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First Solar: sustainability through innovation and vertical integration

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How First Solar, a global leader in the solar photovoltaics industry, is sustaining its competitive position with emphasis on process integration and expansion into countries with sustainable solar energy markets.

Introduction

First Solar Logo

Flashback to 2011. The global solar photovoltaics (PV) manufacturing industry experienced the biggest consolidation in its short history. Driven by generous solar subsidies, manufacturers increased capacity to match the increasing global demand. However, regulatory changes in different countries reduced solar demand and led to an unsustainable oversupply situation.[1][2] Solar module prices went down, turning margins of the high-cost producers from profits into losses and leading to a wave of bankruptcy filings.

Flash-forward to 2015. With over 10 gigawatts (GW) installed worldwide, First Solar is today the global leader provider of PV energy solutions.[2] By integrating technologies and expertise across the entire value chain, First Solar delivers solar energy solutions that maximize value for investors and customers across the world.[2]

Business Model

First Solar has arranged its business around its proprietary Cadmium Telluride (CdTe) technology and focused on creating value in two main segments: components and systems. While the first focuses on the design, manufacturing and sale of solar PV modules, the latter provides the complete turn-key PV solar power system. First Solar can do so by leveraging its capabilities in project development, Engineering-Procurement-Construction (EPC) services, Operations & Maintenance (O&M) services and project finance.

Cost reduction

Industry analysts believe the PV module is becoming a commodity.[3] In an industry traditionally dominated by low-cost Chinese suppliers, First Solar emerged as the lowest cost per watt option with its innovative CdTe thin-film technology.[1] The company focuses on driving cost further down and maintain good margins.

Sustainable growth, by focusing on sustainable markets

First Solar has been looking to expand into developing markets with a combination of increasing price of power generation, vast solar resource and industry in need for cheap energy alternatives. [4][5] As CEO Jim Hughes stated, “You have to look at time of day, season and location to determine the true cost of power, and there are lots of times of day, seasons and locations where solar is economic today without subsidy. So our focus is to find those places, times of day, and market structures where we can apply ourselves.” [6]

Figure 1. First Solar PV cost compared to other conventional sources
Figure 1. First Solar PV cost compared to other conventional sources

Operating Model

The company has implemented the structure and processes to reduce costs and tap opportunities in emerging solar markets according to its business model.

Differentiation through vertical integration

First Solar focused on leveraging its expertise in the design, manufacturing and sale of PV modules to expand towards the development, construction, operations, maintenance and recycling of turnkey PV systems. That way, the company established its presence across the entire solar value and differentiated from competitors who lacked its capabilities. [4]

Figure 2. Creating value through vertical integration
Figure 2. Creating value through vertical integration

Product Research & Development

First Solar invests in R&D more than any of its competitors. [7] Historically, the low cost of First Solar’s CdTe modules has been the key to its market performance. The company managed to increase the module conversion efficiency 0.5% per year for the last 10 years.[8] That allowed First Solar to win two world records for PV efficiency and stay ahead its competitors in cost reduction. In addition, First Solar is investing heavily in the development of proprietary PV plant control, energy scheduling and forecasting systems, which ensure reliability and stable grid integration for the end-consumer.

Manufacturing process

The company manufactures its modules in high throughput, automated environment that integrates all steps into a continuous flow line. [9] It only takes 2.5 hours to manufacture the complete PV module. First Solar operates 18 manufacturing lines in 7 factories, each line producing 2,500 modules per day. Over the last years, First Solar has focused on improving durability and manufacturing efficiencies. Its proprietary PV module manufacturing process is shown in the video below.

Project development

First Solar requires a sizable pipeline of projects in different geographies to deliver future growth. As of today, the company has developed one of the largest contracted solar power pipelines in the world (approximately 3 Gigawatts). [10]

Acquisitions

In 2013, the company decided to acquire TetraSun, a start-up manufacturer of high-efficiency crystalline silicon modules for use in specific applications with limited space.[11]

In 2014, the company acquired Skytron, a provider of monitoring and control systems for PV plants.[12] Those acquisitions reinforced the company’s capabilities to deliver according to its business model.[13]

Partnerships

First Solar executed many joint ventures with local project developers in attractive emerging countries.[14] Such arrangements allow it to expedite its penetration and establish relationships quickly. Furthermore, it also created a joint venture with GE to develop the next generation of fully-integrated PV systems.[15]

Conclusion

First Solar has developed a well-executed operating strategy to sustain its cost competitive advantage and global leadership position. The company went even further to make solar PV the cheapest energy solution in a variety of places, making our world a cleaner and more sustainable place.

Sources

[1] http://www.greentechmedia.com/articles/read/pv-module-oversupply-in-2011-first-solar

[2] http://www.solarpowerworldonline.com/2012/06/the-what-and-why-of-panel-oversupply/

[3] http://www.greentechmedia.com/articles/read/are-pv-modules-a-commodity

[4] http://www.firstsolar.com/

[5] http://gigaom.com/2011/12/14/first-solar-slashes-forecast-staff-plans-to-flee-subsidized-markets/

[6] Interview with First Solar CEO, Jim Hughes: https://www.youtube.com/watch?v=TVmxpKtIh0w

[7] 2014 Annual Report, http://investor.firstsolar.com

[8] http://www.firstsolar.com/About-Us/Research.aspx

[9] http://www.firstsolar.com/en/Technologies-and-Capabilities/PV-Modules/First-Solar-Series-3-Black-Module/Manufacturing-Process.aspx

[10] http://www.firstsolar.com/Technologies-and-Capabilities/Project-Development.aspx

[11] http://gigaom.com/2013/04/09/why-first-solar-is-buying-a-silicon-solar-panel-startup-no-ones-heard-of/

[12] http://www.greentechmedia.com/articles/read/first-solar-acquires-skytron-energy-giving-it-a-boost-in-europe

[13] http://investor.firstsolar.com/releasedetail.cfm?releaseid=851993

[14] http://investor.firstsolar.com/releasedetail.cfm?ReleaseID=913948

[15] http://www.power-eng.com/articles/2014/03/first-solar-ge-develop-next-generation-pv-power-plant.html

4 thoughts on “First Solar: sustainability through innovation and vertical integration

  1. Great post. Fascinating company with a cool combination of purpose and operating efficiency. Thank you for sharing!!

  2. Nice post. Great to see how a well executed operating model through strategic expansion in to sustainable markets and vertical integration can lead to a company’s success.

    I was wondering if First Solar has any collaborators that help it connect to a overall electric grid. One of the main challenges of solar energy is the ability to store the energy for a time when it is actually needed. Are there opportunities for them to partner with companies like Tesla who are designing battery systems for the home that can be used in combination with PV manufacturers?

  3. Thank you for your great comment, Sid! Your question is spot on touches one critical area for effective renewable energy integration. Below my view on it, both at large scale projects and residential systems.

    First Solar has been almost completely focused on the deployment of large utility-scale standalone PV plants (in the 20-300 MW range), giving the grid operator the capacity to regulate / dispatch power offtake from solar PV plants with other sources of generation at its territory (coal, gas, hydro, pumped storage, etc). In other words, overall grid integration was the responsibility of the grid operator. However, just last week First Solar announced a stake on a $50m investment in Younicos, a German start-up focused on deployment of large scale energy storage (big battery blocks). This interesting development might lead First Solar to integrate energy storage systems together with the PV system, hence facilitating the integration and dispatching functions for the grid operator. So to answer your question, First Solar is exploring already this option at the large scale project level.

    On the residential level, First Solar is not present neither at PV nor at energy storage. This segment is dominated by players like SolarCity, which recently partnered up with Tesla for a bundled product including solar modules (SolarCity) and batteries (Tesla’s Powerwall). The partnership makes definitely sense and is not surprising at all (Elon Musk is a common factor in both companies).

    With all this in mind, I believe First Solar will progressively integrate energy storage as an add-on in its offering for grid operators. Should the company enter the competitive residential market, it will have to evaluate how to differentiate and outcompete tandems such as SolarCity-Tesla.

  4. Great post Alfonso! Following up on Sid’s comment and your reply: do think that FirstSolar can and should leverage its capabilities in the PV sector in order to do a parallel move into other forms of solar energy? For example, do you believe that FirstSolar should expand into the Concentrated Solar Power?

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