How well situated is Hanwha SolarOne in these difficult market times?
We are well positioned, thats easy to say but difficult to do. Many sustainability issues are based on the cost position and the cash position.
In terms of cost position of production, we are one of the cost leaders because with one gigawatt (GW), we have the scalability effects of having purchasing power for materials and we have good contracts for other raw materials. We are also not a part of long-term silicon contracts, we didnt sign those, so we are pretty much on the spot market for silicon, which is a big plus for us at this time.
On our cash position, we are in a good position with our financial position, our debt rate is very, very low one of the lowest of the top ten players so we dont have financing costs for those debts. Other players bring these debt and financing costs on top of the module price, so to speak. Our cash position, out of our own operations at Solar One, we had a healthy track record for cash, even though in 2011 it was not profitable, but it was not a giant minus like others did. Also second to that is that the mother Hanwha in Seoul can feed in some cash if needed, or at least go in for credit lines which is very, very helpful. So for cost position and cash position, together they are key to survive difficult market times.
With the US$150 million credit agreement last year and also US$100 million a month ago, how important is having a parent company to securing that credit?
This is one very important point of course, because the parent company helps to generate the trust of banks that we may need. Another important point is that we are positioned into other countries, we are a Chinese company because we have such a large labor force in China, so we access Chinese bank loans, but on the other side we are a Korean company so that gives us more flexibility in terms of getting loans.
Also the loans were not tightly bound to expansion enlargement, theres a mix of investment into technology, but also for revenue financing, project financing and seeing how such a loan can be used.
Do you still have plans to become completely vertically integrated?
I think the healthy setup here is that we started to build our silicon plant last year and we are absolutely on time concerning the projects planned. We go online next year with 10,000 megatons (MT) in South Korean for silicon. The good thing is that with this project, it is not somewhere hidden or even burdening the balance sheet or our module division with ingot cell, wafer making before the module , but it is an independent operation that has to be profitable by itself.
Even with the falling cost of polysilicon, that doesnt change the strategy there?
Our analysis shows that with 10,000MT you have the leverage by scaling to be competitive with the giants like Wacker and Hemlock, but in terms of scaling effects 10,000MT is the critical level. If you go lower than 10,000MT you might be too small to cover all the overheads efficiently. And again we use state-of-the-art technology and equipment that is purchased right now, so we see that the cost benefits that will mean we will see cost competitiveness next year.
Whats the roadmap for Hanwha SolarOne to return to profit?
We have a roadmap to be mid-term profitable again. We honestly dont believe that prices will be significantly increased, so we prepare for a scenario where prices are more-or-less stagnant, short-term they might recover a little but mid-term there can increases we can rely on. So we have to see how we can be profitable with existing price levels, so we have to bring down costs significantly.
We are striving for utilization rates or the 80 to 90 percent today we are around 50 percent. But we will increase that step by step. Secondly, we think that the silicon prices will fall favorably for us. The third step is that small technological improvements, such as thinner silver lines or even back contacting and cell efficiency gains, can be used as tools to return to efficiency and run down costs.
What is the roadmap to getting to that 80-90 percent utilization rate?
We are very shy of expanding capacity right now. We want to bring up sales to the capacity we do have, at the same time we might phase out one or two lines from our production. We may look at interesting business models to bring in our used production lines in partnership, to where production is needed. We will keep our production capacity stable because also the efficiency increase, which lies in state-of-the-art equipment, is immense.
How would you describe the pressure on R&D in such a cost competitive environment?
You can see from recent product launches from our competition that it is very hard, because it is not only the game to bring high efficiency out, for whatever price. You have seen high efficiency modules on the market, such as 250 255 watt, with new technologies that are simply too expensive. So you have to manage the conflict between cost competitiveness and technology improvements, especially cell efficiency improvements. So we are watching the products on the market, like selective emitters and back contacting devices. We are implementing these step-by-step on test lines. But we are taking the time that is necessary to make these improvements cost efficient: It doesnt help to have a fancy car that is far beyond all cost expectations!
How many engineers do you have working in R&D?
All together we have 100 people focusing only on mid-term and longer-term R&D. We have three R&D centers: In China, its good to have engineers close to production obviously, we have centers in Seoul, Korea and also we opened a new center in Santa Clara two or three months ago, where we hope to tap into the think-tank spirit there.
With a diminishing OAM role, how is HanWha SolarOne pursuing enhanced sales channels?
Ironically enough we were, for a long time, pretty limited by our location in the years 2009 and 2010 we had a location where we had more demand than we could supply to. That made us pretty strong in the OAM segment, pretty strong in the German market and not that strong to other markets outside of Germany. So the key initiative in this year is to access market potentials in other countries outside of Germany, so Italy, the UK, Eastern Europe and smaller companies such as Greece, Belgium and so on. We have pretty weak market share there, our aim is, in the long run, to have all of these markets with about 10 percent market share and there is still a lot of room for us to grow.
Then the question is, do we have a unique offering for customers? I think we have the right combination of high-quality modules, with Korean-quality mindset, Korean-quality spirit, plus financing tools, such as the ability to do bridge loans, and last but not least a very stable company that will still be there in 20 years. This combination works for customers and will help us to reach our market potential.
Does that require a major investment into sales channels?
I cant give detailed numbers but we are expanding, we are continuing to hire people especially in those countries that I have mentioned. We are investing in our brand promotion and brand positioning, so marketing expenses increase. So far it was the main goal to go in the direction of brand sponsoring, such as our sponsorship for Juventus Turin, and we have other marketing partnerships in other countries as well on the soccer field.
Looking downstream, are their any JV in the works or some larger channels, even just to provide a safe harbor for some of the production?
We have different approaches. We are very disciplined and careful in Europe, having a good portfolio of customers, to complete the customers activities and not to cannibalize them. So many of our customers are EPCs and thats the reason why we dont feel we need to be an EPC also nor a project developer. But when it comes to finance, we do invest in projects, and thats a second business line that we are establishing. We buy project rights from project developers, make our partners who buy modules off us, give them contracts for EPC services, and bring the project to life and then keep that as an asset.
In terms of other downstream, we also invest in companies that have all sorts of financial tools in mind. The most recent acquisition was the company OneRoof Energy in America, which is looking at a leasing model, and we are thinking of how to do that in Europe and access that market opportunity as well.
Do you feel that there is a potential for solar leasing in post-FIT Europe?
Absolutely, in places like Italy where financing is crucial that could be a big leverage. Also customers in solar are sometimes shy to invest that much money in one lump sum, when they have some regular payments over time, then it makes investment much easier.
Would that be looking for third-part financing as well?
Absolutely, we want to include banks of the region, or the customers in that type of projects. Securitization could also be done with help from our side, accessing the securitization tools and experience that we have.
Where do you see the major channels for sales in the future?
In Italy the market is changing drastically. It was a large-scale ground-mounted market, with EPCs being very competent in the ground-mounted segment. They now turn to rooftop, residential and commercial and we see that there is much we can do to facilitate this migration. So in Italy we are looking at the product portfolio with residential and commercial market segments. This has to do with product performance, not only in efficiency but also in efficiency per meter. BIPV is getting more and more attention and other ideas such as greenhouse modules. And that trend is widespread across Europe.