Today's business lead headline in the Arizona Republic reported another delay in First Solar's Mesa solar panel manufacturing plant. In my last post (Sun Spots, Dec. 15) I commented on the company's previously announced push-back of the plant's in-service date from sometime in 2012 to 2013. You could see that one coming when newly-returned CEO Michael Ahearn announced possible reductions in expansion plans when he replaced ousted CEO Rob Gillette late last year.
Yesterday, we learned that First Solar has put the Mesa plant's operation debut on indefinite hold. In yesterday's call with analysts, CEO Ahearn and company CFO, Mark Widmar also announced that the company was scaling back production of its world-wide solar panel manufacturing capacity even further than cut-backs the company announced last December. The company now plans to reduce its company-wide production capacity to between 60 and 70 percent. Mr. Ahearn also explained the company's long-term strategy for turning-around profitability by focusing on selling complete solar systems rather than individual solar panels.
Over the past year, equity investors in First Solar have seen the company's stock price fall like Soviet-era space junk from the sky. At last check, in today's trading, the price is off by nearly 10 percent (the biggest loser on the S & P 500). Once trading at prices in excess of $150 per share, the stock is now trading at about $32.
First Solar, like many of its competitors, has fallen victim to falling global demand for solar panels (as European subsidies for solar power have declined) coupled with Chinese producers flooding the world market with low cost panels.
So, what does all this mean for both First Solar and Arizona's solar future?
Let's start with the State. You first have to wonder whether Arizona's economic development community, using taxpayer money and community resources as bait, ought to be engaged in attracting photovoltaic manufacturing to the State. Announcing new projects and jobs makes for great headlines. But, it's clear we have difficulty competing with Chinese manufacturers of this stuff. Just look at the federal government's failed investment in bankrupt Solyndra (read my post here). So, where might Arizona have a competitive edge? Well, for starters we have lots of sunshine and a huge market for renewable energy to the west. Exporting solar power in large volumes to California makes sense. This means investing in proven utility-scale solar plants and transmission capacity. Next, our universities are incubators for solar technology and innovation. So, greater public investment in solar research and development within the State makes sense. And, manufacturing ancillary facilities, like steel support structures for solar production, which might be too costly to transport over great distances to construction sites, could also prove fruitful.
I also think First Solar's long-term business strategy is a good one. Focus more on producing complete solar systems and less on the solar panel commodity. Not only will it distinguish the company from other low-cost panel manufacturers, but could provide exceptional value to an increasingly important segment of the solar market - community solar projects and utility-scale solar plants. The company's strategy of moving away from the reliance on subsidies to support its products is also essential for improving long-term financial health. Government subsidies of solar power are simply unsustainable over the long term. In Mr. Ahearn's words, "The key to First Solar's success is to develop new markets that do not depend on subsidies."