How to survive Czech’s demise10. March 2011 | Top News, Markets & Trends, Industry & Suppliers | By: Becky Stuart
How does a company survive when its home market collapses? Michal Gärtner, CEO of Photon Energy speaks to pv magazine about the company’s survival strategy following the introduction of Czech’s retroactive solar tax and its ruthless tariff cuts.
Last December, the Czech Government sent shock waves throughout the PV industry after it voted in favor of introducing a 26 percent retroactive solar tax and scrapping all support for ground-mounted projects.
While it was recently announced that this is to be reviewed by the country’s Supreme Court, Jaroslav Dorda, managing director of Czech PV site SolarniNovinky.cz reports that solar investors are likely to lose over several million euros before the tax is cancelled. He says that based on available estimates, the incurred losses of the investors amounted to well over €10 million in the period from January to February 2011.
As a fully operational downstream company that grew up in the country, the legislative changes have obviously impacted on Photon Energy’s operations. "We’ve had to revalue our project portfolio downwards," explains CEO Michal Gärtner. "We’ve taken basically a step to revalue those projects, taking into account the three years with the 26 percent retroactive levy - this has obviously had an impact on the balance sheet."
He goes on to tell pv magazine that although the company’s Czech projects still retain a positive value, its balance sheets have taken an approximately 200 million Czech crown hit. Not exactly small change.
Market diversification - Europe and beyond
Consequently, he says Photon Energy is focusing on market diversification. While Slovakia and Italy are the company’s key markets, it is eyeing up expansion elsewhere too.
"For 2011," continues Gärtner, "our main goals are to complete projects which we have acquired and been working on for the last year. In the Slovakian market, we have support for greenfield ending in the middle of the year, so we are concentrating mainly on those projects.
"We have around six to eight megawatts (MW) in the pipeline, and we really have to make sure we can complete and connect them by June 30. Last year, we opened a Slovak office, because that was considered to be one of the natural markets to move to from the Czech Republic."
Since February 1, Photon Energy has also had an office in Milan, Italy. "We are working very hard in the Italian market and have several rooftop projects, which we are bringing to the final stage," says Gärtner. While he cannot provide project specifics, he does say that each system will be several hundred kilowatts (kW) in size, while the total pipeline is just over one MW.
He adds that the company is working on a number of larger projects with investors. "At this stage," he explains, "all we can really say is that they are significantly larger than the rooftop projects. Currently they are at the negotiation stage."
The next step for the company in terms of its European plans, is to open an office in Germany, within the next few months. "We are already working very closely with local consultants," he says.
Has the company found it hard to enter Germany, the most mature market globally, at such a late date? "It is completely different, because it is the world’s largest market," Gärtner states. "It is (…) a market that, with the FIT reductions, is declining in terms of newly installed volume. What it does present us with though is a level of certainty and predictability, and a very good legislative framework. This is very important for us, and is one of the reasons why we are very keen on the German market. Another one is the funding - the funding costs for PV plants are amongst the lowest in Europe."
Looking outside of the European market is also something Photon Energy is keen on doing. Gärtner explains that, due to both personal reasons - he grew up there - and the fact the country is likely to be one of the first to reach grid parity, the company is seriously eyeing up the Australian PV market. He says: "There are opportunities definitely emerging in Australia, in particular due to the high level of sun irradiation and a stable legal and regulatory framework."
While no contracts have yet been signed, Gärtner adds that the company will continue to do business development work down under, and it is "very likely" that it will be setting up an office in Sydney in the near future.
What about specific projects or partners? "I would say what we are trying to do is to look for projects where we will not need to apply for state support. We are also looking at who we could cooperate with."
In addition to entering new markets, Photon Energy’s CEO tells pv magazine that another effective way of staying on top of competition is to offer a whole range of downstream services.
"We have always made sure we have the whole downstream value chain covered. As such, we have Photon Trading, which deals with both wholesale trading of PV components and purchasing for the company, Photon Engineering, which deals with engineering, procurement and construction (EPC), Photon Finance, which arranges financing and insurance, and Photon Management, which deals with long-term operations and maintenance. All this means that we can capture much of the downstream value chain and, by integrating all those aspects, we have a powerful solution for photovoltaic applications," he explains.
Photon Energy ended last year with over 15 MW operational in the Czech Republic and 4.7 MW operational in Slovakia. The company builds projects both for itself and third parties, the benefits of which are many, according to Gärtner.
"The advantage is that we are flexible in the market," he says. "By doing our own projects, we are able to control the whole process, from construction all the way through to the financing allocation of capital. Then in the long term, we carry out the operation and maintenance."
He concludes: "On the other hand (…) we can operate as a successful EPC, because other companies can see that we are willing to invest in our own projects, and that we are very sensitive to quality and long-term return on the investment. So, the whole projecting of the plants, building them, financing them and, in the end, operating them - this integrated model is one of the major strengths of our business and a valuable competitive advantage."
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