Five months ago, First Solar was celebrating making the millionth solar module at a plant it had built in Frankfurt, to double its production in Germany, the world’s largest market for solar power.
A First Solar worker at the Agua Caliente Solar Project in Arizona. The company is cutting its global work force by 30 percent.
The party did not last long. On Tuesday, the company, which is based in Arizona, announced that it would stop all of its German production as part of a broad restructuring plan that will cut its global work force by 30 percent, or 2,000 workers, and sharply reduce its global production capacity.
“We need to resize our business to a level of demand that is highly reliable and predictable,” Mark R. Widmar, the company’s chief financial officer, told investors on a conference call Tuesday. “We do not see a business case for continuing manufacturing operations in Germany.”
With lower government subsidies and weakening demand, the German market is now so unappealing that First Solar said it will return a $30 million government grant, write off at least $150 million in assets and spend as much as $55 million on severance payments to its workers there to pull out. The company said it would focus on other parts of the world and emphasize building large-scale solar projects.
The entire solar industry is struggling to cope with three new realities: lower government subsidies for solar power around the world, significant global overcapacity in panel manufacturing, and intense competition from Chinese makers of solar panels, which has driven prices down.
SunPower, another leading solar panel maker based in the United States, recently announced that it was reducing manufacturing in the Philippines. BrightSource Energy, which makes equipment for and develops large-scale solar power plants, canceled its initial public offering last week because of weak investor demand.
Shawn W. Kravetz, president of Esplanade Capital, said that the spate of news over the last week provided “a pretty compelling chapter in the story of the big unwind” of an overheated market.
For years, Europe provided fertile ground for solar makers, with generous subsidies that spurred a boom in development, especially in Germany and Italy, which accounted for more than half of the global market last year. Executives say the industry had become accustomed to increasing growth each year, driven by supports like feed-in tariffs and clean-energy mandates.
But now, with government and corporate budgets squeezed by the economic downturn and demand for solar power weakening, those subsidies are on their way out. Some analysts and industry executives are predicting that global installations of solar capacity, which they say grew by about 40 percent last year, will expand by no more than 10 percent, if at all, this year. German installations are expected to remain flat.
Complicating First Solar’s difficulties is the fact that it uses a different kind of technology than the Chinese makers. That technology, known as thin-film, makes its panels better-suited to large-scale solar farms with thousands of panels. The company is also operating without a permanent chief executive.
Wall Street welcomed First Solar’s news, sending its stock up 10. 3 percent, to $22.96. Shares of other solar companies also rose.
Arno Harris, chief of Recurrent Energy, a solar developer, said the sector might be at the beginning of a contraction that was inevitable as it matured. “In order to stay at the leading edge of the industry, there’s a degree of creative destruction that has to go on to make sure that your manufacturing costs are competitive and you’re focused on the right markets and the right place in the value chain,” he said.
In recent months, First Solar has delayed opening a new factory in Arizona and stopped work on another in Vietnam. It took steps in February to retain its manufacturing in Germany, cutting worker hours, but it was hurt by proposed changes to government incentive programs and increasing restrictions on the use of arable land and construction of the large, ground-mounted solar systems that are the core of its business.
“Their steps today were necessary medicine that they had to take,” said Mr. Kravetz, who praised the company’s project development side but had doubts about the profitability of its module sales to other entities. “These moves are not so much creating value, but they are about managing the destruction of value in the third-party module sales.”
Source: The New York Times
