Tremendous demand: An interview with First Solar CEO Mark Widmar

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Editor’s note: Earlier this month pv magazine Americas Editor Christian Roselund traveled to First Solar’s Analyst Day in Ohio, where the following interview was conducted.

pv magazine: I noticed that First Solar has commitments up through 2020 for Series 4, and a significant portion of Series 6. Are you doing any prioritization of certain markets for Series 6 over others, or is it first come, first serve?

Widmar: It is a difficult balance right now, because we have something of an inverted procurement process. The normal process would be that you have the opportunity to secure a PPA, a contractual off-take agreement, and potentially you would have an EPC opportunity, and then someone would look to procure modules.

In some cases, what we are seeing now in the U.S., and even in some of the international markets, because of somewhat limited supply, especially of high-quality, high-efficiency modules, is that people are buying modules even in the absence of having firm, committed off-takers in some cases. Or buying the modules much sooner than they would otherwise.

So we are trying to prioritize to make sure that we can support our key international markets. We are trying to prioritize for our own development opportunities, either what we have contracted or what we have currently in the process of being short-listed, or in the process of having a signed agreement, but not having an announced agreement, because it could be  a CP is required, such as the commission has to approve.

We have, for example, awarded utility agreements — a few hundred megawatts — which are subject to public utility commission final approval. We won’t recognize them as final bookings until that actually happens, but we are reserving the volume for that.

But it is hard. We are seeing tremendous demand in the U.S., that is somewhat pulling in volume that we could potentially otherwise serve international markets with.

 

pv magazine: So do you think there is a possibility that people will be looking for modules as early as the second half of next year, and will be told that they have to wait until 2020, or that you just can’t get them?

Widmar: I think that there could be certain situations where customers could find themselves without adequate module supply. Some of it depends on what happens with the 201 case. The other thing is that there is a potential anti-dumping case in India right now. That could be another inflection point depending on how it plays out.

If there is a successful 201 case in the U.S. and if there are some restrictions around imports coming into India, then I think what happens is that a lot of the other international markets have an abundance of supply, because that supply, largely sourced from China, is going to have to go somewhere. So you could see much more demand in some of the international markets outside of the U.S. and India.

If neither one of those go through I think near-term it could be a very tight module supply situation.

 

pv magazine: To get back to the 201 case, I noted that First Solar took the step of, even though you are not formally involved in the case, coming out and making a statement during the remedy phase. Why was it important for First Solar to make a statement in this case, and what are your thoughts more broadly on 201 and what is ramifications are?

Widmar:   As you noted and everyone knows, we are not part of the case. We are not a petitioner to the case, we have not been active in the case. But a lot of the commentary that was coming through was directed at First Solar. Even to the point that First Solar should be held up differently and as an example of what Suniva and SolarWorld should have done in order to effectively manage their business in order to compete, and if they would have done that they would have been successful and they wouldn’t need the protection of  tariffs.

What we wanted to do was to provide a balanced view. We as a company, even though we aren’t part of the case, have also been impacted by the surge of imports. There is no doubt about that. We wanted to make sure that was well understood.

Secondly, there were undertones in comments around First Solar that we didn’t think were accurate in terms of the potential results of potential 201 case, depending on which way it comes through. We wanted to make sure that we have a voice. That’s why we made the statement that we did.

I don’t necessarily envision that we could do anything else at this point in time. The only thing that we continue to say — and we’ve highlight this in earnings calls — is that we do believe in free and fair trade. If you look at this case objectively you could certainly argue that there was a surge of imports that has been harmful to U.S. manufacturing.

We’d love to find a way to have more U.S. manufacturing. A remedy that is modest in nature should not have any adverse impact to the overall demand for solar. We’ve highlighted that, for every three cents, there is about a dollar of PPA impact. So if you had something that is a six to nine cents type of tariff, you are talking two or three dollars on the PPA price. For a PPA price with an off-take agreement that is fixed for 30 in some cases, two or three dollars is not going to have an impact on whether or not that project goes forward or not.

 

pv magazine: To switch gears slightly to the other pending policy matter, tax reform. Assuming that the BEAT provision and the AMT go through as written, what are you expectations of potential impacts to the U.S. market, and what is First Solar doing to prepare for any impacts?

Widmar: There are a couple of things that we need to look at. First off, the BEAT – the base erosion anti-abuse tax – is largely going to have an impact on the tax equity market.

We are starting to see more utility-owned generation, which is not going to be impacted by the BEAT tax. I think what could happen is that you could see more procurement from the utility in wanting to own the assets and then less trying to enter into the PPA off-take agreements, because those are the contracts that are going to require tax equity dependency.

So I think you need to put that to the side. And we have procured successfully hundreds of megawatts that we will deliver over the next couple of years for utility-owned generation.

This is a growing part of the market and I think that will continue. As it relates to the PPA structures or even the C&I market with utility-scale off-take, tax equity is a dependency. I can’t give you a sense of clarity around the implication because there is not enough of an understanding at this time.

There are two different forms, both the House and Senate have a version of it in their bills. We will have to see how it all comes together. Depending on who you talk with, it represents a significant impact to the tax equity market, in other cases it is less of an impact.

Normally what we have seen happen is that new sources of capital will come into the mix. And if there is a source of capital today that is active in the marketplace that is impacted by the BEAT tax, generally we will find other forms of capital that are going to come in and replace that.

The tax equity returns that investors are seeing today are very robust, and better than the cash equity returns in some cases. So it is just a matter of understanding what the provisions mean, and then trying to identify and source capital differently to still be able to monetize some of the tax credits that are associated with these projects.

 

pv magazine: When I look at the combination of things going on right now, the potential for the tariffs and/or quotas in the Section 201 case, plus the changes to the tax code, plus the Notice of Proposed Rulemaking at FERC, as a market participant what are your thoughts on how these things will affect the U.S. utility-scale market in the next couple of years?

Widmar: There is a convergence of a whole bunch of items that are happening right now, and each one of them will have different potential implications around the market.

The 201 case, as I indicated, with a modest remedy has limited impact on the overall demand.

Quotas – the same type of issue, per se. If you put a quota in place it limits the amount of modules that can come into the market. That can have a different adverse impact than a tariff, because a tariff effectively says that you can still supply modules in to the U.S., the projects will just have to afford the economic impact of the tariff.

The quotas could have a more immediate impact on limiting demand. It could result in a more robust U.S. manufacturing base, but that is going to take time. So you could have a near-term impact but a longer-term normalization. So you are going to have to see how that plays out.

The notice… that is still going to be worked through. When you get underneath and figure out what they are trying to address, I think it is no different than some of the issues that have been identified around renewables and the impact on the reliability and stability of the grid. And what you really have found when you look at it is that renewables, solar, and especially utility-scale solar with proper power plant controls and smart inverters, can actually improve reliability and stability of the grid.

So I think it is just another one of those things that will have to be better understood. And as people continue to evaluate and look at it we are probably going to come to a view that it’s not going to be something that will be needed.

And while it could have a short-term impact on procurement decision-making, it is not going to have a long-term impact. Renewables are economic, affordable, viable and have benefits that aren’t completely valued in the market today. Like controllable, flexible, eventually storage and dispatchable…. I think when there is a whole comprehensive real understanding of what renewables can provide as a viable long-term energy source, over the long term I don’t see anything that changes the demand profile for solar in particular over the next 5-10 years.

 

pv magazine: When we talk about the growth of solar as a resource, I noted on your slides that there is a lot of construction in what they call non-traditional areas throughout the South, the Mid-Atlantic, the Midwest, Oregon, a lot in Texas. Out of all of these areas both in the United States and internationally, what to you are the most exciting markets?

Widmar: When you look at the U.S., Georges (Antoun, First Solar CCO)  showed a slide to today  where the procurement is going to come from over the next couple of years and identified close to 20 GW. The interesting thing about that is that only about 6 GW of that is in California. It is a diverse profile across many different states, even up through the Midwest.

So to isolate and pick one in the U.S. that is more attractive than other… I like the diversity of the overall portfolio across the U.S. right now. There is not one particular market that is going to dominate in the ways we’ve seen over the last several years, where California especially through 2011, 12, 13, 14 was the sole source, and then it expanded a little into the Southwest. It picked up a little in Texas, and then we started to see a little demand outside of that. But now we are looking at an element of diversity across the entire portfolio – which is great. And it is reflective of the overall viability and economics around solar, and a better understanding of the reliability, and how it can compete relative to other sources of generation.

When you look internationally, there are still a lot of great markets. If I had to pick a market I’d like to see stronger than it is now, I think Brazil has tremendous untapped potential. There is a lot of market need there and demand. There is a great solar resource, and we have a great product for a hot, humid climate, with a great energy yield. So Brazil would be one market that I would like to see further along in terms of its advancement.

Would I like see us do better in China? Sure I would. We’ve had limited access to the Chinese market. We have sold about 100 MW into China this year. We’d like to develop that relationship further and potentially expand. Given that it is the largest solar market in the world, and given that we don’t really have access to that market, China is another place where I would like us to find better success.

When I look at what our market priorities are going into 2018, one is to develop a more robust and creative approach in how to access the Chinese market, as well as trying to figure out how do we do something better in Brazil.

China is just more or less us capturing shipments, Brazil is enabling more demand in the market globally because it is still a very young market.

 

pv magazine: This is interesting about China. China is a market that I’ve heard that Western companies simply can’t get into without sacrificing their IP. How do you approach the Chinese market?

Widmar: There are two different issues. One is yes – clearly there is a risk around IP. That assumes that you manufacture locally. And clearly, when you look at the access to that market, one dependency could potentially be having local manufacturing. But we are trying to approach it more from a partnership standpoint.

Again, as a leading global company with a competitively advantaged technology, we are trying to leverage that aspect. And we have found a couple of partners in China that highly value that. We’re able to sell through to China through those relationships. Would having a local presence with manufacturing or some other local presence further enable our ability to access the Chinese market? I’m pretty sure that would be the case.

We are going to have to be pretty careful in that regard. We are not going to risk losing our IP. It is far too valuable. There are only two companies in the world that have studied CdTe deeply. One is  First Solar, and the other is GE. And we acquired GE’s IP a number of years ago.

We’ve created a pretty strong position and we don’t want to put that at risk. So local manufacturing in China could be a challenge for us, but if we can leverage what we have seen so far in terms of leveraging deep relationships and leveraging the core technology and the advantages that we have to sell through into China, that is our preferred route.