In
the two years it has been in India, the American solar panel
manufacturer, First Solar, has gathered as much mind-share as market
share. The company has been in the news for both positive and negative
reasons. On the positive side it is seen as an aggressive company that
has quickly bagged orders from developers and EPC contractors.
Today,
it has about a fifth of the market under its belt. The country’s first
grid connected utility scale plant — Moser Baer’s 5 MW plant in
Sivaganga, Tamil Nadu — has First Solar’s thin film panels. Recently,
the company secured an order for 25 MW of panels from Green Infra, a
sizeable order in the solar industry.
On
the negative side, First Solar is seen as a company that has succeeded
on the back of some aggressive lending by the US Exim Bank. Besides, the
company’s Cadmium Telluride-based technology is frowned upon by
environmentalists and its order book has been fattened by an ill-advised
skew in the procurement policy of India’s largest solar programme. The
National Solar Mission allows developers to import thin-film based
modules, but mandates local procurement if they opt for crystalline
silicon technology.
Sujoy
Ghosh took over in May as the country head of First Solar India, which
contributes 8 per cent to First Solar’s revenues ($2.8 b in 2011). Sujoy
earlier worked for GE and Tata Honeywell. In an interview to Business
Line, Sujoy speaks on the maths and myths of First Solar. Excerpts:
What is your order book position today?
Today,
there are 225 MW of operating assets with First Solar modules. There
are several more under construction by developers who won projects in
Batch-II (of the first phase of the National Solar Mission), but I would
not like to disclose the details because it is up to our customers to
disclose them.
We now have about 20 per cent share of the Indian solar market and we will maintain the market share.
You have incorporated your company here. What is the idea?
When
we entered India in 2010 —that’s the time National Solar Mission was
taking off — we had a fairly satisfactory run of the market, in terms of
selling modules to either third-party developers or EPC contractors —
first to some of the ‘migration projects’ and then to Batch-I of Phase-I
of the NSM and then Gujarat. Over the two years we have developed
confidence in the Indian market that solar is here to stay. Solar has a
space in the overall generation mix of the country.
What
prompted us to open an entity is we want to build local capabilities on
the ground and have a much broader relationship with the solar market
in India.
Could you amplify on that?
Sure.
When I say local capabilities — look at First Solar’s capabilities. We
have the expertise to develop projects, do EPC, get financed, both on
debt and equity, maintain those assets for the investors. The thing
which we like about the development business is it helps to develop a
pipeline. While the programme in India has been successful, it is lumpy
in terms of demand. All the PPAs get signed on one day, everybody wants
COD on the same day, decisions are delayed till the last moment, either
on expectations of a drop in prices or to work through the
documentation. This creates stress on the system in terms of people like
us or EPC contractors who have to stock inventories and keep people on
the bench, or let go of the opportunity.
For
us as a company, our manufacturing process is continuous, unlike
crystalline silicon. We are still the lowest cost manufacturer because
we run out production lines optimally to full capacity to hit those cost
points. If we run out lines only three months in a year we can’t.
Therefore,
it helps if we start developing our own pipeline of projects, it helps
us to bring predictability of demand which then enables us to leverage
our backend organisation — not just manufacturing, but system design and
EPC and plan for building capacity as it comes. That helps us become
more competitive.
That’s
what prompted us to look at India as a key market. One of the five
‘sustainable solar markets’ for us based on their natural economic need,
good irradiation or the country wanting to conserve their fossil
resources are India, Australia, Saudi Arabia, South Africa and Chile —
India and Chile because of the high penetration of diesel.
Our
technology enjoys a good footprint in India and we want to broad base
that relationship and get into a bit of development from our side, bring
in our systems engineering expertise. A lot of these plants — the first
wave of plants, either under NSM or Gujarat — have been built, in a lot
of cases, by EPCs who don’t have much experience in doing solar. Yes,
there have been a lot of European EPCs who have plenty of solar
experience in terms of building assets, but there have also been an
equal number of home-grown EPCs who have come in and built plants.
I
think asset quality in some cases might have been compromised. Fifty
per cent of the cost of energy is the funding cost. I think, as a
stakeholder in the industry, it is our duty to make lenders comfortable
with the asset. Only then will they lower their risks and only then will
we see good quality capital. Right now, many of these projects have
been built with recourse to the balance sheet. That is not really
project financing. For Indian banks, ‘will it work’ is the question that
they want to see because there is not much record of generation. Large
Indian lenders, for instance PFC and REC, who lend to other parts of the
power sector, have not really got into solar and unless that happens
you cannot sustain an industry in India.
Do you organise funding for your customers?
Our
customers have been able to organise finance, a combination of local
banks and foreign banks, we are not privy to the nature of the …
There
is an impression that you have been successful in India because of the
backing you have received in the form of low-cost financing by the US
Exim Bank.
Well, first of all, US Exim is not captive to First Solar — there are other US manufacturers in the market besides First Solar.
The
other thing is — while I am not sure about the exact percentage — a
majority of our 225 MW is not financed by US Exim. The number of
projects financed by US Exim is probably a third.
The
point is, we are selling because our technology, at least in hot
climatic conditions, produces more power than polycrystalline silicon.
We hear very divergent views on that.
See,
it is like this. Our nameplate efficiency figure is about 12.7 per
cent. The poly guys maybe at 15.5 to 16 per cent. The mono crystalline
may go up to 20 per cent. All these efficiencies are at ‘25 degrees C,
one atmosphere’ conditions. Now, each manufacturer publishes what is
called a temperature co-efficient. The degradation curve — as your
ambient temperature rises, your efficiency will fall. For the First
Solar modules, that degradation is 0.25 per cent per degree rise in
temperature. For the average polycrystalline, it is 0.45.
So,
as the ambient starts hitting 40 and above, our modules start producing
more. This is ambient 40. Typically, the cell temperature is 15-20 per
cent higher than the module temperature. FS modules typically produce
8-10 per cent higher energy under high ambient conditions.
The
second thing about thin films generally is that the impact of diffused
sunlight —cloudy conditions, or dusty conditions — that causes poly
output to drop further, compared with TF. India is a combination of high
ambient and diffused. So generally we find that we get a higher energy
yield in India. That’s been fundamentally the reason for our success.
That helps to lower the LCOE (levelised cost of energy).
Thin
Films, in general, and First Solar panels, require more space. But the
incremental cost of land is outweighed by the incremental yield.
In how many months in a year in India would the temperature be higher than 40 degrees?
Rajasthan and Gujarat practically nine months in a year.
First Solar modules are best suited only for these states then?
In
other places, even if the ambient temperature is lower, the cell
temperature is 15 per cent higher. If the ambient temperature is 35,
then the cell temperature is 50. I am saying, at more than 40 degrees
our panels start producing more electricity.
The
other impression going around is that thin film has a market in India
because of the skew in Government policies (that permits import of thin
film modules, but requires crystalline silicon modules to be made here.)
In
Gujarat there is no such policy lacuna. The National Solar Mission was
150 MW, and Gujarat was 600 MW. We got more share in Gujarat than in NSM
competing against Chinese companies.
I
think people have bought us primarily because of our yield performance.
Second, they see First Solar as a profitable company. In projects that
are financed on non-recourse basis, the lenders demand a great amount of
due diligence and look at the solvency of the supplier for
enforceability of guarantee and warranty obligations.
True,
US Exim has indeed helped people who have bought from us. But then exim
financing is available from other countries too. Exim is not a captive
product of the US. Exim is an enabler, but people first make a
technology choice. If they go for Chinese technology, they have access
to the same level of funding from the Chinese banks. It is unfair to say
that the only reason why we are successful or we got this kind of
installed base in India is because of EXIM.
Some
experts say that thin film modules made sense when the price
differential between thin film and crystalline silicon was large. But
now the delta is so small and hence thin film modules do not make sense.
That
argument is absolutely correct under temperate conditions and rooftops.
Because you end up paying higher price for ‘balance of system’ for
marginally higher price of the modules. But because of the yield and
because of the diffused sunlight and relatively low cost of land in the
overall economics of the project, there is still a significant amount of
advantage that the thin film brings.
The
other point that we must remember is that crystalline silicon pricing
seen in the market today — in our view and as is evident from the
balance sheets of the companies — they are selling below their
manufacturing cost. So, the question is whether this cost is
sustainable.
So, you have the balance of systems penalty for TF and the higher yield advantage. Net-net, thin film is still advantageous.
Within thin film, do you think your Cad-Tel technology will continue to rule the market?
Within
thin film, we have CIGS, Cad-Tel and amorphous silicon. I don’t know
whether you are aware or not, First Solar was also looking at CIGS, very
actively, trying to build an alternative technology. The cost of CIGS
in our view is at a point that it will take them a long time to catch up
with us.
It
is one thing to say ‘we have hit a certain efficiency level in the lab’
and quite another thing to say ‘we are bringing such efficiencies on a
sustainable basis in our production line’. That’s a considerable gap.
Second,
are the efficiency levels (claimed by CIGS manufacturers) bankable? How
much data do you have to back that efficiency? Any lender will say, you
have reached that efficiency in the lab, fine, but show me where it is
working.
Crystalline guys would then have the same argument against you? Do you have the same performance data as they do?
Why, we have performance data for 16 years.
In India?
In
India also we have data. In India, even the crystalline guys have date
only for two years, because the grid-connected plants are only two
years. Off-grid is not a real measure of efficiency.
What about amorphous silicon?
In
today’s world any new breakthrough technology requires a lot of money
to scale up commercially. The incumbent technology people will also
continue to improve their technology. Even we are working on our
technology to improve our efficiencies. It will be incremental.
On
the poly side, you put in more material you will get more efficiency.
If you scan the global solar scale, you might see a lot of interesting
concepts. But if a company like GE, which was pursuing its own solar
programme gave it up, I’m sure other smaller players will find it very
difficult.
Thin
film is really about the manufacturing process. How you lower your
rejection rate? How you are able to consistently produce the same
module-after-module, deposit the same material in the same way so that
you get the same results? It is about consistency in the process. It
takes considerable amount of time before you hit that. Till you hit that
there is a lot of rejection.
We have passed that point. Relatively we are pretty stabilised.
Is the market then a blue ocean for you?
I
am not saying that. It is not a blue ocean. India has got other
challenges. We are just discussing technology. I think from a technology
standpoint we have got certain advantages when it comes to utility
scale solar. That’s one dimension.
The
challenge is our competition pricing their products at probably below
cost. I think the bigger challenge, as these programmes get built in
India is about ‘will this policy sustain’? Will the grid keep pace? You
can build a solar plant, but you do face grid congestions.
Finally,
solar has to reach a point where wind is today, for it to be really
sustainable. Pricing of power, cost of power from that aspect, has to be
something where you need a FIT (feed-in tariff) to keep the wheels
turning. As an industry, all of us are trying to look into that point.
Because all of us do believe there is a shortage, and if we can bridge
some of the gap — it may not be huge in energy terms — people might be
willing to pay a higher price because right now the alternative is no
power.
Do you see a situation where for a want of funds for FiT, the industry is pushed to only bilateral PPAs?
The National Solar Mission is going to be there. The Government has made a commitment.
But where is the money for NSM?
Look
at it this way. The average price of Batch-II was Rs 8.50. The average
HT price is at Rs 6 — and in the southern states even if you pay the
price you get power for three days a week. So, there is a demand.
Question is, are people willing to pay more for the demand? Second is,
how much are they willing to bet on the future price of coal. Solar is a
good hedge against that, because fuel is free.
A
lot of us in the industry are trying to discover a demand outside of
FiT. But at the same time I think the NSM will be needed to give scale.
Indian industry needs to scale up. For that, both forms of programmes
(FiT and bilateral PPAs) need to co-exist.
Who is going to pay for the FiT?
Today,
the gap between the price of conventional power on the higher end and
the price of solar power coming from FiT is not that big. The
differential has come down. You should intuitively believe that coal
prices should go up. Who predicted coal prices will be $140 a tonne.
That’s where you hit the grid parity point.
The
question is, even if grid parity happens, will it uncork large demand?
Just by doing grid parity, it may not. You need other things such as
open access, how you are going to wheel and bank this power … really the
grid and the grid operator being comfortable with this kind of power
coming in. The solar assets which one creates also need to have features
that make them dispatch-able.
We
are building assets such as a 550 MW A/C in the US. These are large
chunks of power coming into the grid. There is a well defined grid code
which we have to install in the design of the solar plant which will
make this power-grid-friendly.
I
think as the plants in India, NSM Batch II come up, people will begin
to see some of those features being installed. Same like wind. From the
250 kV class machines today you have 2 MW class machines. A 2 MW machine
has got a lot more features in terms of voltage ride-through, voltage
control, and some of those features which allow the machine to not go
off-grid when there is a grid disturbance — it rides through the
disturbance.
A
solar plant is also similar in nature. In wind you have what’s called a
converter. In solar it’s an inverter. It’s virtually the same thing.
What these Government programmes will do is, to help people to scale,
demonstrate that the power can be integrated into the grid properly,
which will give confidence.
Bilateral
deals will happen, but again, we will not see bilateral deals such as
100 MW happen in year one. People will test the waters. Even if I have a
PPA — even if I am generating, who is assuring me that the grid is
available? That’s where in this whole ‘bilateral deals’ we will still
have to figure out how to take the grid companies along with us.
So you still continue to depend upon these Government-sponsored programmes?
We need both. I am saying that while the Government programmes are important to scale…
Look
at it this way. We’ll see probably the first few deals happening on
bilateral basis. If it works, I am sure there is enough demand for
people to move into these bilateral deals.
Today
it is not about the appetite to take power — there is the appetite.
There is appetite to put the assets up. The key is really the grid.
What are First Solar’s ambitions in India?
Our
goal is to see if we can create a pipeline which is predictable enough
for us to then figure out if the Indian market is mature enough for us
to put in manufacturing operations here.
How do you intend to create a pipeline?
By
developing our own projects. We are in discussions. As you would
recognise, when we do development … development and EPC construction
requires a lot of local expertise. We do believe that in India there is
enough local expertise available already.
So
what we are trying to do is to structure partnerships. Like: you got
local developers who want to build projects. First Solar is here. We’ve
got the technology, got the experience to do this. We know how to put a
quality asset together. We also have some leverage in terms of
financing. So we are trying to put our combined expertise together
instead of recreating competencies.
Does it mean that you will not own the assets?
We
ideally would not. We are not an IPP. We are a technology company. What
we want to do by development is really try to enable a pipeline.
Are
you going to adopt the ‘wind model’, where a manufacturer puts up a
wind farm and then sells slices of it to investors or IPPs?
We
are trying to make that a model. The challenge for us, unlike say
Suzlon building a farm, is the price of power. Also, the Suzlon model
was built around ‘accelerated depreciation’. Whereas what we are trying
to do is to enable more solar energy coming into the grid. Slight
differences, but in the end the model remains same.
We
want to create the assets and then ultimately transfer the ownership to
somebody who wants to own it long term and then have an O&M
agreement so that we deliver our performance for as long as the guy
wants to be comfortable with the asset. This is what we do in the US,
Canada and elsewhere.
At what stage is this thinking?
It
would be premature for us to disclose to plans, but we are looking at
States where there is good solar irradiation, and States which have good
demand. Bilateral PPAs make more sense in South India. Currently, that
is where the power constraint is more. The Southern grid is starved of
energy. The bilateral PPAs will immediately make sense here.
