solar does not use silicon-based cells. Instead, it builds its thin-film cells from cadmium telluride, which can also turn sunlight into electricity.

The $297 million purchase of Nextlight Renewable Power in July added more than 500 MW of projects to First Solar’s “systems” business that builds solar power plants and sells them to customers. That business has a project pipeline of more than 2,000 MW, and the company expects to announce more in the coming months as its signs deals to sell the power output.

Gross margins from building the plants are typically in the teens, far less than the 50 percent margin the company earns on module sales, but the company sees that business’ growth as a crucial way to keep the demand strong for its modules.

That makes it critical for the company to win new utility-scale solar projects in the United States, the market that nearly every manufacturer expects to leap ahead of current leader, Germany, in the next few years.

But U.S. utilities have been slow to embrace solar, and the market has not grown as fast as many experts in the industry had hoped. That market expansion is at the forefront of First Solar’s strategy.

“A big part of what we’re doing is to drive technology adoption. We really believe that if we weren’t doing what we’re doing, the market would grow at a slower pace,” Gillette said.

“A lot of (solar companies) are thinking about things that are expedient for next quarter. We try to think 20 years out,” he added.

GERMAN CONTRACTION

Global solar sales for the industry are set to hit record above 12,000 MW this year, paced by strong demand in Germany, where many developers have been racing to build projects as incentives there ramp down. That market, where First Solar sells half its modules, is expected to take delivery of a total of between 6 MW to 8 MW of modules this year.

While some companies expect Germany’s 2011 demand could match its 2010 levels, Gillette is skeptical, even with the country’s goal of increasing renewable energy’s share of electricity production to nearly 40 percent by 2020.

“I think that they’ll continue to do a range of 3.5 to 4 (megawatts per year),” Gillette said. “Seven or 8 is just mind blowing, to maintain that kind of pace.”

First Solar also has its sights set on winning large projects in Australia, which it expects to announce in the coming months, as well as other markets around the globe.

It was the first non-Chinese solar company to sign a framework agreement in China to enter the world’s fastest growing renewable energy market last year with plans to build a 30 MW project at Ordos City, Inner Mongolia, that will ultimately grow into a 2,000 MW plant .

But progress on signing final contracts has been slow, since China, which has directed tens of billions of dollars to its own solar manufacturers, has yet to create the incentives for that would allow First Solar to sign power sales contracts. The company had originally hoped to begin construction on the project in June.

Gillette said he was confident the China’s market would expand, but that First Solar would not enter the market at any cost.

“We just want to make sure that we’re participating in a way that’s meaningful to us and that’s profitable,” he said. “We want to see something that makes sense.”

Editing by Marguerita Choy

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