First Solar Update
A few years ago I was asked to give a presentation in front of a group of Phoenix business leaders on climate and alternative energy. I can't remember what particular group it was, but it was some public-private group that was heavily invested in advocating for local subsidies to promote strategic businesses - the sort of local MITI that most large cities have, that has this delusion that they can ramp up the city's growth by focusing public and private investment into a few selected industries (that they select, of course).
I told them that I thought their focus on solar manufacturing was dumb. First, the whole idea that because Arizona is a good solar market meant that it should have some advantage in solar manufacturing made absolutely no sense. This only makes sense for products with high transportation costs or a particular input cost that can be gotten more cheaply in one particular area (the location of aluminum manufacturing near cheap electricity in the Northwest comes to mind). By the same logic all car manufacturers would be located in LA.
Second, I said that the whole solar business was completely driven by subsidies. If the subsidies were to go away, the heart of the business would go away faster than pets.com. I specifically mentioned First Solar in a positive context here, saying that though they where wholly dependent on subsidies for their revenues, they at least acknowledged as a corporate strategy they needed to get costs low enough to compete without subsidies. (Someday, solar will get to that point, I hope, but I am skeptical that current approaches will yield the breakthrough, but that is another discussion).
If you want to understand the financial problems First Solar is having, let me show you four items.
First, from their 2010 annual report:
Geographic Risk. Our solar modules are presently predominantly sold to our customers for use in solar power systems concentrated in a single geographic region, Germany. This concentration of our sales in one geographic region exposes us to local economic risks and local public policy and regulatory risk in German.
This is way back in the notes on page 133. By the way, I took a whole course in business school on reading financial reports. Here is the key lesson for those not in the financial industry: read them from the back. Skip all the glossy crap at the front, go straight to the notes.
OK, here is the second bit of information. Here is a world map of solar insolation, which is essentially the total solar energy available to produce power in a location when adjusted for atmosphere, weather, latitude, etc.
See Germany? I won't insult your geographic knowledge by pointing at it, but much of Germany is in that yellow-green color which, for solar potential, means (in scientific terms) "it sucks." Let's zoom in, and compare it to the US to get a feel for it (combined from two charts here)
Apparently the better sites in Germany have the same solar potential as ... Seattle! The sliver of absolute best sites in Germany have approximately the same solar potential as Buffalo, NY.
So we have a company whose fortunes are dedicated almost entirely to selling solar panels into one of the most unpromising solar sites in the world. Why is Germany buying so much solar?
OK, here is the third bit of information. For years Germany had enormous feed-in tariffs (mandated above-market minimum prices) for solar electricity:
The German feed-in tariff scheme has been in operation since 1991 and is regarded as one of the most successful in the world. In Germany, feed-in tariff rates are differentiated according to the source of the renewable energy. Separate tariffs are determined for biogas, biomass, hydroelectric, geothermal, solar and wind energy sources. The tariff paid for solar generators varies between EUR 45.7c/kWh and EUR 57.4c/kWh, depending on the capacity of the system and other design features. The tariff is greater for generators that are attached to the roof of a building or structure and greater again for generators that are attached to another part of a building. In Germany, the feed-in tariff is paid for a period of 20 years
Note the language from several years ago where "most successful" is determined without references to costs.
0.574 Euros per kWh is equal to about $0.75 today and even more several years ago when exchange rates were higher. Remember this is a wholesale price, and should be compared to a $0.04 to $0.06 wholesale electricity price in the US (I use US numbers to as its not clear to me Europe has a particularly competitive wholesale market. The French have some sort of fixed price system set around $0.06).
However one wants to look at it, these are enormous subsidies. People putting up solar panels in Germany were getting paid 10-15x what a market price for the same electricity might have been.
Finally, here is the fourth piece of evidence leading to First Solar's woes. In 2010 and 2011 Germany, whose consumers began to balk at paying the highest electricity rates in the world in order to subsidize the method of electrical generation least suitable to Germany, began substantially cutting these tariffs. In 2012 they will cut them even further:
German Environment Minister Norbert Roettgen and Economy Minister Philipp Roesler are set to hold a press conference on Thursday to outline the government's new approach on subsidies. However, the indications are that the cuts will be heavier than the market has been expecting:
- a 30% cut in the feed-in-tariff (FIT) to 13.5 cents per kilowatt hour for new large solar installations
- and a 20% cut in the FIT to 19.5 cents for new small plants
The market has of course been expecting cuts in the German FIT system. However, this news is decidedly worse than expected and likely to continue to pressure solar stocks - particularly those such as Yingli (YGE) with a significant exposure to German solar demand.
From a peak of $0.75 per kWh, Germany will now pay $0.255 per kWh for smaller installations, still four times the market price for wholesale electricity but only a third of what they paid during First Solar's boom years. As I wrote yesterday, Germany was essentially paying $2 for milk from brown cows and $25 for milk from black cows. This can't be sustained.
If one assumes a wholesale electricity price of 6 cents, First Solar's German customers were getting a 92% subsidy. Sure, First Solar now faces other problems like Chinese competition and they have shot themselves in the foot on quality, but at the end of the day the only way they can survive is to convince some other government to turn on the taxpayer money spigot to keep them in business. I am hoping we in Arizona and the US will not be the suckers, but I fear that we will. One can argue the projects I discussed the other day, including the one where we taxpayers loaned First Solar the money to sell its solar panels to its own subsidiary, are evidence of this. My guess is that First Solar will be throwing a lot of money and time towards Obama, praying for his re-election.
Me:
You are entirely correct. The Germans did their studies and reached their conclusions re nuclear. The French did their studies and are continuing with nuclear. There are risks and rewards either way.
I see that the Germans are cutting back solar and wind subsidies, which is causing havoc. What will they replace the nuclear plants with? Coal? If they continue with wind/solar, how will they back it up? et. etc. Making ANY decision means that you must cope with ALL of the consequences of that decision.
The Poles are planning nuclear power plants within 100km of the German border and the Germans are upset.
This has been the problem with all energy schemes from day one. The ENTIRE situation must be addressed if you make a decision to do scheme "X".
If the Germans want to go balls out on wind/solar, part of the package must be backup and storage, financing, etc. They just can't shut down coal and nuclear and pray that the wind blows and the sun shines 24/7.
If you go nuclear a la the French, you can shut down coal plants for CO2 reasons (if you believe the CAGW thing). If you believe in CAGW fervently, nuclear risks may seem acceptable.
I don't buy the argument that one can shut down European nuclear without these questions being answered. It seems the Germans are painting themselves into a corner.
In your note to Mark2 you tout windmills. Backup? Cost? Storage? I have done many studies and have found no viable way use wind or solar on a large scale. I won't repeat all of those studies here. If you know viable ways to backup and store wind energy, please advise. There are endless schemes that are theoretically possible but none are economically and/or technically workable.
@Mark2: personally, I think crawling ashore from the oceans was a step in the wrong direction ;)
That said, burning stuff and windmills have 10k years of evidence based track record. Nuclear old style has 50 years of real bad history. New style plants have no track record whatsoever. They'll likely be great, but as risks go, right now they are poor ones.
@Ted: That's what I was alluding to - if you look at risk profiles of many recent French and other European nuclear power stations (old-style designs throughout, btw), you'll notice a tendency to located them either in far-off areas or in such a manner that the likely contamination through fallout falls squarely into a neighboring country. That's not entirely by chance.
Also note that the Germans chose to drop subsidies once sustainable energy reached 20% of the mix. Objective achieved - nobody is talking a pure solution, this is hybridization and energy risk management at work.
@me I was thinking of writing about crawling - thought I might be poking you too much.
@Ted, the German plan, which so far has shut down Nuke, stopped subsidies for solar, and is reducing coal, is probably to sponge power generated in other EU nations, and let them worry about the cost/benefit, risk/reward. Basically they are punting.
Mark2:
You are right. The Germans ARE punting. As I have pointed out many times in previous posts, without a viable backup/storage scheme, wind and solar are only doable on a small scale where existing power plants act as "free" backup. Once the point is reached where dedicated backup is required, the whole idea collapses. The Germans have reached this point.
You have probably seen the study of the Colorado power situation where the inefficiencies imposed by the rapid ups and downs of the backup eliminate any savings from wind. My own calculations showed this many years ago. Hence we spend lots of money and destabilize the power system for essentially nothing. GREAT idea!!!
As to the Germans achieving 20% of the mix, I am not sure that is installed capacity or actual production. German data shows a factor of about 17% for wind. To Produce 20% of the energy, they would need 117% of total German power production as their capacity. This sort of Mickey Mouse reporting is often used to show how bounteous wind power is. It is actually a small fraction of installed capacity.
@Mark2 - LOL, keep poking, I am enjoying this way too much :)
@Mark and Ted: I was wondering if I should point this out (Germany will happily purchase power generated far from its borders in an unsafe manner but complain bitterly once the generation gets close). The idea again is risk management - it can easily cover 60% of its current needs inhouse, in line with what would be needed in case of emergencies. Buying the rest from people who are more willing and able to accept risk is great business.
Some more actual data re installed capacity vs production: http://en.wikipedia.org/wiki/Wind_power_in_Germany
Being in favor of nuclear if it is in someone elses backyard, but against it if it is in your own says something about one's ethics. I want the girl, but if she gets PG, she's yours. Great idea.
No, I don't think that applies. You want a strong military and a nuclear deterrent, but you want it tested in the Nevada desert instead of downtown New York? Shame on you?
What does testing nukes have to do with where you locate nuclear power plants? Setting off a huge explosion is not the same as generating electricity. That analogy is what the anti-nuclear energy zealots use time and again. One can make coherent arguments against nuclear energy without resoting to hysteria.
LOL - you are misreading me badly if you think I am opposed to nuclear energy.
My point is simply that there's nothing wrong with deciding that something is too dangerous to attempt in environment A and choosing to purchase the net result from a party who has access to environment B, which lacks the negative characteristics of A.
All of western Europe as well as the eastern US is densely populated, hence they do not have the option of locating out in the middle of nowhere. The Germans originally decided to go nuclear, but have changed their minds since the Japanese tsunami. It remains to be seen whether this was simply a knee-jerk reaction or is a sound decision. What will they replace the power with? Only a small part can be wind/solar for reasons much discussed previously. Unless people want to sit in the dark, some risk must be accepted. Either they have lots of CO2 or go nuclear.
Looks like it's just you and little old me now... the decision to decomission the German nuclear reactors has been a long time in the making and had very little to do with Fukushima.
Population density in Europe is anything but homogenously high: http://earthobservatory.nasa.gov/Features/SeaLevel/Images/europe.gif
I work at First Solar and this is bad news. Any chance FS will tops again? Slow is better than never.